Can You Pass A Retirement Quiz If Taken At This Time?
A research was made by The National Bureau of Economic Research that showed that most Americans have limited financial understanding. The name of the report was Financial Literacy and Retirement Planning in the United States.
In a study called The National Financial Capability Study, it was noted that majority of Americans are not familiar with financial concepts like inflation, compound interest, risk diversification and other terminologies that are vital in planning one's retirement. People who are nearing retirement are having problems understanding these concepts.
Some of the questions given to people nearing retirement were released. One of the questions was how much money will you get if you placed $100 in a bank that gave a compound interest of 2% a year for a five year period. The other question was whether it is regarded as safer or riskier to invest all your retirement money on the stocks of one company only. Roughly around 50% of the study subjects were able to reply to these questions.
Outstanding features of the study
Only one in three people were able to answer the question on how much one can withdraw yearly so that his $100,000 retirement money can last for thirty years.
Most of the study subjects believed that upon reaching the age of 65, they only have around 10 years left to live so they do not need to save much of their funds. On the contrary, the average life expectancy is around nineteen years. An individual can live until the ripe age of 84 so he needs to make sure that he has enough money that will last for these number of years.
Only one in two respondents are aware that Social Security Administration provided better benefits to people who retire at age 70.
Only a small percentage of workers have a written retirement plan (roughly 25%).
More than 50% of Americans have the opportunity to consult with financial planners however roughly 75% have never tried putting their financial plan in writing. It seems that it is not only the individual's fault but the financial advisors as well. They need to follow-up with their clients in order for them to have a retirement plan in writing.
How should you go about it?
If you do not want to be financially illiterate, you should start working on it immediately. One of the best way to do so is find financial literacy books and read them. These books are written in a format that is both entertaining and informative. It will help you learn the basics about financial planning.
Here are some of the books highly suggested by finance experts:
- Family Money Planning WorkBook by Peter K. Blake
- Saving for the Future: An Introduction to Financial Literacy by Mattie Reynolds
- The Shortest Book Ever on Saving for Retirement: How to Make Every Dollar Count in any Financial Climate by James O'Donnell
- Can You Afford to Retire? by Bob Doyle
The books mentioned above are recommended for people who want to know the basics about money and handling finances. Once you are familiar with it, there is a possibility that you will be financially independent in the future.