Three Actions Can Help Significantly Improve Retirement Readiness
Want to Know Where You Stand? Fidelity Introduces New Personal Retirement
BOSTON–(BUSINESS WIRE)–What a difference two years can make. According to Fidelity Investments®’
biennial Retirement Savings Assessment study, which features a
unique Retirement Preparedness Measure (RPM), people are saving
more and investing more appropriately for their age, improving the
overall state of retirement readiness of households in America. As a
result of this positive behavior, the number of people who are likely to
afford at least their essential expenses1 in retirement
jumped seven percentage points since 2013, from 38 to 45 percent.
However, this means more than half (55 percent) are estimated to be at
risk of being unprepared to completely cover essential living expenses
in retirement, which includes housing, health care and food.
Fidelity’s RPM factors in comprehensive data from 4,650 survey responses
that are then run through the extensive retirement planning platform
Fidelity uses every day with customers2. The end result: a
single score measuring a household’s ability to cover estimated expenses
in retirement, which also provides a view of preparedness across
generations. Using this score, households fall into four categories on
the retirement preparedness spectrum that are linked to a numeric range
based on a household’s ability to cover estimated retirement expenses in
a down market3 (with green representing good/very good and
yellow/red indicating improvement may be needed):
Dark Green: On Track (greater than 95). These households are on
track to cover more than 95 percent of total estimated expenses. 27
percent fall in this category, up from 23 percent in 20134.
Green: Good (81-95). On track for essential expenses, but not
discretionary expenses like travel, entertainment, etc. 18 percent
are in good shape, up from 15 percent in 2013.
Yellow: Fair (65-80). Not on track, with modest adjustments to
their planned lifestyle likely. 23 percent are in the
yellow, up from 19 percent in 2013.
Red: Needs Attention (less than 65). Not on track, with
significant adjustments to their planned lifestyles likely. Although
32 percent are in the red, the number is significantly less than
2013, when 43 percent fell into this category.
America’s Retirement Score is in the Yellow, But Getting Greener
If America were assigned a score representing the state of retirement
preparedness, what would it be? The data reveals America’s retirement
score5 to be 76, which is in the “yellow zone,” meaning many
will fall short of completely covering estimated essential retirement
expenses and potentially require sacrifices such as spending cuts in
retirement that may diminish their quality of life, especially if the
market experiences a severe downturn. However, the good news is that
collectively, Americans are now only four percentage points away from
moving into the “green zone,” a significant improvement from 2013, when
the score was 69.
This improvement is driven in large part by across-the-board progress in
savings and how investments are being allocated. On the savings front,
Americans’ median savings rate improved from 7.3 to 8.5 percent6.
Millennials showed the greatest improvement, increasing from 5.8 to 7.5
percent. Boomers saved the most, stashing away 9.7 percent of their
salaries, up from 8.1 percent—but still below Fidelity’s recommended
total savings rate of at least 15 percent7. People also made
significant improvements in making smart investing strategy decisions
and understanding how to allocate assets based on their age. In 2015, 62
percent of respondents had allocated their assets in a manner Fidelity
considers age appropriate8, compared to 56 percent in 2013.
“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
Retirement Preparedness by Generation
One thing that makes this score unique is its ability to enable
comparative views of preparedness across generations. According to this
year’s data, here’s how retirement preparedness stacks up by age:
|Generation||RPM Score9||Important to note:|
Getting to Green: Three Accelerators to Improve Retirement Readiness
Many people may not be planning adequately for retirement because they
are unsure where to start or are concerned their personal retirement
income goal may be unattainable. However, the findings clearly
demonstrate actions that can be taken to gain better control over your
financial future and boost your retirement preparedness. These include:
Raise savings. Even small increases in savings can make a big
difference. Some relatively painless ways include investing salary
increases into savings or increasing contributions to a workplace
savings plan by just one percent every year. Make the most of
tax‐advantaged savings vehicles such as 401(k)s, 403(b)s, IRAs, Health
Savings Accounts and tax‐deferred annuities. Also consider a Roth IRA10
or 401(k), where contributions are after‐tax but withdrawals are
income tax free. As a general guideline, set an annual goal of saving
15 percent or more of your income (including any employer match you
may have). Saving at this level pays off: by adjusting the savings
rate to at least 15 percent, the median RPM score of 76 increases to
Review your asset mix. Although you can’t anticipate market
behavior, you can build the potential for long-term growth into your
portfolio through investment choices and exposure to various asset
classes that can provide growth and outpace inflation, while also
limiting downside risk. By replacing portfolios that appear to be
either too conservative or too aggressive with an age
appropriate allocation, the median RPM score of 76
increases to 78.
