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Americans lack retirement planning literacy

Date posted:  11/27/14 07:45:00 AM The majority of Americans don't seem to know enough about retirement planning.

There's a surplus of information about saving for retirement, but most Americans don't seem to be taking the advice. A recent survey from the American College of Financial Services reported 80 percent of Americans ages 60 to 75 failed a retirement income literacy test.

The results would be less surprising if the survey took a random sample of people, but the survey polled 1,000 Americans in the 65-to-70 age range with at least $100,000 in household assets. Those are all people nearing or already in retirement with at least some wealth to their names.

David Littell, program director at American College, said he wasn't shocked at how little people knew about retirement planning but was surprised at how poorly they scored on the retirement literacy test.

The survey, which was conducted online, asked 38 retirement questions covering subjects from life expectancy and investment strategy to Social Security and Medicare. Only 20 percent of respondents received passing grades, and fewer than seven percent received a graded score of "C-" or better.

In fact, less than one percent recorded scores of 90 percent or better, which shows that very few people know all the ins and outs of retirement planning.

"No one liked getting Fs back in school, but retirement income literacy is a test Americans simply cannot afford to fail," Littell said in a release. "When you're working, you can plan, save and prepare for a retirement target date. But once you're in retirement, there is no set target date for how long your savings must last - and little room for error."

Littell said more American workers than ever before are making their own financial decisions when it comes to retirement, as guaranteed income from pension plans is slowly diminishing in many industries.

Putting a plan in place
The financial literacy survey revealed only 27 percent of respondents had a written retirement plan in place. That percentage is extremely low considering roughly 66 percent of respondents said they have a relationship with a financial advisor.

"Financial advisors, plan sponsors and financial services companies all have a role to play in raising Americans' grades when it comes to awareness and understanding of basic retirement income principles," Littell said.

To spend or not to spend
While some retirees are in the position to spend money on a major purchase, others need to be more cautious about doling out serious cash for a product.

For example, consumers are now spending more money on automobiles than ever before. Experian Automotive reported the average loan for a new vehicle reached $27,799 in the third quarter of 2014, a new high.

Experian said the increase in car and truck prices has spurred American buyers to take out leases or extended loans to keep their monthly payments at a minimum. The average monthly payment for a lease is $397, with 29.1 percent of all new vehicle loans involved in a lease. That's the highest pace ever for financing.

Cash-strapped homeowners that don't want to take out a car lease should consider a home equity line of credit. This line of credit is given to qualified borrowers who then put their homes up as collateral for a credit line that can be used toward a down payment on a car, student loan repayment or home renovations.

Americans who are shopping for a car but nearing retirement might want to consider a used car instead of a new vehicle. The average cost for a new vehicle is now more than $31,000, and loans for used vehicles carried a price tag $9,000 cheaper than the average loan for new vehicles, according to Experian.