American savers are in fair shape when it comes to retirement preparedness, Fidelity Investments reported recently. Fidelity’s biennial retirement savings assessment study finds that Americans’ retirement score 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, though, the study reveals that half of survey respondents are at risk of not being able to fully cover essential expenses in retirement.
Fidelity said in a statement that its retirement savings assessment is built on data from responses to a survey run through the retirement planning platform it uses every day with customers. The 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 estimated retirement expenses in a down market: needs attention, 0–65; fair, 66–80; good, 81–95; and on target, 96–150+.
The national online survey includes responses from nearly 3,200 working households earning at least $20,000 a year in the fall of 2017. Respondents range in age from 25 to 74 and expect to retire at some point and have already started saving for retirement.
Fidelity’s retirement score enables comparative views of preparedness across generations. In the new study, baby boomers have a score of 86, up from 85 two years ago, with the availability of pensions playing a big role.
Although boomers are in reasonably good shape to cover essentials, they have less time to act and fewer options to improve their preparedness, according to Fidelity. Many are considering working longer.
Gen Xers’ retirement score remains flat at 77. In their favor, however, is the fact that they have 12 or more years to improve. Fidelity said Gen Xers’ most powerful steps are to increase savings and consider working longer.
Millennials show the most improvement, with a retirement score of 78, up from 76 two years ago. As a result, Fidelity notes, they have 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 for saving and investing, though, the data suggest that millennials’ savings rates are flat and that they are not investing aggressively enough. For this generation, the most important step to improve preparedness is to consider working longer, Fidelity said.
“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,” explained Ken Hevert, Fidelity’s senior vice president of retirement, in a statement.
Improving Retirement Preparedness
Fidelity sees as an encouraging sign in its new assessment: The average household is 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.