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Drop in Anticipated Pension Income Offset by Increase in Personal and Workplace Savings
BOSTON, November 15, 2005 - Fidelity Investments today reported that its fall Fidelity Retirement IndexSM declined modestly over the spring 2005 level, in part because of a slight decrease in anticipated pension income.
The Fidelity Retirement Index found that the percentage of projected pre-retirement income that the typical working American household is on track to replace in retirement is 56 percent, compared to 59 percent reported this past spring. Despite a modest increase in reported personal retirement savings, the typical working American household is still far short of replacing 85 percent or more of pre-retirement income, which is a reasonable estimate for retirement planning.
According to the Index, fewer households expect pensions, and anticipated income from pensions decreased by approximately 6 percent to $18,000, down from $19,200 reported in the spring. The Index also revealed that the typical working American household reportedly saved $20,000 for retirement, an increase of approximately 7 percent from $18,750 last spring. Additionally, more than three quarters of American workers surveyed said that they are concerned about the impact rising fuel costs will have on their ability to invest and save for retirement.
"While we are encouraged that Americans have reported increased savings in the last few months, they are still relying too heavily on pensions and Social Security to fund their retirement," said Jeffrey R. Carney, president of Fidelity Personal Investments. "Americans must work hard to increase their contributions to workplace and personal savings plans if they are to meet their retirement goals, and take advantage of automatic deduction and employer match programs."
About the Fidelity Retirement Index
Fidelity's Index is an industry-leading analytical measurement designed to track the nation's retirement readiness. A national online survey was conducted for Fidelity Investments by Richard Day Research, Inc., Evanston, Ill. The survey included more than 2,000 Americans who are working full-time; 25 years or older; earning $20,000 a year or more; married/partnered with individuals who are also not yet retired; and are the financial decision makers in their household. Interviews were completed between September 9 and 13, 2005. Index calculations were based on Fidelity's asset-liability modeling engine, which generated the percentage of potential pre-retirement net income that each individual American household is likely to replace upon retirement. The retirement index represents the median (or midpoint) of the approximately 2,000 individual household percentages produced. Results were weighted to reflect demographic trends in the United States. Descriptive language was added in the fall survey to clarify the definition of a "pension" to respondents. The margin of error around the fall Index measure of 56 percent is between -1 percent and +2 percent.
About Fidelity Investments
Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $2.3 trillion, including managed assets of $1.1 trillion as of September 30, 2005. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to approximately 20 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.fidelity.com
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Several hundred financial market return scenarios (Monte Carlo simulations) were run for each individual completing the survey to determine how the asset mix they provided may have performed. Monte Carlo simulations are mathematical methods used to estimate the likelihood of a particular outcome based on historical analysis. Historical performance simulations are conducted to determine the likelihood of various financial outcomes. Each Monte Carlo simulation reproduces random sets of results by generating random returns for the scenarios. When analyzed together, these results suggest a probability of occurrence.
The Fidelity Retirement Index is calculated using a 50% confidence level for Young Adult and Baby Boomer populations and a 90% confidence level for the Pre-Retiree population. The 50% confidence level means that in 50%, or 1 out of 2 times, the computed number, such as the index score, will likely be reached. We consider the 50% confidence level a representation of average market results. Increasing the confidence level would have provided a more conservative analysis. For example, a 90% confidence level represents market conditions that are generally significantly lower than the historical average and would have resulted in a lower index score. We utilized the 90% confidence level for the Pre-retiree population.
The estimated returns for the stock and bond asset classes are based on a "risk premium" approach. The risk premium for these asset classes is defined as their historical returns relative to a 10-year Treasury bond yield. Risk premium estimates for stocks and bonds are each added to the 10-year Treasury yield. Short-term investment asset class returns are based on a historical risk premium added to an inflation rate which is calculated by subtracting the TIPS (Treasury Inflation Protected Securities) yield from the 10-year Treasury yield. This method results in what we believe to be an appropriate estimate of the market inflation rate for the next 10 years. Volatility of the stocks, bonds, and short-term asset classes is based on the historical annual data from 1926 through 2004 from Ibbotson Associates, Inc. Stocks, bonds, and short-term debt are represented by the S&P 500, U.S. Intermediate-Term Government Bonds, and 30-day U.S. Treasury bills, respectively.
Annual returns assume the reinvestment of interest income and dividends, no transaction costs, no management or servicing fees and the rebalancing of the portfolio every year. It is not possible to invest directly in an index. All index assumptions include the reinvestment of dividends and interest income.
Although past performance does not guarantee future results, it may be useful in comparing alternative investment strategies over the long-term. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in this hypothetical analysis.
Fidelity Brokerage Services LLC, Member NYSE, SIPC,
100 Summer Street, Boston MA 02110
Fidelity Investments Institutional Services Company
82 Devonshire Street, Boston, MA 02109
The Fidelity Retirement Index is provided for educational purposes and should not be relied upon as the primary basis for investment and planning decisions and should not be considered as investment advice. |
