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How is your retirement literacy?

Retirement literacy is different from financial decision making

At what age in our lives are we most inclined to make the best financial decisions?  An article by Clare Ansberry in The Wall Street Journal suggests that it is in our early- to mid-50s based on a study by the ARC Centre of Excellence in Population Ageing Research.  The survey by this institution, based in Australia, claims that it takes about half a century to attain optimal financial literacy and apply it to managing personal finances.

How is financial literacy different from retirement literacy?

You would think that financial literacy and retirement literacy would be on a par from an age perspective. But according to a report on Yahoo!Finance, most Americans between the ages of 50 and 75 do not have an “understanding of the basic concepts of investing, taxes, insurance and finances” to be ready for retirement.  This appears to be a retirement dichotomy, but is it really?


A command of financial literacy is not the same as retirement literacy.  The ARC survey focuses on the age when adults minimized their financial mistakes through a process of gaining “experience capital” associated with the fundamentals of debt and the related perils of overextending (late fees, mortgage and credit rates, etc.).  The Yahoo!Finance article focuses on an understanding of investment strategy, health care costs and how to properly leverage Social Security during retirement.  The article states that the median age for getting a handle on the issues of retirement literacy is in a person's 70s.

What does the literacy acumen of the two have in common?


To begin with, the younger age set develops the financial acumen that contributes to “experience capital” as it (hopefully) relates to maximizing savings returns and minimizing debt.  The older age set is beyond (and hopefully benefiting from) that “experience capital” to put the savings to work but may also be in decline in terms of grasping fresh financial concepts associated with retirement.  In both cases, partnering with a (well chosen) financial advisor can be a difference maker.


What are the shortcomings of financial and retirement literacy


In our 50s, we may be thinking about retirement, but are unlikely to be cognizant of the amount we will need when we reach the relaunch point.  Similarly, one is unlikely to be aware of how the number will facilitate a comfortable retirement based on life expectancy.


Even the most knowledgeable retirees will struggle with how to budget, and that also stems from planning appropriately for life expectancy.  In the USA, life expectancy currently hovers around 80 years of age.

Consider the prospect of long-term care in your retirement plan

According to Cindy Hounsell, president of the Women's Institute for a Secure Retirement, as told to Yahoo!Finance. "Most people are not considering how to cover the costs of their last years or know enough about the financial decisions needed when planning for a longer life." In the same article, Richard Johnson of the Urban Institute agrees and calls it “the greatest financial risk that most older people face”.  It is especially risky for women, who tend to outlive their husbands.


Several policy think tanks are adamant that the cost of long-term care is a phenomenal risk over one’s lifespan, especially at the rate health care costs are increasing.  A survey by the Employee Benefit Research Institute (EBRI) pegs the overall cost of medical care in retirement for a 65-year old couple at over $400,000!  In the reporting undertaken by Yahoo!Finance, only 1 in 5 retirees have a clearly thought-out strategy for funding long-term care.


It is never too late to get good financial planning advice, especially when one is past the financial literacy peak of around aged 54!

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