Americans Working With Advisers Better Prepared for Retirement

Households that work with financial advisers are saving more and are on track to replace more income in retirement than those that do not.

The Fidelity Research Institute’s 2007 Retirement Index found that the typical working American household will be able to replace 58% of its pre-retirement income when members stop working – a slight increase over the 2006 study result of 57% (see Replacement Rate Assumptions Could be Wishful Thinking).

However, when the Index numbers were broken down further, Fidelity found that households working with a financial adviser are on track to replace 67% of their income in retirement, on average, an increase of five points over last year’s income replacement level of 62% for the same group. Although people working with an adviser saw a more substantial increase in preparedness, those not working with an adviser only increased their income replacement by one percent, 57% this year over 56% last year.

Not surprisingly, since their income replacement rate is higher, Fidelity’s Index found that working American households using the services of an advisor are saving 5.9%, nearly twice the 3% savings rate of those not working with an adviser. When examining the dollar amount of monthly saving of those with or without an adviser, the former are saving more than double that of the latter ($417 and $167, respectively).

Nearly all (98%) of those working with advisers have begun saving for retirement, compared to 79% of those without such guidance. Also, advised workers were more likely than the overall group surveyed (60% and 42%, respectively) to take action in the last six months to improve their retirement readiness by taking steps such as receiving guidance from a financial professional, reallocating their retirement portfolio or increasing their contribution to an existing IRA.

Although the replacement rate of those working with advisers is better, there is still going to be a significant decrease in one’s standard of living, unless changes are made Fidelity said, something advisers will need to consider in ongoing planning, especially in light of the firm’s research estimating that a 65-year old couple retiring today can expect to pay $215,000 to cover medical costs in retirement (see Estimated $215,000 Needed for Retiree Health Care Costs).