Is Your Retirement Knowledge Holding You Back? Why Retirement Fluency is Key
Retirement can be a challenging phase to navigate, especially when we’re unsure about how much to save, how long we’ll need our savings to last, or what we can truly expect from Social Security and Medicare. The recently released 2024 TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) shines a spotlight on these uncertainties by introducing a concept called retirement fluency—the knowledge needed to make confident decisions about life after work.
But here’s the problem: Most Americans are not retirement fluent. This isn’t just about how much money you put aside each month; it’s about understanding key areas like Social Security, healthcare costs, and how long your savings need to last. Let’s break it down and make sense of it all.
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What is Retirement Fluency?
Retirement fluency refers to understanding the crucial financial aspects of retirement, including:
Social Security Benefits: What they are, when you’re eligible, and how long they last.
Medicare Coverage: How much of your healthcare expenses Medicare will cover.
Retirement Savings: Different options available to maximize your savings.
Lifetime Income: Strategies to ensure your savings last for your lifetime.
Life Expectancy: Estimating how long your retirement savings need to stretch.
Unfortunately, the 2024 P-Fin Index shows that Americans, on average, only answer 40% of retirement-related questions correctly. That’s not even half.
The Real Impact of Low Retirement Fluency
You may be wondering, “So what if I don’t know all the details?” It’s easy to feel that retirement is far off or that figuring it all out later is fine, but the reality is that what you don’t know can have a serious impact on your financial future. Here’s why it matters:
Confidence in Retirement
Retirement confidence is strongly tied to knowledge. Only 60% of people with low retirement fluency felt confident they’d have enough money to last through retirement. This lack of confidence comes from not fully understanding the key financial factors involved in retirement planning. On the other hand, for those who correctly answered most of the retirement-related questions, confidence jumped to 75%.
Think of it this way: the more you know, the more in control you feel. If you understand how to manage your Social Security benefits, what your healthcare might cost, and how to stretch your savings, you naturally feel more secure. Knowledge empowers you to make informed decisions, giving you peace of mind that you’ll be financially stable in retirement.
Critical Mistakes
Misunderstandings about retirement can lead to costly mistakes. For instance, many people didn’t realize that Social Security benefits last for a lifetime. This misunderstanding can cause someone to under-plan, thinking that their Social Security will run out, when in fact, it’s a guaranteed income stream for life.
Another critical mistake is not knowing that buying an annuity can provide guaranteed lifetime income. Many respondents thought other methods, like purchasing life insurance, could replace the need for lifetime income solutions. This confusion can lead to poor planning and insufficient funds during retirement, as annuities are designed specifically to ensure you don’t outlive your savings.
These misunderstandings aren’t just small errors—they can result in people saving less, making wrong investment choices, or missing out on opportunities to secure their financial future. And once you're retired, there’s less flexibility to make up for these errors.
Healthcare Costs
Healthcare is a huge expense in retirement, but many people don’t fully understand what’s covered by Medicare. Only 30% of respondents knew that Medicare covers about two-thirds of retiree healthcare costs. That means many retirees could be caught off guard by out-of-pocket expenses for things like dental care, vision, or long-term care, which Medicare doesn’t fully cover.
Underestimating healthcare costs can quickly drain your retirement savings, especially since medical expenses tend to rise as we age. Without proper planning, retirees may find themselves struggling to cover essential healthcare needs, leading to financial stress during a time when they should be enjoying their retirement.
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Closing the Retirement Fluency Gap
The key to securing a comfortable retirement isn’t just about how much you save—it's about understanding how to make your money work for you. Boosting your retirement fluency can significantly improve your financial outcomes, and the good news is that it’s never too late to start. Here’s how you can close the gap and build your retirement fluency:
Educate Yourself
One of the first steps in boosting your retirement fluency is taking the time to educate yourself on key topics. Social Security, for example, plays a major role in most people’s retirement income, yet many don’t fully understand how it works. Learn about when you're eligible to start collecting benefits, how your income will affect your payout, and the best strategies for maximizing your Social Security.
