The vast majority of workers under the age of 34 lack basic knowledge about their 401(k) retirement plans, according to the new Financial Wellness in the Workplace Study from Fisher Investments 401(k) Solutions.
The report surveyed 1,000 employees at companies with between five and 350 workers on their retirement knowledge and preparedness, and found that 84% of millennials and Gen Zers failed a test on the basics of 401(k) plans. Though the younger generations performed worse than their older colleagues, Gen X and Baby Boomers didn’t do much better.
Less than a quarter of respondents could correctly identify what a mutual fund is, and 70% didn’t know that there is an age at which they don’t have to pay a fee to withdraw money from their accounts. Most respondents also said they didn’t know how much they needed to save for retirement.
This is far from the first report to highlight that U.S. employees are not confident about their retirement plans, and 25% of Americans have no retirement savings at all.
This study from Fisher Investments 401(k) Solutions noted that many of the respondents don’t have the information they need to be confident in their decision making. But as workers are increasingly responsible for saving for their retirements on their own, that knowledge is essential.
What workers don’t know about their 401(k)s
Here are the two questions Fisher Investments 401(k) Solutions asked that tripped up the most respondents:
Based on rules defined by the Internal Revenue Service at what age can you withdraw money from your retirement plan without a tax penalty?
Correct answer: 6. Just 27% of respondents answered correctly.
Select all the statements below that describe what a mutual fund is. You can select all of the statements or a mix of some of the statements to answer this question. If you are not sure what a mutual fund is you can select “I’m not sure what a mutual fund is.”
- A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors
- The decisions to buy and sell securities in a mutual fund are made by one or more portfolio managers
- A mutual fund is limited to no more than ten different financial securities in the portfolio
- There are no fees associated with owning a mutual fund
- I’m not sure what a mutual fund is
Correct answers: 1 & 2. Just 23% of respondents answered correctly.