Three-Quarters Underestimate How Much They Will Need to Save for
Want to Know Where You Stand? Fidelity Offers
Ways to Boost Your Retirement IQ
Eight Questions Everyone
BOSTON–(BUSINESS WIRE)–Many Americans find the subject of retirement planning to be a daunting
prospect and struggle with how best to identify how much they’ll need to
save, how to make their money last throughout retirement—as well as
where to start. To gain a greater understanding of America’s knowledge
of the subject, Fidelity Investments® conducted its
first-ever Retirement IQ Survey, to gauge how well the average
American understands these critical topics. The result: 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, whose
retirement is less than ten years away.
“Although retirement may seem far off for many, there are retirement
concepts everyone should know to ensure you’re able to fulfill the goals
you have for yourself and your family,” said Ken Hevert, senior vice
president of Retirement at Fidelity. “We encourage investors to think
about the goals they want to achieve and develop a plan to get there,
but it starts with knowing where you stand in order to identify
opportunities to improve. By spending a few hours, you can boost your
Retirement IQ significantly and develop a good grasp of the essentials
needed to put you on a path to a secure retirement.”
So what are the questions people need more help with—and more
importantly, what are the correct answers? Fortunately, this
one’s an open-book quiz. Top questions by category follow below. Want to
study up first? Fidelity’s study guide “5
Retirement Facts You Probably Don’t Know (But Should!)” can
help you brush up on your retirement knowledge.
Saving for Retirement
Question #1: Roughly how much do investment professionals estimate
people save by the time they retire?
The correct response
is “at least 10 times the amount of one’s last full year’s income.1”
Even if there is some debate among professionals around how much the
average person needs to save, nearly three-quarters (74 percent) of
respondents underestimated how much is needed. Furthermore, 25 percent
of respondents expected to only need to save 2-3 times the amount of
their last full year income, a number that is well below
suggested/estimated targets. For pre-retirees, 19 percent of respondents
aged 55-65 answered 2-3 times, which is more concerning because this
group has far less time to make up for the shortfall.
Question #2: How often over the past 35 years do you think the
market has had a positive annual return?
revealed that the majority are unaware that the market2
has enjoyed a positive annual return 30 out of the past 35 year years3.
Historically the U.S. stock market has gained about seven percent per
year4, so it’s important to invest in stocks to provide
opportunities for growth. Only eight percent of overall respondents
answered correctly while 55-65 year-olds fared a little better at 14
“Saving for retirement isn’t simply about setting aside money from your
paycheck, but also making that money work harder through a sound
investment strategy that aligns with your goals,” said Hevert. “Even
with market volatility, the stock market has performed remarkably well
over the long-term. The majority of investors need to have a diversified
portfolio that includes equities to enable growth over time. If you’re
not investing, you’re likely losing money due to inflation.”
Question #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?
correct answer is about $40,0005, which 16 percent answered
correctly. However, nearly half (47 percent) underestimated how big an
impact relatively small savings can have over time. Twenty-seven percent
of respondents calculated the answer to be about $15,000, which
undervalues the power of consistent savings and would represent a zero
percent stock market return vs. the market average of seven percent.
Saving regularly, combined with the power of compounding interest,
illustrate why it’s important to make it a habit to automatically set
aside money at an early age, as the following three
scenarios demonstrate. It’s also the reason simply saving one
percent more of your salary can add up—and the younger you start,
Preparing for Retirement
Question #4: Given the current average life expectancy, if you
want to retire at age 65, about how long would you need your retirement
savings to last?
While one’s longevity is influenced by
factors such as family medical history and lifestyle (exercise, diet,
etc.), the average life expectancy is about 87 (85 for males, 87 for
females6), meaning the answer is approximately 22 years—a
number one third of respondents got right. Thirty-eight percent of
Americans estimated they would only need to make their hard-earned
savings last for about 12-17 years, which could leave some at risk of
running out of money in retirement. Since people are living longer,
healthier lives, many—especially younger generations—need to plan for a
retirement lasting 30 years or more.
Question #5: Approximately how much did the average monthly Social
Security benefit pay in 2016?
