Americans’ Retirement Saving Improves, But Not Enough

More Americans are saving for retirement today compared to recent years, however, their investments may not be enough to cover basic living expenses when they finally decide to leave the workforce, according to a new study.

The number of people who are likely to afford at least their essential expenses in retirement improved seven percentage points since 2013, from 38% to 45%, according to the latest Fidelity Investments biennial Retirement Savings Assessment. While the increase may appear reassuring, 55% of people are estimated to be at risk of being unprepared to completely cover their most essential living expenses in retirement, such as housing, health care and food.

Fidelity collected data during August 2015 through a national online survey of 4,650 working households earning at least $20,000 annually. Respondents ranged between age 25 to 75.

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Using a unique Retirement Preparedness Measure (RPM), Fidelity processed participants’ responses, giving them a single score that measures a household’s ability to cover estimated expenses in retirement. This score then places respondents into four categories that are linked to a numeric range based on a household’s ability to cover retirement expenses in a down market.

Of all survey respondents, 32% fell into the category that their retirement preparedness “Needs Attention,” whereas 23% scored “Fair” and 18% scored “Good.”

Households who are “On Track” to cover their retirement costs represented 27% of all those surveyed. Respondents falling into this category, according to Fidelity, are on-track to cover more than 95% of their total estimated expenses.

Respondents scoring “Good,” while they are on-track for essential retirement expenses, they are not prepared well for discretionary expenses like travel or entertainment. Meanwhile, “Fair” households are not on track and will likely require modest adjustments to their planned lifestyle.

For those who scored “Needs Attention,” their savings are not on-track at all and will require significant adjustments to their planned lifestyles. Although 32% of respondents fall into this group, this share has diminished over the years, dropping from 43% in 2013.

Overall, America’s retirement score has been improving, reaching a median score of 76 to fall in the “Fair” zone, an increase from 69 in 2013. This means many will fall short of completely covering their estimated essential retirement expenses, potentially requiring them to make sacrifices such as spending cuts that may diminish their quality of life, Fidelity notes. The good news: collectively, Americans are only four percentage points away from moving into the “Good” territory.

Fidelity indicates the improvement is driven in large part by across-the-board progress in savings and how investments are being allocated. In terms of savings, Americans’ median savings rate improved from 7.3% to 8.5%

Breaking down respondents by age, Millennials showed the largest improvement, growing from 5.8% to 7.5%, whereas Baby Boomers saved the most, stashing away 9.7% of their salaries, an increase from 8.1% in 2013. Boomers’ savings rate, however, is still below Fidelity’s recommended total savings rate of at least 15%.

“Even in the midst of unsteady market conditions and pockets of global instability, it’s extremely encouraging that so many people have taken positive steps to improve their ability to live comfortably in retirement, with many saving more, spending less and making smart investment decisions,” said John Sweeney, executive vice president of Retirement and Investment Strategies at Fidelity. “While many aren’t completely on track, there are steps people can take—regardless of age or income level—to help get on a path to green and plan for their someday.”

View the Fidelity Investments Retirement Savings Assessment.

Written by Jason Oliva

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