April 2, 2024
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Guest commentary: A solid F: The grade most Americans and AI earn on retirement literacy 

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By John Grace

Let me take a moment to set the stage. Do you think you are an above-average driver, as most people do? 

We have known for some time that people tend to rank themselves imperfectly. While some are sure they are better than average at a skill, others know they are much worse. 

You may remember a famous 1981 study where researchers asked people to rate their driving capability. 

More than 90% ranked themselves above average. 

Some drivers are above average, but the 90% statistic illuminates how well many of us pump up how we compare with others. 

By definition, only 50% can be ranked above the median average.

Many investors attribute the results to their superior understanding when investments hit new highs. 

However, a recent survey finds many Americans earn an F on the critical financial aspects of retirement. 

When tested on several areas, including investments, inflation, Social Security, and long-term care costs, the majority of consumers between 50-75 flunked the test, according to The American College of Financial Services’ Retirement Income Literacy Study. 

Out of a possible score of 100%, the average retirement income literacy grade was 31%.

This is a test we should all aim to ace. 

“Don’t take this lightly. Everyone nearing or in retirement should seek to ace it. You might have decades to live in retirement, so lacking knowledge about the underpinnings of your retirement income is flat-out precarious,” opines Kerry Hannon at Yahoo! 

Understanding the basic concepts of investing, taxes, insurance, and finances is imperative. 

To plan our financial success, we must take the time to see how much to save, where to save it, and determine how much to withdraw in retirement. 

According to the report, 37% of investors work with an advisor despite believing they will be more confident about their finances. 66% of Americans say their financial plan needs attention, according to the 2023 Planning and Progress Study, Northwestern Mutual, May 2023. 

Don’t be penny-wise and pound-foolish. 

As I addressed previously, investors who work with a financial advisor enjoy a 3% increase in net returns, per Vanguard, which makes for a tremendous increase in your retirement funds over time. 

Bonus Question: What did Warren Buffett learn?

You may have seen in the news that Berkshire Hathaway is nearing $1 trillion market capitalization. 

The value could have been worth twice as much if Warren Buffett had cut his losses, per Benzing.com. Let me suggest we take what we learn from Mr. Buffett, floods, and storms, and apply this strategy to your investment policy. 

Don’t drown. 

Turn around. 

We consider people smart, and animals dumb. 

When hurricanes are approaching, people say, ‘We’re going to ride it out’ while the animals move to safety on higher ground. It’s your life and your life savings; it’s your call.

John Grace is a financial planner and president of Investor’s Advantage in Thousand Oaks.