Retirement crisis? What retirement crisis?
American savers have steadily improved their retirement readiness over the last 15 years and have 83 percent of the income they’ll need over the course of their retirement.
Fidelity Investments’ latest Retirement Savings Assessment finds that America’s retirement score has moved into its green category.
Even with this improvement, however, the study reveals 28% of those surveyed are in the red, “meaning significant adjustments to their planned retirement lifestyle are likely if they don’t take action to make up the shortfall.”
It uses a numerical score to illustrate whether savers are on target to meet estimated income needs. The score places households into four categories (linked to a numerical range or percentage) on the retirement preparedness spectrum, based on a household’s ability to cover their estimated retirement expenses in a down market:
“We are encouraged that the typical American household saving for retirement is now in the green when it comes to affording their planned lifestyle in retirement, which is a testament to the hard work many families have made taking control of their finances,” Melissa Ridolfi, vice president of retirement and college leadership at Fidelity Investments, said in a statement.
What moved investors into the green?
The results are far different than the first survey in 2006, when the score (then known as the “retirement readiness index”) placed the median American household deep in the red.
Much of the improvement over the course of 15 years can be attributed to two important factors:
Investors are saving more
The median savings rate has been increasing steadily: now at 10%, which is an improvement over 2018 levels of 8.8% and up significantly from 3.6% in 2006.
Boomers saved the most, stashing away 11.7% of their salaries, an increase from 9.9% in 2018.
Millennials also increased their median savings rate, improving from 7.5% in 2018 to 9.7% in 2020, a level that is now on par with Generation X, who still improved from 8.6% in 2018.
Despite this, all savings levels are still well below Fidelity’s suggested total savings rate of at least 15 percent7, which includes employer contributions.
Asset allocation has improved
The percentage of respondents allocating their assets in a manner Fidelity considers age-appropriate was at 60%, which is a two percentage point increase from 2018 levels and a notable improvement over 2006 levels, when less than half—48%—allocated their assets in an age-appropriate manner.
One reason: this past decade, many workplace retirement plans have begun defaulting employees into target-date funds and managed accounts.