Financial Literacy

The Retirement Readiness Of American Investors

Many investors find themselves in the dark

A new study conducted by DALBAR, Inc. found an alarming lack of knowledge among some investors related to their retirement savings. Get a complimentary sample of DALBAR Retirement Planning study. Visit here.

MARLBOROUGH, Mass., Sept. 30, 2021 /PRNewswire/ — A new study from DALBAR, Inc analyzed over 1,000 investors and examined various factors of their financial plan for retirement. These included what DALBAR calls the 3 Fundamental Questions of Retirement Planning. Those are (1) how much do I currently have saved for retirement, (2) how much will I need at retirement? and (3) what are my chances of having what I need?

The study found that a surprisingly significant portion of investors do not know the answers to these 3 fundamental questions, and that not knowing the answers to these questions led to lower satisfaction in one’s overall retirement savings picture.

Fundamental Question #1: Where am I?

When considering the 3 fundamental questions, our current position is a natural place to start. To plan for a goal, we must first identify and understand our starting point. Our current position in our journey should be the easiest of the 3 Fundamental Questions to answer, and it is. In 2021 we are just a few clicks away from seeing any of our investment account balances. However, for some investors, identifying a starting point has been a non-starter in their retirement planning.

DALBAR’s Retirement Planning study found that 14% of investors don’t know what they currently have saved for retirement. Those working with a professional are less likely to have such a blind spot (only 7% do not know what they currently have saved) than those who do not work with an advisor (17% do not know).

While these proportions are not large, the essential nature of the question alongside the ease in which it can be accessed seem to be a foreshadowing of problems investors may run into when addressing more complicated questions like: how much will I need to retire? and Am I on track to get there?

Fundamental Question #2: Where do I Want to Go?

You don’t have to be smart enough to invent electricity to know that you can’t plan for a goal if you don’t know what the goal is. Many self-help gurus will emphasize the importance of seeing and visualizing the goal at hand. It stands to reason that on the path to a dignified retirement, one must understand what a dignified retirement means to them and what proportion of their current income they want to replace at retirement to achieve it. This is a simple thought exercise that requires some brainstorming, but no special expertise or sophisticated software. It does require one to go through the process and 39% of Americans have not gone through that process. Of the 3 Fundamental Questions, this is the one for which the most Americans had no answer.

On the surface, it would seem that nobody needs an advisor to estimate the level of retirement savings needed. After all, nobody else could understand an investor’s spending habits or vision for their future better than the investor. However, there are many uncertainties that complicate the process of coming up with an accurate estimate, such as future inflation, healthcare needs, insurance coverage, living situation, etc. All these uncertainties may be acting as a barrier for some to come up with any estimate at all.

Talking about financial literacy, the importance of planning for retirement, and giving it the seriousness it deserves, will help to elevate this important issue into the consciousness of the American people...

Working with an advisor should help to make the estimate more accurate, but the presence of an advisor increases the likelihood of having an estimate at all. More than 7 out of 10 individuals with a financial advisor have an estimate of what they’ll need for retirement while only 4.5 out of 10 DIY investors have identified a retirement savings goal. In summary, it’s uncommon for people to estimate their retirement savings goal on their own.

Fundamental Question #3: Am I on Track to Get There?

Answering this question is a little more intricate, as it requires a projection of where one will be at some future date. Such a projection may require a digital tool or some degree of financial expertise. If a projection of retirement savings at the desired retirement age has been made and it’s greater than or equal to the answer to Fundamental Question #2, the investor is on track; if not, changes should be considered.

Twenty-two percent (22%) of investors do not have an estimate of what they will have saved at retirement. For these investors, they have not projected where they will be at retirement and therefore have little basis to determine whether they are on track or what changes to make. One can only hope that the answer to this question is favorable. If it is not, it will remain unchecked until the 3 Fundamental Questions of Retirement Planning are answered.

The third fundamental question is no different than the previous two in that the use of a financial professional makes an investor more likely to have an answer. Those without an advisor are 3 times more likely to not have an estimate of what they’ll have saved at retirement. Less than 10% of investors with a financial professional do not have an estimate of what they will have saved at retirement while 30% of do-it-yourself investors lack such an estimate.

Having A Plan

DALBAR’s Retirement Planning Study comes as the industry awaits guidance from the Department of Labor regarding the lifetime income disclosure requirements that were brought forth by the SECURE Act in 2019.

“An important takeaway from this study is that investors need to know more than just what they have saved or will have saved at retirement. Investors also need to understand what their goal should be to lead a dignified retirement. This is a question that many Americans are struggling to answer and one that I hope is addressed in the upcoming DoL guidance.” said Cory Clark, Chief Marketing Officer at DALBAR, Inc.

The study also found that investors who work with a financial professional are significantly more likely to have the 3 Fundamental Questions of Retirement Planning answered.

“The retirement readiness of American workers is an important social issue. Talking about financial literacy, the importance of planning for retirement, and giving it the seriousness it deserves, will help to elevate this important issue into the consciousness of the American people. October is National Retirement Security Month, so it’s a great time for the industry to speak loudly about the importance of having a plan and prioritizing retirement savings.” Clark added.




DALBAR, Inc. is the financial community’s leading independent expert for evaluating, auditing and rating business practices, customer performance, product quality and service.