How high is your financial IQ when it comes to important retirement topics? MetLife's Mature Market Institute has quizzed pre-retirees three times (2003, 2008, and earlier this year) on these topics.
The good news is that Americans have become more aware of the big issues that will shape the quality of their retirement—longevity, spending needs, Social Security, and healthcare. This sensitivity has clearly been boosted because of the difficult economic times of the past several years.
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The bad news is people, by and large, are still poorly informed about the facts surrounding these issues. "Respondents demonstrate a lack of knowledge about core areas of information such as life expectancy, inflation, retirement income/savings, long-term care insurance, and to some extent, Social Security," the Institute said in the 2011 MetLife Retirement Income IQ, which was based on a poll of more than 1,200 people ages 56 to 65. Participants were working, were the financial decision makers in their households, and expected to retire within the next five years.
Pre-retirees "face difficulty in 'connecting the dots' to get a coherent picture of both the 'what' and 'why' of their retirement prospects under different scenarios of their own future," MetLife added. "Perhaps what is needed, particularly for those on the verge of retirement, is not simply 'more education,' but rather the 'right education' about their retirement needs and flexible ways to respond to volatile economic realities."
MetLife asked people 15 questions about retirement matters and found, on average, that people correctly answered only five of the questions. Overall, the most popular answer was the correct answer on eight of the 15 questions.
See how well you do on the MetLife Retirement Income IQ quiz.
1. If an individual needed long-term care today, what would be the average annual cost for a private room in a nursing home?
2. What percent of pre-retirement income do experts think retirees need to use as a benchmark for determining the amount of annual income needed in retirement to maintain their living standard?
3. An individual who reaches age 65 has a life expectancy of age 85. What are the chances he or she will live beyond that age?
4. At what age would a person who is age 55 in 2011 be able to collect full Social Security benefits?
A) 59 and six months
C) 66 and four months
5. Expenses for extended long-term care (e.g., nursing home care, assisted living) are generally covered by:
A) Health insurance
C) Disability insurance
D) None of the above
6. To help ensure that an individual has enough money to make savings last his or her lifetime, experts are now recommending limiting the percent they withdraw from their savings each year to:
7. How much do people age 65 and older spend annually on out-of-pocket costs for health care?
8. Which of the following is always true regarding income annuities?
A) They have account balances that grow over time.
B) They are not cost-effective because the fees are higher than mutual funds.
C) There is a specific age to withdraw money.
D) It provides income that is guaranteed and can't be outlived.
9. What has the average annual rate of inflation been over the past 20 years?
10. Suppose an individual retired at age 65 with a savings of $100,000. How much money could be withdrawn each month assuming annual earnings of 6% and that no savings, that is principal plus interest, remained after 30 years?
A) Approximately $600 per month
B) Approximately $800 per month
C) Approximately $1,000 per month
D) Approximately $1,200 per month
11. What was the average monthly Social Security benefit paid in 2010 to a retired worker?
12. What is the greatest financial risk facing retirees?
D) Interest rate
13. How much more will a person's monthly benefit be if they delay their Social Security benefits from age 66 to age 69?
14, What percent of middle-income Americans in their mid-50s to early 60s are at risk of not having adequate income to cover basic expenses (i.e., food, apparel, transportation, entertainment, reading/education, housing, and basic health expenses) throughout retirement?
15. Which of the following statements is not true about reverse mortgages?
A) A reverse mortgage can be used to establish an emergency reserve fund that can be accessed as needed.
B) A reverse mortgage can be used to access one's home equity for retirement income.
C) A reverse mortgage can be used to access one's home equity prior to age 62.
D) A reverse mortgage can be used to purchase a primary home.
The answer key shows the percentages of people choosing each answer. The correct answer is in boldface type.
1. A) $44,000 (16%) B) $63,000 (30%) C) $72,000 (27%) D) $84,000 (28%)
2. A) 20-30% (11%) B) 40-50% (37%) C) 80-90% (45%) D) 90-100% (6%)
3. A) 10% (22%) B) 25% (41%) C) 50% (32%) D) 85% (5%)
4. A) 59 and six months (3%) B) 65 (18%) C) 66 and four months (25%) D) 67 (54%)
5. A) Health insurance (8%) B) Medicare (28%) C) Disability insurance (6%) of the D) None of the above (57%)
6. A) 1-3% (20%) B) 4-6% (40%) C) 7-10% (29%) D) 11-15% (11%)
7. A) $1,190 (5%) B) $2,200 (23%) C) $4,900 (40%) D) $6,900 (33%)
8. A) They have account balances that grow over time. (22%)
B) They are not cost-effective because the fees are higher than mutual funds. (14%)
C) There is a specific age to withdraw money. (27%)
D) It provides income that is guaranteed and can't be outlived. (36%)
9. A) 3% (23%) B) 5% (37%) C) 10% (21%) D) 15% (19%)
10. A) Approximately $600 per month. (56%)
B) Approximately $800 per month. (25%)
C) Approximately $1,000 per month. (14%)
D) Approximately $1,200 per month. (6%)
11. A) $909 (24%) B) $1,175 (46%) C) $1,364 (24%) D) $1,573 (6%)
12. A) Inflation (28%) B) Longevity (62%) C) Investment (7%) D) Interest rate (2%)
13. A) 0% (4%) B) 3% (27%) C) 15% (52%) D) 24% (17%)
14. A) 80% (26%) B) 65% (44%) C) 45% (26%) D) 20% (4%)
15. A) A reverse mortgage can be used to establish an emergency reserve fund that can be accessed as needed. (7%)
B) A reverse mortgage can be used to access one's home equity for retirement income. (16%)
C) A reverse mortgage can be used to access one's home equity prior to age 62. (24%)
D) A reverse mortgage can be used to purchase a primary home. (54%)