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%. Baby Boomers are on track to replace 62% of their pre-retirement income, and have a median of $45,000 in total household retirement savings, faring a little better than the pre-retirees, who will replace 61% of their income. Only 15% of Baby Boomers and pre-retirees are on track to replace at least 85% of pre-retirement income and 37% and 34% respectively will be able to replace at least 70%.
The Fidelity Research Institute found that working Americans, whose average age is 43, have a median of $22,500 in total household retirement savings and anticipate receiving $29,500 in annual Social Security payments. In addition, just over half (51%) of households expect to receive a pension, with a median annual pension benefit of $18,000.
In addition to personal savings, including IRAs and 401(k)s, and Social Security, which are the two most common income sources for retirement, 63% of workers say they anticipate working at least part-time in retirement (25% say their spouse will). Just over one-fifth (23%) of Americans say they plan to receive income through an inheritance, and a similar amount (21%) say they will receive income by selling their home.
The awareness of the costs of health care seem to be growing, as 48% of American workers surveyed by The Fidelity Research Institute said the cost of health care will be their greatest risk when planning for retirement. Despite a growing awareness of risk in retirement, still 77% do not have a formal retirement savings plan detailing how much they need to save.
Only 23% of Americans believe they are currently saving as much as they should for retirement, but still over half (58%) predict they will have a very comfortable or somewhat comfortable lifestyle in retirement. For those workers, the Index found they should be able to generate 68% of their pre-retirement income, due largely to better saving habits. The median savings rate for these workers is 7.5% of their annual pay, compared with 3.5% for workers overall, the announcement said. Baby Boomers and pre-retirees are currently saving 4.3% and 4.1%, respectively of income. In order to replace 85% of their income, The Fidelity Research Institute sound that their savings rate should be increased to 13% for Baby Boomers and 18% for pre-retirees (and 20% and 27%, respectively, if the groups want to replace 100% of income).
When people are looking for guidance on retirement savings, they most commonly turn to a financial adviser or someone at a financial services firm (30%), but are nearly just as likely to turn to family or friends for recommendations (26%). Online calculators and planning tools and employer-provided educational materials were third and fourth, used by 22% and 20%, respectively.
Just over four in 10 (42%) workers say they improved their retirement readiness in the last six months by actions such as reallocating their retirement portfolios (25%), increasing contributions to their workplace plans (21%), and seeking guidance from a professional (20%). Of those who did not take action, they attributed this to not having enough money to save after paying basic living expenses (33%), procrastination (28%), or saying they used any extra money to pay credit card debt (27%).
In-Retirement Not Going as Planned
The Fidelity Research Institute also surveyed 793 retirees, age 55 or older, about their life in retirement compared to pre-retirement. The study found that satisfaction in retirement is strongly linked to financial comfort and good health; of those who are very or fairly financially comfortable in retirement, 64% say they are extremely or very satisfied in retirement overall (compared to 49% of retirees overall), while only 2% of those not financially comfortable agree.
Of those who find retirement to be less enjoyable than expected (26% of retirees), they say it is because of the high cost of living or financial strain (34%) or because of a disability, illness, or health problem (32%). The majority of all retirees said they regret doing some things that affected their ability to properly prepare financially for retirement, including not starting an IRA early enough (37%) and accumulating too much debt (29%).
Just over half (55%) of retires said they left the workforce earlier than planned. Of those who retired earlier than expected, 40% said that decision was a result of an illness or disability (22% of all retirees).
In planning for spending money in retirement, most retirees (82%) expected their monthly retirement expenses to mirror what they were pre-retirement (34%) or go down (48%). However, 39% of retirees said their expenses increased in retirement and just 28% said their expenses stayed the same in retirement as they were just before.
As a way to deal with the changes in expected expenses, 48% of retirees have had to make a lifestyle change, including getting a part-time job, downsizing their home, moving to a different part of the country, or reducing health care expenses either in medical visits or prescriptions.
Data for the Index is collected annually through a national online survey of more than 2,000 Americans who work full time; are 25 years or older; earn $20,000 a year or more; married/partnered with individuals who are also not yet retired; and are the financial decision-makers in their home.
The research summary report is here.