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.
"Participants can fall behind in their retirement savings simply because they don't know how much to save, and because they don't understand the impacts of choosing an investment mix or how compound interest works to their benefit," notes the report.
In fact, when employers offered ongoing financial education, employees were 66% more likely to stay with that employer, per the report.
Nathan Fisher, founder and senior executive vice president of Fisher Investments 401(k) Solutions, tells CNBC Make It that it's not surprising that retirement knowledge is lagging for younger workers, who are likely not thinking about 30 to 40 years down the road when they have more imminent financial considerations — like making rent and paying off student loans — to deal with now.
"I personally believe that our brains are wired to deal with things right here, right now," says Fisher. "There's so much to pay attention to and [retirement planning] really gets drowned out."
That said, Fisher believes employers could make it easier for employees to take advantage of retirement options offered to them. In fact, he says a company with a well-run retirement program probably does offer educational opportunities like financial planning sessions, if employees know how to take advantage of them.
He recommends reaching out to your human resources department to see what's available.
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."
Correct answers: 1 & 2. Just 23% of respondents answered correctly.
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