Social Security is a key part
of retirement income for most Americans, so it’s encouraging 43 percent
of respondents answered this one correctly: about $1,300.7
Even better, half of pre-retirees got it right. Still, with over 75 ways
to claim and dozens of factors influencing one’s decision of when to
retire, $1,300 is simply an average. In general, waiting until at least
the time you’re entitled to full Social
Security Retirement benefits11 (between 65-67) may help
increase your monthly benefit. If you can afford to wait until your full
retirement age, your monthly Social Security income will increase by 30
Living in Retirement
Question #6: About what percentage of your savings do many
financial experts suggest you withdraw annually in retirement?
a general rule of thumb, Fidelity suggests limiting portfolio
withdrawals to no more than four
to five percent of your initial
retirement assets, adjusted each year for inflation, over the course
of your retirement horizon. Although four out of 10 (42 percent)
pre-retirees answered correctly, 38 percent of those over the age of 55
said they could withdraw seven percent or more of their savings
annually, putting many at risk of quickly running out of savings in
retirement. Also, 15 percent of this age group felt they could withdraw
10 to 12 percent annually—a rate that could drain many households of
savings in less than a decade.
While some new retirees make the mistake of withdrawing too fast,
Fidelity suggests covering essential expenses with guaranteed income
sources (like Social Security, pensions and annuities), while covering
nice-to-haves (like travel or gifts to loved ones) from withdrawals from
your investment portfolio.
Question #7: What do you think is the single biggest expense for
most people in retirement?
For most Americans, housing,
health care and transportation are typically the largest expenses in
retirement, but housing by far tops that list. In fact, for many
retirees, housing can make up nearly half of their expenses9.
While 17 percent of respondents answered this correctly (and 13 percent
of those aged 55-65), a larger number of respondents (69 percent)
thought health care would be the largest expense. This is perhaps an
indication of the deep concern many Americans have around an expense
that is difficult to predict, since it involves the state of one’s
health among other factors, including skyrocketing health care costs in
recent years. Of note, health care was also the No. 1 item respondents
were most worried about being able to afford—including 63 percent of
Question #8: About how much will a couple retiring at age 65 spend
on out-of-pocket costs for health care over the course of retirement?
has been tracking this cost since 2002 and estimates the average 65-year
old couple retiring in 2016 will spend $260,000
to pay for out-of-pocket health care expenses10 over the
course of retirement. Only 15 percent were on the mark, with 72 percent
underestimating the true amount of health care costs. Overall, 22
percent (including 19 percent of pre-retirees) underestimated how much
they would spend by about $200,000.
“If you’re like most Americans, health care is expected to be one of
your largest expenses in retirement, after housing and transportation
costs. But unlike previous generations, most of us won’t have access to
employer-or union-sponsored retiree health care benefits,” said Hevert.
“That’s why these costs will likely consume a larger portion of your
budget—and you need to plan for that.”
Want to Learn More? Fidelity Offers Resources to Help You Know Where
Every individual’s circumstances and vision are
unique, but one of the first steps is to know where you stand on the
retirement preparedness spectrum and whether you are on track to meet
your goals. With this in mind, Fidelity has introduced a retirement
score to enable anyone to quickly and easily estimate whether
they’re on track to meet their retirement goals as well as tips to
improve, simply by answering a few key questions. In addition, Fidelity
offers a variety of resources, including:
Viewpoints® articles, including “Seven
ways to boost your retirement IQ,” “How
to get the most out of Social Security,” “Ready
to work after your primary career ends?” and a Retirement
Roadmap Special edition devoted exclusively to retirement
planning. A podcast
discussing how much the average person needs to save is also available.
Investors can also use Fidelity’s online Planning
& Guidance Center, either online or with the help of a
Fidelity investment professional, to dive deeper into their retirement
score. Within the Center, customers can create or view their
retirement plan, identify specific steps to improve their readiness,
model outcomes and review investment strategies, and make adjustments
to their plan, when needed, to help ensure they stay on track to
achieve their goals.
