Recent findings from the 2011 MetLife Retirement Income IQ, a 15-question quiz on retirement issues conducted by the MetLife Mature Market Institute, shows Americans have quite a way to go to learn what they need for a financially secure retirement. Of the 1,213 pre-retirees aged 56 to 65 who took the quiz, the majority answered only five of the 15 questions correctly, leaving a persistent misperception and misunderstanding in a number of core areas, such as life expectancy, inflation, retirement income/savings, long-term care insurance and, to some extent, Social Security. 

“Everyone knows they’re likely to live longer, but most don’t realize that can mean living past age 85 and they fail to calculate how much money they will need for a steady and lasting income,” says Sandra Timmermann, director of the MetLife Mature Market Institute. 

In the 2008 version of the study, most respondents correctly answered six of the 15 questions.  The 2011 study also asked a number of questions related to additional aspects of Americans’ post-retirement income needs.

On the positive side, respondents are recognizing that they will live longer and that they will be dependent on Social Security and other steady lifetime income for their prolonged retirement. Forty-five percent of those surveyed said they are likely to work longer than previously planned. However, only 17% knew that delaying the collection of Social Security by three years would add 24% to the amount they receive. Only 45% knew that experts believe retirees will need 80% to 90% of their pre-retirement income to maintain their current standard of living. Nearly three in 10 (29%) respondents incorrectly believe that retirees should limit the percentage they withdraw from their savings each year to seven to 10%, and 11% believe they should plan to withdraw between 11% and 15%.  In reality, experts recommend limiting the percent retirees withdraw from their savings each year to 4% to 6%.

The respondents’ average estimate of what a couple would need in pre-retirement income to cover their essential living expenses — such as housing, food, health care, transportation, insurance and taxes — was 61%, very close to informal estimates that about 60% is needed to take care of the absolute basics. Yet, the biggest concern expressed was having enough retirement income to cover them.

“The ‘replacement ratio’ of the percent of pre-retirement income necessary to manage essentials, including basic expenses, in retirement is often underestimated and too many people overestimate how much of their savings they can safely withdraw each year," says Timmermann. "Employers and others advising Americans should be helping pre-retirees to ‘connect the dots’ so, given the uncertain economic climate, they can have a clear picture of their prospects and the financial income strategies needed.”

Additional findings from the study include: 

  • Sixty-two percent of those surveyed in 2011 realize that the greatest financial risk facing retirees is longevity, compared with 56% in 2008 and 23% in 2003.
  • When asked about concerns during retirement, the number one answer, by far, was having enough income to cover essential expenses (32%), followed by the ability to afford health care (18%).
  • The majority (87%) of respondents have taken steps toward ensuring adequate income for retirement, such as increasing their contributions to retirement plans or extending their working years.

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