American savers are in fair shapewhen it comes to retirement preparedness, Fidelity Investmentsreported last week.

Fidelity's biennial retirement savings assessment study showed that Americans'retirement score had reached a record-high 80, which means that thetypical saver is on track to have 80 percent of the income Fidelityestimates 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 surveyrespondents were at risk of not being able to fully cover essentialexpenses in retirement.

Fidelity said in a statement that its retirement savingsassessment was built on data from responses to a survey that wererun through the retirement planning platform it uses every day withcustomers.

The end result is a numerical indicator that shows whethersavers are on target to meet their estimated income needs. Thescore places households into four categories, linked to a numericalrange, on the retirement preparedness spectrum, based on theirability to cover all of their estimated retirement expenses in adown market:

• Needs attention, 0–65
• Fair, 66–80
• Good, 81–95
• On target, 96–150+

From September 14 through October 3, 2017, GfK Public Affairsand Corporate Communication conducted the national online survey of3,182 working households earning at least $20,000 annually, withrespondents aged 25 to 74. All respondents expected to retire atsome point and had already started saving for retirement.

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Generational Shift

Fidelity's retirement score enables comparative views ofpreparedness across generations.

In the new study, baby boomers had a score of 86, up from 85 twoyears 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 theirpreparedness, according to Fidelity. It said the most importantthing 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. Fidelitysaid Gen Xers' most powerful steps were to increase savings andconsider working longer.

Millennials showed the most improvement, with a retirement scoreof 78, up from 76 two years ago. As a result, Fidelity noted, theyhad caught up with Gen Xers, thanks in part to stock market gainsin relation to their investment time horizon.

Even with the benefit of time on their side to save and invest,however, the data suggests that millennials' savings rates are flatand they are not investing aggressively enough. For thisgeneration, the most important step to improve preparedness is toconsider working longer, Fidelity said.

“Millennials are clearly putting money aside for retirement andtaking more control of their personal situations to ensure afinancially secure future,” Ken Hevert, Fidelity's senior vicepresident of retirement, said in a statement.

“While younger generations typically don't have jobs with accessto pensions as a source of guaranteed retirement income, there aremany actions that can be taken to improve retirement readiness,including saving more, managing debt, and making smart investmentdecisions.”

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Improving Retirement Preparedness

Fidelity saw as an encouraging sign in its new assessment thatthe average household was just one point away from moving into the“good” zone (81–95), meaning most savers will be on track to coveressential expenses in retirement.

One reason for this improvement is that investors are savingmore, driven by a higher median savings rate: now at 8.8 percent,up from 3.6 percent in 2006. According to the study, boomers saved9.9 percent of their salaries, up from 9.7 percent in 2016, whilemillennials held steady at 7.5 percent.

However, both rates fell well short of Fidelity's suggestedtotal savings rate of at least 15 percent, including employercontributions.

In addition, the percentage of respondents who allocated theirassets in a way Fidelity considers age appropriate held steady at55 percent, down two points from 2016, but a significantimprovement over 2006 when just 48 percent allocated their assetsin an age-appropriate manner.

Fidelity noted that the improvement is, in part, a result ofmany workplace retirement plans having begun to default employeesinto target date funds and managed accounts.

According to the study, many people may not be planningadequately for retirement because they are unsure where to start orworry their personal retirement income goal may beunattainable.

However, the findings pointed to actions individuals can take togain better control over their financial future and boostretirement preparedness: increase savings, review and adjust assetallocation, and delay retirement.

“The fact that the retirement score moves so dramatically whenall three 'accelerators' are applied is a clear demonstration ofthe profound impact simple steps can have on retirementpreparedness,” Hevert said.

“While these actions taken separately are clearly helpful,taking steps to improve your preparedness on several fronts canhave a multiplier effect, which could help bring you from good togreat.”

In another finding, the new assessment showed that respondentswho said they had a health savings account tended to have higher retirement scores:84, compared with 79 for those without a HSA.

Fidelity, which provides HSAs, said that the evidence stronglysuggests that taking advantage of this savings vehicle, if it isavailable, is good for a household's overall financial position andindicative of good savings habits, regardless of income level.

From: ThinkAdvisor