Retire later. The longer you can wait, the more time there is
to build savings. In addition, waiting until at least the time you’re
entitled to full Social
Security Retirement benefits11 (between 65-67) may
help increase your monthly benefit. If you can afford to wait until
your full retirement age, your monthly Social Security income will
increase by 30 percent12. By adjusting the expected
retirement age slightly, from the median reported retirement age of 65
to between 66-67, the median RPM score of 76 increases to 86.
“Our analysis shows that using these three ‘accelerators’—either
individually or in combination—can have a substantial impact on
retirement readiness,” said Sweeney. “In fact, when all three are
applied, America’s retirement score jumps all the way to 100, putting
many more individuals in a better financial position to truly enjoy
their retirement years.”
Want to Know Where You Stand? Check out Your RPM Using Fidelity’s Retirement
Every individual’s retirement vision is unique, and every “someday”
starts with a plan. One of the first steps to creating a plan is to know
where you stand on the retirement preparedness spectrum and whether you
are on track to meet your goals. With this in mind, Fidelity has
introduced the ability for everyone to quickly and easily estimate what
retirement score is—and how they stack up against others—by
answering a few key questions.
Fidelity customers can also use Fidelity’s new online Planning
& Guidance Center, either online or with the help of a Fidelity
investment professional, to dive deeper into their retirement score.
Within the Center, customers can create or view their retirement plan,
identify specific steps to improve their readiness, model outcomes, and
make adjustments to their plan, when needed, to help ensure they stay on
track to achieve their goals. In addition, Fidelity offers a variety of
Educational Fidelity Viewpoints® articles, including “Give
your savings a check-up” and a Retirement
Roadmap Special edition devoted exclusively to retirement planning.
Designed for a younger generation, Fidelity.com/mymoney
offers videos, infographics and articles on topics related to
budgeting, saving, investing and more, including a video weighing the
financial ramifications of paying off student loan debt or saving for
retirement and an infographic showing the impact of saving 1% more for
and online learning modules to help learn about key retirement
issues and how to prepare for them.
Fidelity offers its workplace retirement plan employees Plan for Life,
which delivers personalized experiences to engage, educate, and drive
employees to take simple steps toward improving their financial
future, today and into retirement.
About the Fidelity Investments® Retirement
The findings in this study are the culmination of a year-long research
project with Strategic Advisers, Inc.—a registered investment advisor
and a Fidelity Investments company—that analyzed the overall retirement
preparedness of American households based on data such as workplace and
individual savings accounts, Social Security benefits, pension benefits,
inheritances, home equity and business ownership. The analysis for
working Americans projects the retirement income for the average
household, compared to projected income need, and models the estimated
effect of specific steps to help improve preparedness based on the
anticipated length of retirement.
Data for the Fidelity Investments Retirement Savings Assessment were
collected through a national online survey of 4,650 working households
earning at least $20,000 annually with respondents age 25 to 75
throughout August 2015. All respondents expect to retire at some point
and have already started saving for retirement. Data collection was
completed by GfK Public Affairs and Corporate Communication using GfK’s
KnowledgePanel®, a nationally-representative online panel. The responses
were benchmarked and weighted against the 2014 Current Population Survey
by the Bureau of Labor Statistics. GfK Public Affairs and Corporate
Communication is an independent research firm not affiliated with
Fidelity Investments. Fidelity Investments was not identified as the
Fidelity’s Retirement Preparedness Measure (RPM) is calculated through
the proprietary asset-liability modeling engine of Strategic Advisers,
Inc., which has been providing asset allocation, retirement and
tax-sensitive investment management services to Fidelity’s individual
and institutional clients for nearly two decades. Of note, Fidelity
continually enhances and evolves the retirement readiness methodology,
guidance tools and product offerings. This year’s survey processing
include a number of enhancements including, but not limited to,
demographic weighting, retirement income projections and social security
estimates. To enable a direct comparison, the previously-reported 2013
RPM results have been recalculated using the enhanced methodology.
