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Financial Literacy in Retirement

The conventional life-cycle model of financial behavior suggests that people approaching retirement will be near or at the peak of their wealth accumulation process.

Hence, their major financial concern will be how to utilize their wealth to last throughout their remaining lifetimes.

Adults planning for retirement typically predict a drop in income since labor earnings will decline, and Social Security and pensions replace less than pre-retirement earnings.

Near-retirees (aged 55-64) would eliminate their debt or only carry low-interest debt into retirement. Overall, their goal would be to preserve assets that can finance a comfortable retirement.

However, people’s financial behaviors in later life often contradict these simple theoretical predictions.

Financial Literacy Declining?

A significant portion of the elderly and disabled population lacks the financial literacy required to arrange their finances in retirement properly. The financial landscape has become more challenging for individual investors. Financial markets have become more complicated, offering products that are often hard to understand.

According to FINRA, a private corporation that self-regulates its member brokerage firms and exchange markets, many older Americans have deluded themselves into believing they’re good money managers. Even with the life wisdom they’ve accrued over the decades, many older Americans are not fully informed or prepared to make the right choices.

“America’s senior population is growing, but the resources to help them maintain financial self-sufficiency are falling behind,” says David Neuwirth, Senior Vice President, Investments at David Lerner Associates. 

David Neuwirth continues, “Approximately 11,000 Americans daily are turning 65 years old, making them eligible for most government retirement benefits, but many of them are uncertain about the time to apply for Social Security and Medicare. Others lack a financial backstop from their savings and investments.”

Retirement Decisions

According to the United States Senate Special Committee on Aging, significant decisions faced by older adults and people with disabilities in retirement include:

  1. Claiming Social Security

Almost half of all seniors depend on Social Security for all or most of their income, but the aging population may not realize how modest these benefits are.

The maximum Social Security benefit for somebody who retires at full retirement age is $3,627 in 2023. However, you’d need to earn the maximum taxable amount over a 35-year career to get this Social Security payment.

The average monthly Social Security benefit in 2023 is $1,827 per month. That’s just about $22,000 in annual income. Some Social Security benefits are subject to federal income taxes, leaving much less income for the middle-class standard of living that many people are accustomed to.

Older workers should know that claiming benefits before the full retirement age can lower their Social Security benefits for life. In fact, workers can lose 25-30 percent of their full benefit by filing early. A person entitled to a monthly benefit of $1,000 at their full retirement age of 67 would receive a reduced benefit of $700 if they started collecting Social Security at the earliest age possible (62).

  1. Enrolling in Medicare

Medicare provides guaranteed health coverage to over 63 million Americans, including 54 million seniors and 9 million people with disabilities.

While most workers know Medicare is a universal healthcare program for seniors, few understand it’s not free.

Employees’ payroll contributions pay for Medicare Part A hospital benefits. But beneficiaries pay monthly premiums for Medicare Part D (prescription drug coverage) and Medicare Part B (outpatient care). The 2023 Part B premium for most people is $164.90 per month.

Near retirees should arm themselves with accurate, unbiased information before reaching the Medicare eligibility age of 65. The online Medicare & You 2023 handbook is a great resource.

  1. Annuitizing A 401(K)

Americans aren’t saving enough for retirement, which can be risky with the obvious volatility of market-based 401 (k) plans.

Annuitizing a 401 (k) refers to converting a lump sum of retirement savings in a 401 (k) plan into a guaranteed stream of income for a fixed period or the rest of the retiree’s life. The process of annuitizing a 401 (k) involves buying an annuity contract from an insurance company using the funds in the 401 (k) account.

Annuitizing a 401 (k) can provide retirees with a guaranteed and predictable income stream that they can’t outlive.

However, it also means giving up control of the invested assets and may cause lower returns than if the retiree had kept the funds invested in the market.

It’s critical to consider the pros and cons before annuitizing a 401 (k) and consult with a financial advisor to determine if it’s the right choice for your retirement plan.

  1. Downsizing A Home

As Americans approach retirement, their housing needs may change. Downsizing a home in retirement can be a smart financial move for many retirees.

It can cause lower mortgage payments, property taxes, and utility bills. This can help you reduce your monthly expenses and free up money for savings or other expenses.

Moving to a smaller home can help simplify your life and reduce the stress and expenses of maintaining a larger property.

Downsizing can also release equity in your home, which you can use to supplement your retirement income, pay off debts, or save for future expenses.

When downsizing, it’s vital to consider your current and future lifestyle needs—factor in proximity to amenities like healthcare, social activities, and shopping.

It will be best if you work with a real estate agent who has experience in downsizing.

  1. Giving to a Charity

Many older Americans choose to help others through donations to charity.

When giving out to charity in retirement, there are a few things to look out for ensuring that your donations are used effectively and efficiently:

  • Research the charity’s mission before donating. Look for organizations with a proven track record of delivering effective programs and services, and ensure they align with your values and interests.
  • Look at the charity’s financial statements and annual reports to ensure they have a stable financial position and use donations responsibly. Charity rating organizations such as Charity Navigator and Guidestar can help you with this process.
  • Determine how your donation will be used. Ask the charity how your donation will be used and how much will go directly to the cause. Find out if your donation is tax-deductible and if there are any restrictions on how your donation can be utilized.
  • Be wary of scams. Unfortunately, there are fraudulent charities that take advantage of people’s generosity. Be cautious of unsolicited requests for donations, and always validate the charity’s legitimacy before donating.
  • Consider donating your time or skills. Besides monetary donations, consider donating your time or skills to a charity. Many organizations need volunteers; your expertise could be incredibly valuable to their mission.

By taking the time to research and vet charities, you can ensure that your donations are used effectively and positively impact the causes you care about.

  1. Preparing for And Responding to Natural Disasters

The United States has sustained at least 308 natural disasters since 1980.

Responding to a natural disaster in retirement can be challenging, but there are steps you can take to ensure your safety and well-being:

  • Develop an emergency plan that includes evacuation routes, emergency contacts, and a list of essential items to take with you. Ensure you have access to important documents and have them stored in a secure and waterproof location.
  • Stay informed about weather and emergency alerts. Monitor local news and weather updates, and sign up for emergency notifications from your local government.
  • If you have mobility or accessibility needs, ensure you have a plan in place to address these needs during an emergency. Consider having a mobility aid, such as a walker or wheelchair, and an emergency supply kit with medications and medical equipment.
  • If you have pets, ensure you have a plan in place for their safety and well-being. Identify pet-friendly evacuation centers and ensure you have an emergency supply kit with food, water, and pet medication.

Don’t be afraid to ask for assistance if you need it. Reach out to family, friends, or community organizations for support during an emergency. Remember that being prepared for a natural disaster is key to staying safe and reducing the impact on your life.


American workers and their families are increasingly responsible for their own financial being.

Pre-1980s, many of the US workers depended on Social Security and defined benefits pension plans for their retirement income. In contrast, the current generation increasingly depends on defined contribution plans and IRAs to finance golden years.

While this transition allows more labor mobility and worker flexibility, it also imposes a greater responsibility on individuals. A lack of financial literacy as you consider your own retirement can have serious consequences.



Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc.

This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances.

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