Retirement: The Ultimate Final Exam


I have this recurring nightmare. I’m back in college, it’s very late at night and I’m scheduled to take a big final exam early the next morning. Passing this exam is all that stands between me and graduation. The pressure is on.

There’s just one problem, though. I have spent the past four years doing I-don’t-remember-what and I haven’t cracked open a textbook once. I don’t even know for sure if I so much as attended a single class. I am up the proverbial polluted stream without a paddle.

I no longer have to worry about taking final exams in school. But someday I will face the ultimate final exam – retirement – and failing to prepare for it could lead to a financial nightmare.

If retirement were an exam, a great majority of us would flunk. That’s according to The American College, which conducted a retirement income literacy test of more than 1,000 people ages 60 to 75. Eighty percent of those who took the test received a failing grade.

“We’re not surprised by the fact that people don’t know a lot about retirement income planning,” said David Littell, program director at The American College. “I was surprised at how badly they did.”

The test results found that:

  • Only 1 in 4 who took the test has a written financial plan.
  • A significant minority never tried to figure out how much money they need to accumulate in order to retire securely.
  • If you have a $100,000 retirement account and you need to make it last for 30 years, how much can you afford to withdraw from it each year? Only 31 percent knew that the correct answer is $4,000.
  • More than half underestimated the life expectancy of a 65-year-old man, which suggests they may not realize how long their assets must last.
  • Only 54 percent realize that Social Security benefits increase each year one delays up to age 70, and a similar percentage know that it is best to wait until age 70 to claim Social Security if you expect to live to 90.

But there are some bright spots among the test results. Those who took the test showed they have some basic knowledge about inflation and investment growth. In addition, the survey respondents showed that they knew more about Social Security than they did about almost any other retirement planning issue. This is significant because Social Security provides such a large portion of Americans’ income in retirement.

The complete exam may be found here. It might be a good idea to present this exam to your clients and see how well they do. It is likely that they will need some remedial instruction so that they eventually can ace their retirement.



Susan Rupe is assistant editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Connect with Susan →

  • Luke

    The link is broken for the exam. Can you update?

    • INNwebsite

      I noticed that as well. We will get that corrected as soon as we can.

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