How High Is Your ‘Retirement IQ’?

Many Americans have a low "retirement IQ," Fidelity says. Are you among them?

How High Is Your ‘Retirement IQ’? Photo by Joshua Jay Koppelman / Shutterstock.com

The results of Fidelity Investments’ first-ever Retirement IQ Survey are in — and they aren’t pretty.

The survey involved eight questions about saving for, preparing for and living in retirement. But as the investment firm summarizes the results:

“Many are missing the mark on key retirement questions and there are a number of myths and misconceptions that could be holding them back. In fact, many had misunderstandings in every area, including those 55 or older …”

We’ve broken down the first three questions from the survey, which are about saving for retirement.

1. Roughly how much do many investment professionals suggest people think about saving by the time they retire?

This is a multiple-choice question:

  • About 2-3 times the amount of your last full year of income
  • About 4-5 times
  • About 6-7 times
  • About 8-9 times
  • About 10-12 times

The answer is about 10-12 times the amount of your last full year of income.

A whopping 74 percent of survey respondents underestimated when answering this question.

2. How often over the past 35 years do you think the market has had a positive annual return?

The answer is that the S&P has had a positive annual return for 30 of the past 35 years. Historically, the S&P has gained about 7 percent per year, adjusted for inflation.

Only 8 percent of survey respondents answered correctly. The message here is the importance of investing an appropriate portion of your portfolio in stocks over time.

As Money Talks News founder Stacy Johnson has explained:

The only way to get higher returns is to take some risk, like that offered by stocks. … Of course, stocks entail risk; that’s why they pay more. But avoiding risk creates a different one — the risk of not having enough to survive your retirement years.

To learn more, check out:

3. If you were able to set aside $50 each month for retirement, how much could that end up becoming 25 years from now, including interest, if it grew at the historical stock market average?

This is a multiple-choice question:

  • About $15,000
  • About $30,000
  • About $40,000
  • About $50,000
  • More than $60,000

The answer is about $40,000.

Only 16 percent of respondents got that right. This example highlights the importance of investing over a long time horizon — thus maximizing the power of compound interest.

As we explain in “Money Lingo You Need to Know for Financial Survival“:

“Compound interest is interest that’s earned and added to an account balance so that the interest, too, earns interest. Compounding speeds up earnings because, as your account balance grows, each new interest payment is based on a larger amount.”

If you’re in the market for a new interest-bearing savings account — or one that earns more than your current account — visit the “Find a Higher Paying Savings Account” page in our Solutions Center. There, you can search based on the type of account you’re looking for — checking, money market or certificate of deposit.

For the other Retirement IQ Survey questions and their answers, visit Fidelity’s website.

How would you rate your retirement IQ? Let us know below or on Facebook.

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