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."
