Latest news with #MichaelFinke
Yahoo
2 days ago
- Business
- Yahoo
Can you pass this quiz on Social Security, savings and debt? Most Americans could not.
If you think you are financially literate, then try to answer this question: How much of your healthcare expenses do Medicare and other government programs cover in retirement? Over 90%? About two-thirds? Or about half? If you chose 'about two-thirds,' you're correct, and you're in the minority. Only about one in four Americans answered that question right on a financial literacy quiz, completed online in January by 3,371 consumers. Overall, Americans got correct answers on just under half of the quiz questions. The findings come from the 2025 Personal Finance Index, published in late May by the TIAA Institute and the Global Financial Literacy Excellence Center. Each of the 28 questions covers a basic concept of financial literacy: Saving and investing, borrowing and managing debt, spending money and comprehending financial risk. In a financially literate society, the quizmasters say, most of us would know most of the answers. Yet, only 16% of quiz-takers got 22 or more of the 28 questions right. The average test-taker knew about half of the answers. 'In a capitalist economy, when human beings are responsible for managing their own finances, including their own lifestyle in retirement, a certain amount of financial knowledge is assumed,' said Michael Finke, professor of wealth management at the American College of Financial Services. 'And people who don't have financial knowledge are vulnerable.' The Personal Finance Index and attendant quiz have been offered annually since 2017. The results suggest that Americans aren't making much progress in financial literacy. In the best year, 2020, quiz-takers answered 52% of the questions correctly. The results matter 'because the lack of financial awareness is what holds people back from either building wealth or getting out of a cycle of debt,' said Caleb Silver, editor in chief of Investopedia, the financial journalism site. Financial literacy runs low, according to Silver and others, because most Americans don't learn much in school about saving, investing or managing debt. The next generation may do better. More than two-thirds of states now require personal finance classes for high school graduation, compared with fewer than half of states in 2022, according to the Council for Economic Education. The Personal Finance Index quiz measures literacy in eight subjects. The share of correct answers in 2025 ranged from a high of 59%, on the subject of borrowing, to a low of 36%, in the area of comprehending risk. Test-takers showed greater knowledge on the basics of saving, and less literacy on insurance and investing. If you don't understand the basics of managing debt, then you might not know that a credit card balance with a 20% interest rate costs the borrower more over time than a balance with a 10% rate. If you aren't financially literate on investing, then you might not appreciate the power of compound interest in building retirement savings over multiple decades. 'How much of your paycheck to save for retirement: This is an incredibly important decision that can have a huge impact on the standard of living that you have in retirement,' Finke said. Nothing flummoxed the quiz-takers more than risk, a set of questions that covered uncertain financial outcomes. Here is a sample question about risk: There's a 50/50 chance that Malik's car will need engine repairs within the next six months, which would cost $600. At the same time, there is a 10% chance that he will need to replace the air conditioning unit in his house, which would cost $4,000. Which poses the greater financial risk for Malik? The air conditioning replacement? The car repair? Or is there no way to tell? To get the correct answer, you multiply the cost of each scenario by its probability. As it turns out, the A/C replacement poses the greater risk. One-third of quiz-takers figured that out. 'It's a very simple scenario, but there's a lot going on there,' said Surya Kolluri, head of the nonprofit TIAA Institute. Here are some other questions from the Personal Finance Index quiz. Test your financial literacy! Latisha plans to start saving for retirement by setting aside $2,000 this year. Her employer offers a 401(k) plan and fully matches a worker's contributions up to $5,000 each year. Under which scenario does Latisha have the largest amount in retirement savings at year-end? A) She contributes $2,000 to the 401(k) plan and invests the money in a mutual fund that earns a 5% return during the year. B) She contributes $2,000 to an IRA, or Individual Retirement Account, and invests the money in a mutual fund that earns a 5% return. C) It doesn't matter: She will have the same amount of year-end savings either way. Answer: A. Anna saves $500 each year for 10 years and then stops saving additional money. At the same time, Charlie saves nothing for 10 years but then receives a $5,000 gift, which he decides to save. If both Anna and Charlie earn a 5% return each year, who will have more savings after 20 years? A) Anna B) Charlie C) Anna and Charlie will have the same amount Answer: A. Which statement about Social Security is false? A) The amount someone receives in Social Security benefits depends upon his/her earnings during the last two years of full-time employment. B) A worker receives Social Security benefit payments if he/she becomes disabled before retiring. C) Social Security benefit payments will continue as long as an individual is alive, no matter how long he/she lives. Answer: A. This article originally appeared on USA TODAY: Can you pass this financial literacy quiz? Most Americans could not. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
USA Today
2 days ago
- Business
- USA Today
Can you pass this quiz on Social Security, savings and debt? Most Americans could not.
