America’s score on Retirement has improved for Two Main Reasons.

For American investors who wish to be better financially prepared for retirement, credit enhanced savings is something that isn’t spoken enough.

The average American household is on track to have 83 percent of the income they’ll need over the length of their predicted retirement years, with approximately half in even better shape than that, according to Fidelity Investments’ most recent biennial Retirement Savings Assessment. To put this in context, the expected percentage was a far grimmer 62 percent when the evaluation was first made fifteen years ago.

According to Melissa Ridolfi, vice president of retirement and college leadership at Fidelity, “it’s a testament to the hard work many families have made in taking control of their money.”

Based on a thorough national survey of 3,234 respondents aged 25 to 74 who were saving for retirement and living in households earning at least $20,000 annually, the study examined assets like retirement accounts, home equity, inheritances, as well as existing or anticipated pensions and Social Security benefits. The one depressing finding: If they don’t take considerable steps to make up their existing deficiency, 28% of respondents might as well be seen strolling around with flashing red caution signs.

In those later years, Fidelity actually employed color-coded indicators to provide a more complete picture of households’ capacity to fund their anticipated costs in a bearish market:

(On Target) Dark Green 37 percent were on track to cover more than 95% of their anticipated costs (up 5 percentage points from 2018).

“Good” (green) 17 percent were on pace for 81 to 95% of the necessary expenses, but not for extras like entertainment and travel (down 1 percentage point from 2018).

(Fair) Yellow 18% of respondents were between 65 and 80 percent, thus they must make “small adjustments” to their lifestyles (down 3 percentage points from 2018).

“Needs Attention” in red. 28 percent were wholly off-course with less than 65 percent of expenses (down 1 percentage point from 2018).

So What are the two things causing the change from Red to Green?

  • First, over time, the median savings rate has consistently increased; it is now 10%, up from 8.8% two years ago, with Baby Boomers saving the most (11.7 percent of their salaries). Even the notoriously cripplingly indebted Millennial generation attained a rate of 9.7% percent.
  •  Second, improved asset allocation, which is something that is sometimes overlooked.

Fidelity’s free Retirement Score tool enables anyone to acquire their score and displays the percentage expected to have saved vs their predicted needed income for those who are interested in their own level of retirement readiness. Even better, you can experiment with potential changes that would make living in retirement more comfortable possible.

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