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Fidelity Retirement IndexSM Shows Fuel Prices Hamper Savings,
Americans Underestimate Projected Retiree Health Care Costs
BOSTON, May 11, 2006 - Despite rising interest rates, decreasing benefits and higher gasoline prices, the average American working household held steady in its retirement savings effort, according to the Spring 2006 Fidelity Retirement IndexSM released today. The Index showed that American workers surveyed are on track to replace 57 percent of their income in retirement, compared to last fall's Index level of 56 percent.
While Fidelity's Index found that the average American household is facing a more than 40 percent pay cut, it also revealed that roughly half of Americans (52 percent) took some action over the past six months to improve their readiness. The top actions taken included significantly increasing contributions to workplace retirement savings accounts, reallocating or adjusting retirement portfolios, seeking guidance from a financial professional, and opening new accounts for retirement savings.
"We are hopeful that these findings reflect the beginning of a shift within the American mindset from low awareness and significant inertia in addressing the nation's retirement crisis to growing levels of understanding, acceptance and action," said Robert L. Reynolds, vice chairman and chief operating officer of Fidelity Investments, the nation's No. 1 retirement services provider. "This could be a turning point for our nation, but it will require continued commitment to keep America's workforce on this trajectory towards retirement readiness success."
The Fidelity Retirement Index analyzes the overall retirement readiness of American households based on data such as workplace and individual savings, projected Social Security and pension benefits, and anticipated retirement horizons1. The Index projects whether the average household will have more, less or the same amount -- 100 percent income replacement -- to live on in retirement as compared to pre-retirement. Insufficient savings means households will be forced to live on less in what Fidelity terms a retirement "pay cut." Fidelity believes that 85 percent income replacement is a reasonable starting point when planning for retirement.
Increasingly aware of the sacrifices that would need to be made in the wake of a more than 40 percent reduction in income, 83 percent of respondents recognized they are not saving enough for retirement, up from 78 percent in June 2005, the Index showed.
Fuel Prices Impacting Retirement Savings
Many Americans said they have been unable to take steps over the past six months to improve their retirement savings, due to a lack of money after paying for basic living expenses such as mortgage, rent, food and gas.
About 76 percent of working American households said recent sharp increases in fuel prices had impacted their ability to save for retirement. Of this group, almost half (45 percent) indicated the fuel price situation had caused them to decrease the amount they regularly save for retirement and nearly one in four (24 percent) said it had delayed their plans to start saving.
Retiree Health Care Costs a Major Concern
American workers overwhelmingly recognized that health care costs will be the first or second largest expense in retirement, but many grossly underestimated the projected costs. Survey respondents estimated out-of-pocket health care costs for a 65-year old couple retiring today to be a median of only $80,000 -- a sum 60 percent lower than the $200,000 Fidelity Retiree Health Care Cost Estimate released in March 20062.
"We're at the point where Americans are beginning to realize that health care costs likely will be one of their major expenses in retirement, if not the largest, but haven't yet grasped the enormity of this cost," said Reynolds.
Public opinion was split on whose primary responsibility it is to provide workers with access to affordable medical insurance in retirement. An estimated 45 percent of American workers felt it was the individual's responsibility, 44 percent believed it to be the government's job, and 11 percent thought employers should be providing the access.
Almost half (46 percent) of respondents said they would work at least part-time in retirement to offset the cost of out-of-pocket health care costs, while nearly one-third (31 percent) planned to retire later in order to continue receiving workplace health benefits.
Resetting Expectations
As responsibility for retirement savings increasingly shifts to the individual, Americans are re-assessing the viability and true value of their reliable sources of income, according to the survey. Fidelity found that just under half (49 percent) of households today are expecting to receive a pension, as compared to 51 percent revealed in the Fall 2005 Fidelity Retirement Index.
When asked what source of income will be relied on most in retirement, 52 percent of households answered a combination of personal savings, income from working in retirement and real estate assets, while about one in five (22 percent) indicated Social Security and 17 percent said a pension.
About the Fidelity Retirement Index
Fidelity's Index is an industry-leading analytical measurement designed to track the nation's retirement readiness. The Index is the only national indicator that gauges the nation's retirement readiness by analyzing American households' broad financial picture, including workplace and individual savings, projected asset growth, future savings, projected Social Security and pension benefits, expected retirement horizon and longevity. Data for the Index is collected twice per year through a national online survey of 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 for the Spring 2006 Index were completed for Fidelity by Richard Day Research of Evanston, Ill. between April 19 and 22, 2006. Index calculations rely on Fidelity's asset-liability modeling engine, which generates the percentage of potential pre-retirement net income that each individual American household surveyed is likely to replace upon retirement. The 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.
About Fidelity Investments
Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $2.6 trillion, including managed assets of more than $1.2 trillion as of March 31, 2006. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to more than 21 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.
1Number of years until retirement.
2Further, the $200,000 is just the amount needed when planning to life expectancy only. $330,000 is needed today when planning ages 92 (male) and 94 (female) as is done in calculating the Index.
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Fidelity Investments Institutional Services Company, Inc.,
82 Devonshire Street, Boston, Mass. 02109
Fidelity Brokerage Services, Member NYSE/SIPC
100 Summer Street, Boston, Mass. 02110
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