American savers are in fair shape when it comes to retirement preparedness, Fidelity Investments reported last week.

Fidelity’s biennial retirement savings assessment study showed that Americans’ retirement score had reached a record high 80, which means that the typical saver is on track to have 80% of the income Fidelity estimates he will need to cover retirement costs.

This represents a big improvement over a score of 62 in 2005, when the first assessment was conducted.

Even with the improvement, the study found that half of survey respondents were at risk of not being able to fully cover essential expenses in retirement.

Fidelity said in a statement that its retirement savings assessment was built on data from responses to a survey that were run through the retirement planning platform it uses every day with customers.

The end result is a numerical indicator that shows whether savers are on target to meet their estimated income needs. The score places households into four categories, linked to a numerical range, on the retirement preparedness spectrum, based on their ability to cover all of their estimated retirement expenses in a down market:

  • Needs attention, 0 – 65
  • Fair, 66 – 80
  • Good, 81 – 95
  • On target, 96 – 150+

GfK Public Affairs and Corporate Communication conducted the national online survey from Sept. 14 through Oct. 3 of 3,182 working households earning at least $20,000 annually, with respondents aged 25 to 74. All respondents expected to retire at some point and had already started saving for retirement.

Generational Shift

Fidelity’s retirement score enables comparative views of preparedness across generations.

In the new study, baby boomers had a score of 86, up from 85 two years ago, with the availability of pensions playing a big role. Although boomers were in reasonably good shape to cover essentials, they had less time to act and fewer options to improve their preparedness, according to Fidelity. It said the most important thing they can do is to consider working longer.

Gen Xers’ retirement score remained flat at 77. In their favor, however, was that they had 12 or more years to improve. Fidelity said Gen Xers’ most powerful steps were to increase savings and consider working longer.

Millennials showed the most improvement, with a retirement score of 78, up from 76 two years ago. As a result, Fidelity noted, they had caught up with Gen Xers, thanks in part to stock market gains in relation to their investment time horizon.

Even with the benefit of time on their side to save and invest, however, the data suggested that millennials’ savings rates were flat and they were not investing aggressively enough. For this generation, the most important step to improve preparedness is to consider working longer, Fidelity said.

“Millennials are clearly putting money aside for retirement and taking more control of their personal situations to ensure a financially secure future,” Ken Hevert, Fidelity’s senior vice president of retirement, said in a statement.

“While younger generations typically don’t have jobs with access to pensions as a source of guaranteed retirement income, there are many actions that can be taken to improve retirement readiness, including saving more, managing debt and making smart investment decisions.”

Improving Retirement Preparedness

Fidelity saw as an encouraging sign in its new assessment that the average household was just one point away from moving into the good zone (81 – 95), meaning most savers will be on track to cover essential expenses in retirement.

One reason for this improvement is that investors are saving more, driven by a higher median savings rate: now at 8.8%, up from 3.6% in 2006. According to the study, boomers saved 9.9% of their salaries, up from 9.7% in 2016, while millennials held steady at 7.5%.

However, both rates fell well short of Fidelity’s suggested total savings rate of at least 15%, including employer contributions.

In addition, the percentage of respondents who allocated their assets in a way Fidelity considers age appropriate held steady at 55%, down two points from 2016, but a significant improvement over 2006 when just 48% allocated their assets in an age-appropriate manner.

Fidelity noted that the improvement is in part a result of many workplace retirement plans having begun to default employees into target date funds and managed accounts.

According to the study, many people may not be planning adequately for retirement because they are unsure where to start or worry their personal retirement income goal may be unattainable.

However, the findings pointed to actions individuals can take to gain better control over their financial future and boost retirement preparedness: increase savings, review and adjust asset allocation, and delay retirement.

“The fact that the retirement score moves so dramatically when all three ‘accelerators’ are applied is a clear demonstration of the profound impact simple steps can have on retirement preparedness,” Hevert said.

“While these actions taken separately are clearly helpful, taking steps to improve your preparedness on several fronts can have a multiplier effect, which could help bring you from good to great.”

In another finding, the new assessment showed that respondents who said they had a health savings account tended to have higher retirement scores: 84, compared with 79 for those without a HSA.

Fidelity, which provides HSAs, said that the evidence strongly suggests that taking advantage of this savings vehicle, if it is available, is good for a household’s overall financial position and indicative of good savings habits, regardless of income level.

— Check out Top 15 Best States for Retirement: 2018 on ThinkAdvisor.