5 Proven Ways to Have 25% More Retirement Money
But, what if I told you that the National Bureau of Economic Research—with professors from the University of Pennsylvania, George Washington University, and North Carolina State University—released a study that promises just that: An easy solution to get rich quick.
Don't believe me?
The study, titled "Financial Knowledge and 401(k) Investment Performance", found that people with a higher financial knowledge see greater long-term investment gains.
While a 1.3% gap may not seem like much, that adds up to more than 25% over a 30 year career. Talk about more financial freedom.
How did the study assess an individual's financial knowledge? By asking 5 simple questions:
- Interest Rate: Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow? More than $110, Exactly $110, Less than $110
- Inflation: Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account? More than today, Exactly the same , Less than todayImage by / pixabay.com
- Risk: Is this statement True or False? Buying a single company’s stock usually provides a safer return than a stock mutual fund. True, False
- Tax Offset: Assume you were in the 25 percent tax bracket (you pay $0.25 in tax for each dollar earned) and you contributed $100 pretax to an employer’s 401(k) plan. Your take-home pay (what’s in your paycheck after all taxes and other payments are taken out) will then: Decline by $100, Decline by $75, Decline by $50, Remain the same
- Match: Assume that an employer matched employee contributions dollar for dollar. If the employee contributed $100 to the 401(k) plan, his account balance in the plan including his contribution would: Increase by $50, Increase by $100, Increase by $200, Remain the same
So, how did you do?
The research showed that few Americans can answer even just the first three questions correctly.
"The first measures people’s ability to do a simple interest rate calculation," the study says. "The second tests people’s understanding of inflation; and the third is a joint test of knowledge about 'stocks' and 'stock mutual funds' as well as risk diversification, since the correct response requires the respondent to know what a stock is and that a mutual fund is comprised of many stocks."
Here are the correct answers by the way:
- More than $110
- Less than today
- Decline by $75
- Increase by $200
Knowing the answers to these five questions has a fairly direct correlation to having 25% more money when you retire. It's one "get rich quick" idea that actually works.
Published on Oct 12, 2016By Ryan Vanzo