Retirement doesn't seem to be on the minds of many Americans. To see just how much the people know when it comes to financially preparing for their later years, Fidelity Investments conducted a retirement IQ test.
The results were not stellar: The average score was 30 percent, The Washington Post reports.
One question was particularly perplexing to respondents: If you were able to set aside $50 each month for retirement, how much would that end up becoming 25 years from now, including interest, if it grew at the historical stock market average?
a. About $15,000
b. About $30,000
c. About $40,000
d. About $60,000
e. More than $60,000
The correct answer is about $40,000, assuming a seven percent rate of return. Only 16 percent of the 2,000 respondents answered correctly.
"Nearly half (47 percent) underestimated how big an impact relatively small savings can have over time," Fidelity reports. What's more, "27 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 7 percent."
The point is, even a little bit of savings can go a long way, thanks to the power of compound interest, and the sooner you start, the better. As CNBC's "Mad Money" host Jim Cramer has said, "The magic of compounding works best the younger you are, because that means you have more time for your money to grow."
If $50 a month — or any amount, for that matter — sounds daunting, put your savings on auto-pilot, meaning have a certain amount of money deducted from your paycheck or checking account and sent to a retirement account each month. That way, you'll never even see the money and learn to live without it.
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