do you really know about your retirement money? Chances
are, not much.
new global financial literacy survey by the Organization
for Economic Co-operation and Development shows just 56
percent of adults can answer five of seven basic
questions about financial knowledge. Many couldn’t
calculate simple interest, and few reported positive
financial behaviors like setting a budget.
OECD study measured responses from people in 30
countries, echoing similar financial preparedness
surveys in the United States.
lack of financial knowledge translates to retirement
insecurity, particularly for retirees without access to
even among employers in the nonprofit sector, were
mandatory contribution plans for employees and generous
employer matches are common, there is concern.
a survey of 1,500 of its retirement plan participants,
plan provider TIAA said 53 percent said they are worried
about becoming a burden to others.
retirees are retiring earlier, on their own terms, and
fewer than a quarter are worried about running out of
money," said Cathy McCabe, a senior managing
director for TIAA. "But health care expenses can
overwhelm even the best-laid retirement plans."
a realistic picture of health and long-term care costs
earlier would go a long way toward helping retirees
navigate their later years, McCabe said.
common knowledge gap, she said, happens when workers
think they don’t have enough assets to justify the
time or expense of getting a financial plan going.
think they need $50,000 or more before they can seek
financial advice, so they never really set a financial
direction," she said, though many people have
access to free financial help through their workplaces.
other basic retirement topics are keeping people in the
people think Social Security is going to provide them
with adequate income, so why bother saving?" McCabe
said. Actually, the average Social Security monthly
benefit today is about $1,200.
you’re savvier than the average person about
retirement? Try your hand at these basic questions:
If someone saves $1 million for retirement, how much
will he or she be able to spend each year?
$40,000 in the first year, then $40,000 plus an
inflation adjustment the next year, and so on.
$50,000 in the first year. Subsequent years are
determined by market performance.
Many people are confused about the 4 percent withdrawal
rate rule of thumb first put forward by financial
adviser William Bengen. Bengen’s research showed that
a withdrawal rate as described in choice B above would
safely sustain a portfolio through retirement, but due
to low interest rates and other factors, many financial
advisers today are recommending retirees should make
withdrawals dynamic, meaning they need to be cut back
when markets underperform. So an investor may indeed be
able to start with taking out 5 percent ($50,000 on a $1
million nest egg), but would need to forego inflation
adjustments or even take a pay cut if markets decline
True or False: You’re better off delaying Social
Security as long as possible.
It depends. Benefits are designed to be actuarially
equal regardless of when you begin them, assuming you
live exactly to your life expectancy. In reality, people
who are already sick or who simply need the money right
away will be better off taking their benefits sooner
How much do I need to save to be able to retire?
This is the inverse of the first question, and one that
pre-retirees tend to focus on most. Old rules of thumb
— like amassing 10 times final pay — don’t take
into consideration what you’ll actually spend in
retirement. A better answer is to calculate how much you’ll
need to live on, including an estimate of taxes, and
multiply that by 25. So if you need $20,000 a year over
and above Social Security, the savings target is roughly