Designed for a younger generation, Fidelity.com/mymoney
offers videos, infographics and articles on topics related to
budgeting, saving, investing and more, including a video weighing the
financial ramifications of paying off student loan debt or saving for
retirement and an infographic showing the impact of saving 1 percent
more. In addition, Fidelity’s interactive Money
Check-up can help people quickly understand their financial
wellness and where they need to take action.
About the Survey
The Fidelity Investments®
Retirement IQ Survey is an online survey conducted in two
phases: first, among a sample of 1,007 respondents ages 55-65 who are
not retired, which was completed December 14-19, 2016; next, among a
demographically representative U.S. sample of 1,047 adults comprising
512 men and 535 women 18 years of age and older, completed December
15-18, 2016. Both phases were conducted by ORC International, which is
not affiliated with Fidelity Investments. The results of this survey may
not be representative of all adults meeting the same criteria as those
About Fidelity Investments
Fidelity’s mission is to inspire
better futures and deliver better outcomes for the customers and
businesses we serve. With assets under administration of $5.8 trillion,
including managed assets of $2.2 trillion as of January 31, 2017, we
focus on meeting the unique needs of a diverse set of customers: helping
more than 26 million people invest their own life savings, 23,000
businesses manage employee benefit programs, as well as providing more
than 12,500 financial advisory firms with investment and technology
solutions to invest their own clients’ money. Privately held for 70
years, Fidelity employs 45,000 associates who are focused on the
long-term success of our customers. For more information about Fidelity
Investments, visit https://www.fidelity.com/about.
Stock markets are volatile and can decline significantly in response to
adverse issuer, political, regulatory, market, or economic developments.
Past performance is no guarantee of future results.
Investing involves risk including the risk of loss.
Investments and Fidelity are registered service marks of FMR LLC.
Fidelity Brokerage Services LLC, Member NYSE, SIPC
Salem Street, Smithfield, RI 02917
© 2017 FMR LLC. All rights reserved.
1 This response is based on a Fidelity estimate of what
people should consider saving by the time they retire.
As represented by the S&P 500 Index
3 Source: S&P
4 1928-2016 historical average market return
for the S&P 500; when adjusted for inflation is approximately 7%.
This hypothetical estimate assumes the individual or household sets
aside $50 a month for 25 years. Rate of return is 7.0% annual interest
which is compounded monthly. Estimated increases in retirement monthly
income are in constant 2015 dollars. This estimate assumes the $50
deferral amount stays constant through the entire 25 year period and
represents a nominal value. It is assumed that the participant took no
loans or hardship withdrawals from these savings. All dollars shown are
pretax dollars. Upon distribution, applicable federal, state, and local
taxes are due. No federal, state, or local taxes; inflation; or account
fees or expenses were considered. If they were, the estimated amount
would be lower. Actual realized value may be significantly more or less
than this illustration.
6 Source: Social Security
Administration life expectancy calculator
Social Security Administration
8 Source: Social Security
Administration data. The basis for this increase: comparing one’s Social
Security income at full retirement age of 67 against one’s projected
Social Security income at the “early eligibility age” of 62. If you can
wait even longer to collect your Social Security benefit, you will be
eligible for delayed retirement credits which will increase your benefit
an additional eight percent each year up until age 70 (for those born
9 Source: Bureau
of Labor Statistics, “The Experimental Consumer Price Index for Elderly
10 Estimate based on a hypothetical
couple retiring in 2016, 65-years-old, with average life expectancies of
85 for a male and 87 for a female. Estimates are calculated for
“average” retirees, but may be more or less depending on actual health
status, area of residence, and longevity. Estimate is net of taxes. The
Fidelity Retiree Health Care Costs Estimate assumes individuals do not
have employer-provided retiree health care coverage, but do qualify for
the federal government’s insurance program, Original Medicare. The
calculation takes into account cost-sharing provisions (such as
deductibles and coinsurance) associated with Medicare Part A and Part B
(inpatient and outpatient medical insurance). It also considers Medicare
Part D (prescription drug coverage) premiums and out-of-pocket costs, as
well as certain services excluded by Original Medicare. The estimate
does not include other health-related expenses, such as over-the-counter
medications, most dental services and long-term care. Life expectancies
based on research and analysis by Fidelity Investments Benefits.