Many consumers are not sure about how interest rates work.

While many young people may be thinking about getting involved with retirement plans, they may not have all the facts. Some information may have familiar words attached, but much could be confusing when breaking the ideas down.

Nearly one-quarter of Americans explained that they have no idea about how interest rates affect retirement accounts such as 401(k)s and IRAs, according to a report from Edward Jones. Interest rates can change, and many Americans were unsure how this worked. Of those ranging between 18 and 34 years of age, more than 30 percent noted they did not know how these aspects functioned. However, this doesn’t change much as a person gets older. Approximately one-quarter of those in the retirement age group explained they are unaware of how this works, as well.

“While it’s hard to know exactly where interest rates will go in the coming weeks and months, we believe over the long-term that rates will continue to rise,” said Tom Kersting, fixed income strategist at Edward Jones. “Fixed income is still an important part of an overall investment portfolio, but we want to remind investors that now is the time to consider buying shorter- and intermediate-term bonds, rather than just longer-term bonds.”

Both men and women seem to be unclear on how these options work, with nearly the same percentage of each gender reporting some level of confusion, the report noted. However, close to 30 percent of women said they have no idea how interest rates affect these tools, while nearly 20 percent of men explained the same.

Retirement savings an issue for many
While it may or may not have to do with a lack of understanding of retirement accounts as part of a greater financial strategy, many consumers might be struggling with their contributions.

Nearly 20 percent of Americans are saving less now for retirement than they did last year, according to a report from Close to 55 percent haven’t changed their contribution, while less than one-fifth are spending more on their retirement needs.

Even with the low numbers, there was some improvement in those who are cutting spending levels. The report added that three years ago, nearly 30 percent of those with retirement plans cut their overall savings as a part of their retirement strategies.

Posted by admin