Does Financial Sophistication Matter in Retirement Preparedness?

Lack of financial sophistication has been suggested as a cause of retirement plan failure. We extend previous studies of retirement adequacy by testing the effect of financial sophistication proxies on projected retirement adequacy, using the 2010 Survey of Consumer Finances (SCF) dataset. We found that only 44% of households with a fulltime head aged 35 to 60 are adequately prepared for retirement in 2010, compared to 58% in 2007. Our multivariate analysis shows that college educated households are more likely to have an adequate retirement than those with less than a high school degree. Households using a financial planner are more likely to have an adequate retirement than those that do not use one