This analysis is for educational purposes and does not reflect actual
investment results. An investor’s actual account balance and ability to
withdraw assets during retirement at any point in the future will be
determined by the contributions that have been made, any plan or account
activity, and any investment gains or losses that may occur. For more
information on Fidelity Investments® Retirement Savings
Assessment, an executive
summary and infographic
can be found on Fidelity.com.
About Fidelity Investments
Fidelity’s goal is to make financial expertise broadly accessible and
effective in helping people live the lives they want. With assets under
administration of $5.2 trillion, including managed assets of $2.1
trillion as of November 30, 2015, we focus on meeting the unique needs
of a diverse set of customers: helping more than 24 million people
invest their own life savings, nearly 20,000 businesses manage employee
benefit programs, as well as providing nearly 10,000 advisory firms with
technology solutions to invest their own clients’ money. Privately held
for nearly 70 years, Fidelity employs 42,000 associates who are focused
on the long-term success of our customers. For more information about
Fidelity Investments, visit www.fidelity.com/about.
IMPORTANT: The projections or other information generated by the
Fidelity Retirement Score and Fidelity’s Planning & Guidance Center
Retirement Analysis regarding the likelihood of various investment
outcomes are hypothetical in nature, do not reflect actual investment
results, and are not guarantees of future results. Your results may vary
with each use and over time.
Guidance provided by Fidelity is educational in nature, is not
individualized, and is not intended to serve as the primary basis for
your investment or tax-planning decisions.
Fidelity Investments and Fidelity are registered service marks of FMR
Fidelity Brokerage Services LLC, Member NYSE, SIPC
Salem Street, Smithfield, RI 02917
Fidelity Investments Institutional Services Company, Inc.
Salem Street, Smithfield, RI 02917
National Financial Services LLC, Member NYSE, SIPC
Seaport Boulevard, Boston, MA 02110
© 2016 FMR LLC. All rights reserved.
1 The survey assumes that 80 percent of estimated retirement
expenses are essential.
2 Fidelity’s planning tools are powered by its
Asset-Liability Modeling (ALM) engine.
3 Fidelity uses a down market for planning projections based
on Monte Carlo simulations and its asset liability model. Down market
indicates that in 10 percent of market simulations the market would be
worse, and in 90 percent of simulations the market would perform better.
Using down markets as a planning measure leads to conservative results.
Using a lower confidence level would improve results, but increase the
risk that investors would fall short of projections.
4 Previously-reported 2013 numbers have been recalculated for
a fair comparison.
5 This number represents the median RPM score derived from
the Retirement Savings Assessment.
6 This number represents the median savings rate reported by
respondents. The savings rate is defined as total household savings
divided by total household annual, pre-tax income.
7 The rule of thumb of saving at least 15 percent assumes no
8 “Appropriate” refers to what Fidelity considers
to be an appropriate mix, based on data reported in the Retirement
Savings Assessment about an individual’s equity allocation distribution
that is placed into four categories, based on that person’s age. Those
categories are “On track”: within 25 percent on target date equity
allocation; “Aggressive”: an equity percentage more than 25 percent
above the age-appropriate target equity; “Conservative”: an equity
percentage less than 25 percent below the age-appropriate equity target;
as well as a category for assets held in a Target Date Fund.
9 These numbers represent the median RPM scores by
generation, based on the average age of household.
10 A distribution from a Roth IRA is tax free and penalty
free, provided the five-year aging requirement has been satisfied and
one of the following conditions is met: age 59½, disability, qualified
first-time home purchase or death.
11 Fidelity has not been involved in the preparation of the
content supplied at this unaffiliated site and does not guarantee or
assume any responsibility for its content.
12 The basis for this increase: comparing one’s Social
Security income at full retirement age of 67 against one’s projected
Social Security income at the “early eligibility age” of 62. If you can
wait even longer to collect your Social Security benefit, you will be
eligible for delayed retirement credits which will increase your benefit
an additional eight percent each year up until age 70 (for those born