Fidelity Investments, the nation's largest provider of 401(k)s, revamped how it evaluates the results of its annual Retirement Savings Assessment survey of nearly 2,300 working Americans older than age 25. The new calculation provides a numeric rating that predicts the ability of individuals and households to pay for retirement expenses. Overall, 55 percent of those surveyed had a fair or poor outlook. The rankings broke down this way:
Very good or better. The household is on track to cover 95 percent or more of total estimated expenses, even if the market declines. Thirty-three percent scored in this category.
Good. Households on track to cover 80 percent to 95 percent of expenses. Twelve percent made this category.
Fair. Households on track to cover 65 percent to 80 percent of expenses. Fourteen percent fell in this category.
Poor. Households on track to cover less than 65 percent of expenses. Four out of 10 (41 percent) are in this group.
Boomers are in the best shape. The median score for boomers is 81, meaning half of boomers can meet 81 percent or more of expenses, placing them in the green zone. "We were pleasantly surprised at this," says Lauren Brouhard, senior vice president of retirement for Fidelity Investments. "We think that the generation entering retirement now or in the next five to 10 years is in fairly good shape."
Members of Gen X, who were born between 1965 and 1977, have a median score of 71. The difference is old-fashioned defined benefit pensions, Brouhard says. Boomers are likely to have them, but Gen Xers aren’t.
Median score for members of Gen Y, born between 1978 and 1988, is 62, which puts them in the red zone, but they have a lot of years to catch up.
For all generations, but certainly for Gen X and Y, the answer is to save more money. Fidelity found that 43 percent of Gen X and 51 percent of Gen Y are saving less than 6 percent of their pay. Bumping their savings up to at least 10 percent and preferably 15 percent would make a big difference, Brouhard says.
Other steps Fidelity suggests to accelerate retirement readiness include:
- Review your mix of investments. You don't want to be too conservative or too aggressive either.
- Retire later. As a general rule, the longer you wait, the better off you are. If you can postpone taking Social Security until you are age 70, you'll maximize your Social Security payment by an additional 30 percent compared to the amount you would have received at full retirement age.
- Work part-time in retirement. Working a few hours a week can make a big difference.
- Maximize home equity. Sell a home and buy something cheaper, or take out a reverse mortgage.
- Buy an annuity. The guaranteed income an annuity produces can significantly increase retirement security.
Fidelity found that individuals who adopt all six of these suggestions can improve their retirement readiness by as much as 42 percent, putting much more gold in their golden years.