Perhaps most disheartening about the study was that most Americans think they are planning for retirement adequately. In fact, more than half — 55% — consider themselves well-prepared to meet their income needs in retirement, and an astounding 91% are at least moderately confident in their ability to achieve a secure retirement.

Despite the confidence, nearly seven out of ten Americans did not know of the “4%” retirement rule — a rule of thumb annual withdrawal rate often cited by planners as safe to keep in retirement. Some 16% of those surveyed thought it was allowable to take 6%, or even 8% out annually. One in five actually went under the rule, saying they thought 2% to be the safest rate.

The new research also showed that despite having to make many of their investment choices before they reached retirement age, only 39% of Americans understand that when interest rates rise, the value of bond funds decrease. To boot, and less than one in ten — 7% — understand small company stock funds have a higher return over time than large company stock funds, dividend paying stock funds or high-yield bond funds.

"At age 25 or 35, these responses would be problematic but forgivable, because there’s plenty of time to make up for any mistakes," Littell said. "But at 65 or 70, poor investment decisions can be almost impossible to bounce back from. Even worse, bad decisions can damage both the future growth of a nest egg and the retirement income it can generate over time."

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