Can you pass this quiz on Social Security, savings and debt? Most Americans could not. Show Caption Hide Caption How are tariffs and your 401(k) retirement savings intertwined? Experts say a rise in tariffs can lead to several factors that impact your retirement savings. If you think you are financially literate, then try to answer this question: How much of your healthcare expenses do Medicare and other government programs cover in retirement? Over 90%? About two-thirds? Or about half? If you chose 'about two-thirds,' you're correct, and you're in the minority. Only about one in four Americans answered that question right on a financial literacy quiz, completed online in January by 3,371 consumers. Overall, Americans got correct answers on just under half of the quiz questions. The findings come from the 2025 Personal Finance Index, published in late May by the TIAA Institute and the Global Financial Literacy Excellence Center. Each of the 28 questions covers a basic concept of financial literacy: Saving and investing, borrowing and managing debt, spending money and comprehending financial risk. Most Americans don't pass this financial literacy quiz In a financially literate society, the quizmasters say, most of us would know most of the answers. Yet, only 16% of quiz-takers got 22 or more of the 28 questions right. The average test-taker knew about half of the answers. 'In a capitalist economy, when human beings are responsible for managing their own finances, including their own lifestyle in retirement, a certain amount of financial knowledge is assumed,' said Michael Finke, professor of wealth management at the American College of Financial Services. 'And people who don't have financial knowledge are vulnerable.' The Personal Finance Index and attendant quiz have been offered annually since 2017. The results suggest that Americans aren't making much progress in financial literacy. In the best year, 2020, quiz-takers answered 52% of the questions correctly. The results matter 'because the lack of financial awareness is what holds people back from either building wealth or getting out of a cycle of debt,' said Caleb Silver, editor in chief of Investopedia, the financial journalism site. Financial literacy runs low, according to Silver and others, because most Americans don't learn much in school about saving, investing or managing debt. The next generation may do better. More than two-thirds of states now require personal finance classes for high school graduation, compared with fewer than half of states in 2022, according to the Council for Economic Education. Financial literacy: We know a lot about debt . . . The Personal Finance Index quiz measures literacy in eight subjects. The share of correct answers in 2025 ranged from a high of 59%, on the subject of borrowing, to a low of 36%, in the area of comprehending risk. Test-takers showed greater knowledge on the basics of saving, and less literacy on insurance and investing. If you don't understand the basics of managing debt, then you might not know that a credit card balance with a 20% interest rate costs the borrower more over time than a balance with a 10% rate. If you aren't financially literate on investing, then you might not appreciate the power of compound interest in building retirement savings over multiple decades. 'How much of your paycheck to save for retirement: This is an incredibly important decision that can have a huge impact on the standard of living that you have in retirement,' Finke said. . . . And not a lot about risk Nothing flummoxed the quiz-takers more than risk, a set of questions that covered uncertain financial outcomes. Here is a sample question about risk: There's a 50/50 chance that Malik's car will need engine repairs within the next six months, which would cost $600. At the same time, there is a 10% chance that he will need to replace the air conditioning unit in his house, which would cost $4,000. Which poses the greater financial risk for Malik? The air conditioning replacement? The car repair? Or is there no way to tell? To get the correct answer, you multiply the cost of each scenario by its probability. As it turns out, the A/C replacement poses the greater risk. One-third of quiz-takers figured that out. 'It's a very simple scenario, but there's a lot going on there,' said Surya Kolluri, head of the nonprofit TIAA Institute. Test your knowledge on these financial literacy questions Here are some other questions from the Personal Finance Index quiz. Test your financial literacy! Latisha plans to start saving for retirement by setting aside $2,000 this year. Her employer offers a 401(k) plan and fully matches a worker's contributions up to $5,000 each year. Under which scenario does Latisha have the largest amount in retirement savings at year-end? A) She contributes $2,000 to the 401(k) plan and invests the money in a mutual fund that earns a 5% return during the year. B) She contributes $2,000 to an IRA, or Individual Retirement Account, and invests the money in a mutual fund that earns a 5% return. C) It doesn't matter: She will have the same amount of year-end savings either way. Answer: A. Anna saves $500 each year for 10 years and then stops saving additional money. At the same time, Charlie saves nothing for 10 years but then receives a $5,000 gift, which he decides to save. If both Anna and Charlie earn a 5% return each year, who will have more savings after 20 years? A) Anna B) Charlie C) Anna and Charlie will have the same amount Answer: A. Which statement about Social Security is false? A) The amount someone receives in Social Security benefits depends upon his/her earnings during the last two years of full-time employment. B) A worker receives Social Security benefit payments if he/she becomes disabled before retiring. C) Social Security benefit payments will continue as long as an individual is alive, no matter how long he/she lives. Answer: A.
