The Curriculum – What Pre-Retirees/ Retirees Need to Know

There is ample evidence that financial literacy is an important element of retirement planning, yet studies continue to highlight that a relatively small portion of the population has the financial knowledge needed for the task. Despite widely available retirement planning resources, there is consensus that pre-retirees and retirees often fail to adequately prepare for retirement. While this is no doubt due to the complexity of the task, it may also be due in part to the lack of a clear message from financial educators. Commonly accessed retirement planning resources present inconsistent recommendations and assumptions which often miss key topics — topics critical to the development of a comprehensive retirement plan. While there is a great deal of literature on the need for financial literacy and the importance of retirement planning, there is very little written about “what” specifically people really need to know to successfully plan for retirement.

Planning retirement is overwhelming

    • Of the 1 in 3 adults in their 50’s who have attempted to create a retirement plan, only 2 in 3 indicate having succeeded. (Lusardi & Mitchell, 2011)
    • A survey of pre-retirees and retirees age 59-71 indicated that this “Silent Generation” has carefully saved for retirement, but have done an incomplete job of planning out their retirement income to insure that it will last as long as they do.
    • 1 in 3 have never tried to calculate the monthly income they will need in retirement.
    • 4 in 10 have not estimated how much return their investments will produce over the next 10 years.
    • Nearly half have not estimated for inflation. (MetLife, 2005)
    • Although they’ve carefully saved for retirement, where education comes up short is helping workers understand what it means to plan and prepare for their retirement lifetime (Willett, 2008)

What are pre-retirees being told – The Assumptions

    • Savings at retirement: Advisors recommend a range of 10-20 times one’s “current annual salary” in savings at retirement.
    • Years in retirement: Estimates vary between the low 20’s to 30-or-more years in retirement.
    • Inflation: General pre-retirement advice estimates inflation at anywhere from 2.5-4%. Note, this varies both within and between education resources.
    • Rate of return: Estimates for the average rate of return that can be expected from investments for retirement range from 3.6% to more than 9%. Note, the Canadian Securities Commission uses estimates of more than 4% rate of return as an indicator of financial illiteracy.
    • Annual drawdown: The majority of advisors estimate necessary annual drawdown at between 60-80% of pre- retirement income.
    • Expenses: Specific advice relating to expenses is sporadic.
    • Medical: Advice, estimated as a lump sum, ranges from $175,000 to more than $250,000.
    • Age to begin withdrawing social security: All advice professionals surveyed recommend delaying withdrawal as long as possible.
    • Sources for comparison: AARP, T. Rowe Price, Vanguard, Fidelity, Schwab, The Motley Fool, Prudential, U.S. GAO’s Report to Senate Special Committee on Aging, RAND, Society of Actuaries, Center for Retirement Research, U.S. Department of Labor,, CNN Money, Retirement for Dummies.

What is generally missing from curricula

  • Debt — the impact of debt on saving for retirement and living in retirement
  • Longevity — how individuals incorporate an appropriate estimate of longevity and understand the risk of living longer
  • Long term care — Should individuals self-insure? If so, when? • Risk — understanding how “risk” should be reflected in a retirement portfolio