Next, learn your Medicare and healthcare coverage. Many retirees are shocked by how much healthcare costs in retirement. While Medicare covers a lot, it doesn’t cover everything—like long-term care or certain types of specialized treatment. Understanding what is and isn’t covered will help you plan for any gaps and avoid surprise expenses.
Beyond Social Security and healthcare, explore retirement savings options such as 401(k)s, IRAs, Health Savings Accounts, and other investment vehicles. It’s not just about how much you can put away—it’s about knowing the tax advantages, matching employer contributions, and withdrawal strategies that will maximize your savings. Financial literacy gives you the power to make informed, strategic decisions that could significantly improve your retirement outlook.
Get Comfortable with Life Expectancy
One of the most common mistakes in retirement planning is underestimating how long you will live. Life expectancy plays a crucial role in determining how much you’ll need for a comfortable retirement. The average woman can expect to live until about 87, and the average man until about 84. But remember, these are just averages. Many people live well into their 90s, and some even reach 100.
Planning for a longer retirement means adjusting your savings and withdrawal strategies. You might need to plan for 20, 30, or even more years of retirement income. Make sure your savings strategy accounts for inflation, rising healthcare costs, and the possibility of needing long-term care. Getting comfortable with these facts will help you save appropriately and avoid the risk of running out of money.
Ask for Help
Retirement planning can be overwhelming, especially if you’re not familiar with all the moving parts. This is why seeking help from a certified financial planner (CFP®) can be one of the smartest decisions you make. A financial planner can guide you through complex decisions like when to claim Social Security, how to diversify your retirement portfolio, and how to create a sustainable withdrawal plan.
They can also help you make sense of Medicare, annuities, and tax strategies that can maximize your savings. Whether you’re just starting out or are close to retirement, a little expert guidance can go a long way. Think of it as an investment in your financial peace of mind. A CFP® can help you develop a tailored plan that fits your specific needs and goals, ensuring you’re on track for the retirement you envision.
Track your retirement progress with this free, easy-to-use calculator
Key Takeaway
Retirement fluency is crucial for making informed decisions about Social Security, healthcare, and savings.
It’s not just about saving more, but about managing your money smartly to last throughout retirement.
Better understanding leads to more confidence in your financial future and fewer costly mistakes.
Avoid underestimating healthcare costs and life expectancy—two areas that can drain your savings.
Start improving your retirement fluency today to ensure a comfortable and secure retirement.
The Bottom Line
Retirement is one of the biggest financial goals we’ll all face, but getting there confidently requires more than just savings. Retirement fluency—knowing how to manage Social Security, healthcare costs, and your savings—is crucial. The more fluent you are, the better decisions you’ll make and the more secure you’ll feel about your future.
Take charge of your retirement by expanding your knowledge today. After all, your future self will thank you.
Reference
TIAA Institute & Global Financial Literacy Excellence Center (GFLEC). (2024). The 2024 TIAA Institute-GFLEC Personal Finance Index: Insights on Retirement Fluency and Financial Literacy. Retrieved from the TIAA Institute website: https://www.tiaainstitute.org/publication/2024-p-fin-index
TIAA Institute. (2024). Retirement Fluency Report News Release. Retrieved from the TIAA Institute website: https://www.tiaainstitute.org/publication/retirement-fluency-report-news-release
Social Security Administration. (2024). Fact Sheet: 2024 Social Security Changes. Retrieved from the Social Security Administration website: https://www.ssa.gov/news/press/factsheets/colafacts2024.html
Medicare.gov. (2024). Medicare Coverage and Your Health Care Costs. Retrieved from the Medicare website: https://www.medicare.gov/your-medicare-costs/medicare-costs
U.S. Department of Health and Human Services. (2024). Aging Statistics and Life Expectancy in the U.S.. Retrieved from the HHS website: https://www.hhs.gov/aging/statistics