NDTV
14-05-2025
- Business
- NDTV
Majority Of Americans Fear Financial Insecurity In Retirement More Than Death, Study Finds
Amid rising inflation, tax pressures, and uncertainty over Social Security benefits, most Americans fear financial ruin in retirement more than they fear death. As they grapple with the realities of longer life expectancies, a growing number say they would rather not live to 100. According to a new study by the Nationwide Retirement Institute and the American College of Financial Services, only 29% of US adults wish to reach the century mark. The primary reasons behind this reluctance are fears of financial insecurity and declining health in old age. Alarmingly, nearly three out of four Americans worry they'll outlive their savings, the survey revealed. According to a news release, the research, which explores the financial implications and consumer sentiment related to rising life expectancy, highlights just how fragile the equation can be. According to the college's research, extending a retirement by just 5 years from 30 to 35 years increases the risk of depleting savings by a striking 41%, based on historical market returns. And that risk only intensifies as lifespans continue to lengthen, particularly among healthy, higher-income retirees. A companion consumer survey from the Nationwide Retirement Institute shows most Americans are underestimating both their chances of living to 100 and the financial demands that kind of longevity brings. In fact, only 29% of respondents said they want to live that long, citing concerns about declining health and deep financial anxieties. Roughly three in four fear they'll run out of money before they run out of time. Today's volatile economic environment is raising the stakes even higher. According to the joint research, two out of five non-retired Americans (40%) now say they plan to delay retirement due to inflation. And the math is sobering when factoring in lower projected 10-year portfolio returns: Extending retirement by just five years increases the risk of running out of money by more than 300% according to the college's analysis. These findings send a clear message - retirement planning needs a major reset. Both consumers and advisors must shift their mindset, prioritising longevity risk and placing a stronger emphasis on guaranteed income strategies that can weather uncertainty. "Too many people underestimate how long they'll live - and that blind spot can seriously undermine their financial security," said Michael Finke, PhD, CFP, professor of wealth management, director of the Granum Centre for Financial Security at The American College of Financial Services and co-author of the study. "We consistently see that those who plan for longevity feel more confident about retirement. The key drivers of that confidence? Working with an advisor, having access to guaranteed income, and building a plan that's designed to last."
Associated Press
08-04-2025
- Business
- Associated Press
RETIREES SPEND THEIR LIFETIME INCOME, RATHER THAN SAVINGS
A New Study by Retirement Income Institute Fellows David Blanchett and Michael Finke Finds Retirees Spend More with Lifetime Income WASHINGTON, April 8, 2025 /PRNewswire/ -- Even if they can easily afford it, retirees are reluctant to spend savings for a more enjoyable lifestyle. Instead, retirees spend significantly more from their sources of lifetime income – such as Social Security, pensions, and/or annuities – than they do from their savings in IRAs and other retirement accounts. Those findings are part of a new research study, " Retirees Spend Lifetime Income, Not Savings,' by David Blanchett and Michael Finke, Research Fellows in the Retirement Income Institute (RII) at the Alliance for Lifetime Income. This research builds on their groundbreaking RII paper last year – 'Guaranteed Income: A License to Spend' which demonstrated that people can enjoy retirement more fully if they allowed themselves to spend money more freely. 'Overall, the analysis suggests that converting savings into lifetime income could increase retirement consumption significantly, especially for married households,' the study notes. 'Our analysis clearly demonstrates that households spend differently across sources of wealth. Retirees spend a much higher percentage of their lifetime income (about 80%) and spend about half the amount that they could safely spend from other sources.' The study also found retirees spend a higher rate of their savings after the federal government requires distributions from their retirement savings accounts. Retirees seem to view the forced asset distribution – known as Required Minimum Distributions (RMDs) – as income and spend it at a higher rate than they spend from other savings. RMDs are the minimum amounts people must withdraw annually starting at age 73 from qualified investment accounts to avoid penalties to the IRS. Accounts subject to RMDs include traditional IRAs, SEP IRAs, and most employer-sponsored retirement plans like 401(l)s. 'Overall, these findings have important implications for the current and future state of retirement in the United States given the rise of defined contribution (DC) plans as a more prevalent funding source for retirement,' the authors say. 