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Retirement Preparedness Estimates Fall Back Into the ‘Yellow Zone’

News Team
Fidelity Investments is out with its latest Retirement Savings Assessment showing a decline in retirement readiness, as Americans continue to navigate ongoing market volatility and disruption. The firm projects that the median “Retirement Score” has moved back into the yellow zone at 78—a five-point decline from an all-time high of 83 reported in 2020. As a result, American savers are estimated to have only 78% of the income needed to cover expenses during retirement. Fidelity’s assessment also finds that more than half (52%) of those surveyed may need to make modest-to-significant adjustments to their retirement lifestyle if they don’t take action to make up for the shortage. Additionally, more than a third (34%) of households are in the red on the preparedness spectrum, meaning significant adjustments may be likely for these households. The assessment is based on a household’s ability to cover estimated retirement expenses in a down market. Fidelity notes that it uses an underperforming market for planning projections based on Monte Carlo simulations, which leads to more conservative results. While using a lower confidence level would improve results, it also increases the risk that investors would fall short of projections, the firm notes. So what’s leading to the decline in preparedness? Fidelity suggests that it is being driven by two primary factors: people are saving less and investing more conservatively, which it notes are “natural reactions” during a challenging financial environment. In fact, among those taking a conservative approach, nearly 6 in 10 (57%) respondents expressed concern about losing their savings by investing too aggressively. What’s more, even though Americans across generations have more money saved since 2020 (up by $40,000), Millennials and Boomers decreased their savings rate—down by 0.2% and 2.2%, respectively—while Gen X-ers increased their savings rate by 1.4%. Looking at median incomes, Millennials saw the biggest increase since 2020 (up by $12,500), while Gen X stayed flat ($120,000). The study also finds the percentage of respondents allocating assets in a manner Fidelity considers age-appropriate is at 59.4%—a slight decline (by 0.6%) from 2020. Millennials saw the largest drop at 2%, which means that many may not have the appropriate number of equities when considering their long-term goal. 3 Steps to Take Control Meanwhile, with 52% of American households at risk of not being able to cover essential expenses in retirement, Fidelity offers what it calls three “preparedness accelerators” to help improve their situation: “Taking these three actions in tandem can bring America’s retirement score all the way from yellow to dark green,” observes Rita Assaf, Vice President of Retirement at Fidelity Investments. “However, even taking just one of these actions can significantly improve preparedness. With everyone having unique circumstances though, it’s important to customize what works best for your household.” The study’s findings are the culmination of a year-long research project that analyzed the overall retirement readiness of American households based on data such as workplace and individual savings accounts, Social Security benefits, pension benefits, inheritances, home equity and business ownership. Data was collected through a national online survey of 3,569 working households earning at least $25,000 annually with respondents age 25 to 75, from Aug. 22–Sept. 26, 2022.
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