Fidelity Investments is the latest financial services firm to raise warning flags over the state of readiness when it comes to saving for retirement. In its recently released Retirement Savings Assessment, Fidelity surveyed working Americans and found that there has been a decline in retirement readiness, possibly linked to concerns about inflation and recession. The report scored the financial preparedness of American household and found a five-point decline from the all-time high score of 83, reached in 2020. For the 2023 analysis, the retirement score had moved to 78—indicating that American households had on average 78% of the income needed to cover expenses during retirement.

As with other recent studies, the results may be a reflection of turbulent economic times. With the stock market becoming more volatile, the report said that more conservative investors have become worried about losing their savings by investing too aggressively. This was especially true of millennials, the survey found. From the data, Fidelity reported that millennials saw the biggest declines in preparedness, with decreasing savings rates and a more cautious and conservative approach to investing. "American savers continue to navigate through uncertainty, and as a result, may consider pulling back on saving for the future," said Rita Assaf, vice president of retirement at Fidelity Investments. "When it comes to long-term investing, staying focused on your individual goals is critical. Having a plan in place is one solid way to help weather any storm, as we've seen the last few years and weeks with the pandemic, inflation, and market volatility."

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A decline in preparedness

The Fidelity analysis uses a measurement called "America's Retirement Score," dividing household preparedness into four categories.

  • The highest score, "On Target" indicated households that are able to cover more than 95% of total estimated expenses; 32% of household fell into this category. The report noted this reading was down from 37% in 2020.
  • The second tier was a "Good" score, where households are able to cover at least essential expenses but not discretionary expenses. The analysis found that 16% of households were in this category, down from 17% in 2020.
  • The third tier was "Fair," where modest adjustment to retirement lifestyle would be likely. This category had 18% of households, the same as in 2020.
  • The final tier was "Needs Attention," where significant adjustments to retirement lifestyle would likely be needed. This category was at 34% of households, up from 28% in 2020.

The path forward

The Fidelity report found that a number of actions can be taken to improve preparedness. For employers and retirement advisors, more emphasis on certain benefits, such as financial wellness resources, could be helpful. The report also pointed to Health Savings Accounts (HSAs) as offering a tax advantage when it comes to saving.

Related: Why work past retirement age? 60% of older workers have less than $500K in savings

"Meeting the rising cost of health care continues to be a concern for Americans, particularly as inflation impacts household budgets," said Begonya Klumb, head of health and benefit accounts at Fidelity. "We see time and again that savers with access to an HSA are able to use the triple-tax advantage to become better prepared for the cost of health care, both today and in the future."

The report also recommended three actions for improving preparedness, noting that taking even one of these three steps can help household be better-prepared for retirement.

The three actions were:

  • If and when you can, save as much as you can. Workers should aim to save at least 15% of their pre-tax income each year, which includes any employer match. If 15% isn't possible, they should try to increase the contributions rate by 1% each year it reaches 15%. Even small increases in savings can make a big difference.
  • Examine your asset mix. Workers should make sure they have the right mix of stocks, bonds and cash based on how far they are from retirement, and how comfortable they are taking potential risk in their portfolio.
  • Re-evaluate your retirement plan. If they are able, workers should wait longer to retire. This has advantages for investors, including more time to build savings and increased Social Security payments. For example, claiming Social Security at age 70 instead of age 65 could increase payments by 43%."

To achieve those steps, Fidelity suggests an investor-friendly approach from employers. "We encourage employers and advisors to increase awareness of financial wellness education and resources available to their associates as we know that auto enrollment, education, and savings matches can help with retirement outcomes," said Assaf.

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