'DC plans are principally focused on growing assets and typically are not explicitly focused on generating income. Therefore, unless steps are proactively taken to ensure retirees effectively use savings to fund spending, this analysis suggests households are likely to continue under-consuming in retirement potentially at even greater levels.' Blanchett and Finke point out steps can be taken to help retirees view their savings as income and therefore feel freer to spend: 'Financial institutions that are aware of the tendency to bracket investment decisions differently than lifetime income can focus on reframing wealth as income or automatically liquidate investments to create the appearance of income. For example, managed payout funds designed to distribute a percentage of wealth each year can help retirees frame savings as income.' The Fear of Knowing How Much You Can Spend Part of the reason retirees are reluctant to spend more freely is the complexity of navigating a retirement system designed with a focus on saving and investing (accumulation) rather than spending (decumulation of assets). 'Estimating how much income can be withdrawn from investments in retirement is far more complex than receiving a monthly pension payment,' the study notes. Complicating factors for retirees trying to determine how much to spend every year include a 'limited financial knowledge, an unknown lifespan' and 'an array of available financial resources to consider, including Social Security, pension, wages, and investment assets inside and outside of retirement accounts…" To better understand how people 65 and older are spending money, the study's authors analyzed data from the Health and Retirement Study, which is an ongoing nationally representative survey of approximately 20,000 Americans over 50 and supported by the Social Security Administration and National Institute on Aging. In the new RII study by Blanchett and Finke, two broad categories of available financial resources or assets were considered – income and savings: Income was separated into three groups: lifetime income (Social Security, pensions, and annuity income), earnings (wages and salaries for those who have not fully retired), and capital income (which includes income from businesses, rental property, dividends and interest, and trust funds or royalties). Savings were broken into qualified (defined contribution balances, IRAs, etc.) and non-qualified monies held in taxable accounts. 'Our analysis found much higher spending rates from lifetime income sources than from wages or capital income,' the study noted. 'Roughly 80% of lifetime income is spent, while less than half of wage income and capital income are spent. In addition, 65-year-old couples were found to be spending just 2% of their savings, which is roughly half of the commonly cited '4% rule' and even lower than most recent estimates, suggesting 5% is a more reasonable starting place.' 'Unless people purposefully want to leave behind a large bequest when they die, many retirees are denying themselves the opportunity to enjoy life by spending more of their savings,' said Blanchett, Head of Retirement Research at PGIM DC Solutions. 'I don't think people purposefully want to horde their savings; they are just finding it difficult to view savings as a potential form of retirement income,' added Finke, Professor and Frank M. Engle Chair of Economic Security Research at the American College of Financial Services. 'They are able to make that adjustment when they receive annuity and RMD payments, so there is a path to getting over this behavioral barrier.' RII's Previous Research into Spending in Retirement In a June 2024 study, Guaranteed Income: A License to Spend, Blanchett and Finke, determined that retirees with assets that annuitize income spend twice as much as retirees with an equal amount of non-annuitized savings. Blanchett and Finke find that every $1 of assets converted to guaranteed income could result in roughly twice the equivalent spending compared to money left invested in a portfolio. This effect suggests that the explanation for under-spending of non-annuitized savings among retirees is likely both a behavioral and a rational response to longevity risk. Their analysis corresponds with findings in the Alliance's 2024 Protected Retirement Income and Planning (PRIP) Study, in which 46% of the 2,516 consumers aged 45 to 75 surveyed acknowledged that spending their savings gives them anxiety. About The Alliance for Lifetime Income The Alliance for Lifetime Income (ALI) is a non-profit (c)(6) consumer education organization based in Washington, D.C., that creates awareness and educates Americans about the value and importance of having protected income in retirement. The Alliance provides consumers and financial professionals with unique educational resources and interactive tools to use in building retirement income strategies and plans. We believe annuities – one of only three sources of protected lifetime income – can be an important part of the solution for retirement security in America. The Alliance's Retirement Income Institute houses the leading retirement scholars and experts who create evidence-based research and analysis, with practical ideas and actions to help protect retirees.
