Financial Literacy and Retirement Decisions: The Choices Facing Older Workers

“This paper reviews evidence from two research projects examining the relationship between financial literacy and the work/retirement decisions of older workers. The first project examined employer-provided pre-retirement planning programs at five large U.S. employers ranging in size from 8,000 to 40,000 employees. Each of the employers offers defined benefit plans (three employers have cash balance plans), each offers health insurance to active and retired workers, and each offers supplemental defined contribution plans (although not all have an employer match).” (p.7).

“Key questions addressed include:

• Do employer-provided retirement planning programs increase financial literacy and knowledge about company and national retirement programs?
• If financial literacy is increased, how does this enhanced knowledge affect worker retirement behavior?
• Do more informed workers make better retirement saving decisions and are they better able to respond to the incentives that are embedded in employer pensions and Social Security?
• Does financial literacy increase the likelihood that older workers will invest more to maintain and enhance their skills and productivity so they can remain competitive in the labor force?” (p.6).

“Although the studies differ in methodology, scope, and culture, similar findings across the analyses suggest several fundamental elements that span these differences. First, consistent with other studies, financial literacy is relatively low and the lack of financial knowledge can lead to poor retirement plans and decisions… Individuals who do not understand financial markets may think that they can successfully manage their retirement wealth and make periodic withdrawals; however, these individuals may exhaust their wealth prior to death and thus have insufficient assets in their final years.

 

Second, older workers can increase their financial literacy by participating in financial planning seminars provided by their employers, attending classes at community colleges, or hiring financial advisors.

 

Third, older workers are interested in retirement planning and financial literacy programs and are willing to participate in employer-provided seminars that are targeted to retirement decisions” (p. 8).

 

(Abstractor: Author)

FULL TITLE: “ Financial Literacy and Retirement Decisions: The Choices Facing Older Workers”

“Employer-provided financial education is one method of increasing financial literacy among older workers and giving them the knowledge to make better retirement decisions. The choices that individuals make as they transition from full-time work to complete retirement will determine their economic well-being throughout retirement. Workers must understand the choices they face and the impact of these decisions on their retirement income. Financial education in the workplace can increase financial literacy and allow older workers to make better choices. Employees clearly benefit from these programs, and there are compelling incentives in offering retirement planning events for businesses themselves” (p.14-15). “The research described here shows that financial literacy is positively related to the perceived need by older workers for additional on-the-job training in order to remain competitive on their current job and in the post-retirement labor market. Recognizing the need for additional skills is the first step in developing a demand for additional training. In a country such as Japan that faces a demographic future of population decline and super population aging, giving older workers opportunities to remain in the labor force and to enhance their skills is essential if living standards are to be maintained. Older workers in the U.S. must also consider ways of maintaining and enhancing their skills if they are to remain competitive in the labor market. Adapting skills is necessary if older workers are to retain the option of working longer. An important step in this process may be to develop financial literacy programs to assist workers in developing their own plans for human capital investment. Ultimately, from this analysis it is clear that employer-provided financial literacy programs can perform an important service through their positive impact on the lives and futures of many” (p.15). (Abstractor: Author)

• Last Updated:
• Created:
• Resource Publication Date: 2012
• Author(s): Clark, Robert L.
• Organizational Author(s): CAEL
• Funding Source: Funding source not identified
• Resource Availability: Publicly available
• Posted by: Long Dang
• Posted in: Workforce System Strategies