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More than Half of Americans at Risk of Not Covering Essential Expenses in Retirement
Wednesday, December 11, 2013 6:55 AM

Despite improvements in the economy, many working Americans are falling behind on retirement preparedness, with 55 percent in fair or poor condition when it comes to being able to completely cover estimated essential living expenses in retirement, including housing, health care and food, according to Fidelity Investments’ new Retirement Preparedness Measure (RPM).

The RPM, which is based on data from Fidelity’s 2013 Retirement Savings Assessment survey, is a measure of whether working Americans are on track to cover their estimated total post-retirement expenses. Under the RPM, working Americans fall into four categories on the retirement preparedness spectrum:

  • Poor {red zone}
  • Fair {yellow zone}
  • Good {green zone}
  • Very Good {dark green zone}

The latest RPM from Fidelity finds that 41 percent of Americans fall into the red zone; 14 percent in yellow; 12 percent in green, and 33 percent in the dark green zone.

According to the RPM, many Americans are likely to fall short of meeting their retirement income goals, unless they act soon. In fact, the median score indicates working Americans are on track to meet just 74 percent of their estimated retirement expense goals and face a 26 percent income gap, placing them in the “yellow zone” and forcing them to make spending cuts in retirement that may diminish their quality of life—especially if the market experiences a severe downturn.

Here’s a closer look by generation:

  • Baby Boomers (born 1946-1964): The good news is that Boomers are on track to reach 81 percent of their goals, which places them in the “green zone.” While Baby Boomers entering retirement over the next five-to-10 years are in fairly good shape to completely cover at least essential expenses, this generation has less time to take actions that can help move them into “dark green” and be able to completely cover total estimated expenses. They also have fewer options than their younger counterparts to make up any shortfall.
  • Gen X (born 1965-1977): Gen X respondents are at 71 percent of their goal, placing them in the yellow.
  • Gen Y (born 1978-1988): Gen Y respondents—who are the furthest away from retirement—are currently falling significantly short and are in the red at 62 percent. This number is a concern, since the survey indicated many anticipate retiring early, despite the fact they probably won’t have the benefit of a pension, as their parents did. The good news for this generation: time is on their side, which means they can improve their situation by increasing their savings rate and investing for growth.

Fidelity’s survey revealed that overall, Americans save too little. In fact, the survey indicates 40 percent of survey respondents are saving less than 6 percent of their salaries today. Among Gen Y, that percentage jumps to 51 percent, versus 43 percent for Gen X and 34 percent for Boomers.

Consumers can improve their chances for a comfortable retirement by:

  • Raising savings now, and take advantage of savings vehicles such as 401(k)s, IRAs, Health Savings Accounts and tax-deferred annuities.
  • Reviewing their asset mix
  • Delay retirement – the longer you can wait the more time you will have to build savings