SUNNYVALE, Calif.--(BUSINESS WIRE)--Nearly half of Americans feel more financially secure today compared to five years ago, but this security can mask blind spots that could undermine their long-term financial health, according to a new survey from Financial Engines (NASDAQ: FNGN), America’s largest independent investment advisor.1 The survey found that nearly half (47.3 percent) of Americans said they felt “somewhat or much more secure” about their finances compared to five years ago. However, just eight percent of those respondents – and six percent of those Americans surveyed overall – were able to pass a quiz about a broad range of financial decisions they most likely will need to make during their lives.
“It’s not surprising that Americans are feeling better about their financial situations given low unemployment and a record-breaking stock market,” said Andy Smith, a Certified Financial Planner with Financial Engines. “But as our quiz shows, there’s a persistent problem with financial literacy in this country. When it comes to your finances, poor decisions you make today can cost you for the rest of your life.”
Americans Need Help with Long-Term Planning
People who took the quiz struggled most with questions pertaining to long-term financial wellbeing, such as claiming Social Security benefits, making arrangements for healthcare in retirement and purchasing the appropriate amount of life insurance.
Most Americans recognized the complexity of claiming Social Security benefits. Only one-fifth (21.6 percent) of those surveyed said they felt confident about it. That was borne out in the quiz – nearly two-thirds of people (64.9 percent) did not know they could defer claiming Social Security benefits until age 70, earning between six and eight percent in additional lifetime benefits under current conditions for each year they delay between ages 62 and 70. A previous study by Financial Engines found that claiming Social Security benefits too early can result in individuals leaving as much as $100,000 in potential earned benefits on the table. Married couples can miss out on as much as $200,000 in lifetime benefits.
Most respondents also greatly underestimated how much they will need to cover out-of-pocket healthcare costs throughout retirement. More than half (58 percent) of those 65 and over – and three-quarters (76 percent) of those ages 55 to 64 -- believed the typical married couple retiring today at age 65 will need between $50,000 and $200,000. This is well under the estimated average cost of $266,000.
While no one knows exactly how long they will live, many people underestimate standard assumptions for life expectancy, which can lead them to save much less than they need. Nearly three out of four people (72 percent) were unaware that the typical 65-year old man can expect to live about another 20 years, on average, with 61 percent underestimating longevity by at least five years. The Social Security Administration estimates that a man age 65 today can expect to live, on average, until the age of 84.3 years old. A typical woman age 65 today can expect to live, on average, until age 86.6.
Additionally, more than half (51.4 percent) of people significantly underestimated how much life insurance they should have – 10 times their annual income. This discrepancy could lead to many Americans being significantly underinsured, which could have serious implications for their loved ones.
“Often, people don’t have a realistic idea of their cost of living or how expensive things will be in retirement,” said Smith. “While each person has a unique financial situation, it’s important to remember that you are not alone. Take advantage of helpful online planning tools and if you want more personalized help, reach out to a financial professional you trust – someone who can help clarify complex issues and guide you through the financial planning process.”
He added, “Whether you’re just starting out or already have complex finances, working with a professional to map out a plan for achieving your goals can make you feel more confident and secure about your future. In fact, more and more employers are recognizing this and offering financial planning resources as a benefit to their employees, often at a significantly discounted rate and without the asset minimums that many financial advisors require.”
Financial Engines surveyed 1,000 individuals between the ages of 18 and 65 who are employed full-time, part-time or self-employed. The survey and panel were both fielded using the Survata Publisher Network. Fielding was executed in July 2017.
About Financial Engines
Financial Engines is America’s largest independent investment advisor. We help people achieve greater financial clarity by providing comprehensive financial planning and professional investment management and advice. Headquartered in Sunnyvale, CA, Financial Engines was co-founded in 1996 by Nobel Prize-winning economist William F. Sharpe. We currently offer financial help to more than 9 million people across over 700 companies (including 146 of the Fortune 500). Our unique approach, combined with powerful online services, dedicated advisors and personal attention, promotes greater financial wellness and helps more Americans to meet their financial goals.
For more information, please visit www.financialengines.com.
All advisory services provided by Financial Engines Advisors L.L.C. Financial Engines does not guarantee future results.
This press release contains forward-looking statements, including statements regarding the use of professional investment and financial planning help, which involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are outlined in our SEC filings. You are cautioned not to unduly rely on these forward-looking statements, which speak only as of the date of this press release. Unless required by law, Financial Engines undertakes no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this press release or to report the occurrence of unanticipated events.
1 For independence methodology and ranking, see InvestmentNews Center (http://data.investmentnews.com/ria/).