Although financial readiness for retirement had been waning in recent years, Americans appear to be refocusing their efforts on saving for the future, according to Fidelity Investments’ Retirement Savings Assessment, released this month.
The findings are the culmination of a year-long research project that analyzed the overall retirement readiness of American households based on data such as workplace and individual savings accounts, Social Security benefits, pension benefits, inheritances, home equity and business ownership.
In the wake of the pandemic and facing economic uncertainty, Americans had reduced for a time their financial readiness for retirement. The data show that workers are estimated to have only 78% of the income they need to cover expenses during retirement. Fifty-two percent of survey respondents said that they are not on target for retirement security and must make “significant adjustments” to their retirement goals if they don’t refocus their attention. That percentage is up from 46% last year.
“We are encouraged to see positive gains for retirement savers, evidenced through rising account balances, improved savings rates and a commitment by employers — including small businesses — to help employees prepare for the future,” Kevin Barry, president of workplace investing at Fidelity Investments, said in a statement.
As the McKnight’s Business Daily previously reported, personal savings have increased by almost 5% over the previous year.
“Americans have experienced some tumultuous years, but through Congress’ investment in retirement savings through the Secure Act of 2019, as well as individuals’ continued commitment to save, we are optimistic for the future of retirement security,” Barry noted.
According to Fidelity’s analysis, individual retirement account balances increased 5% in the first quarter from both the previous quarter and from pre-pandemic levels five years ago. The average 401(k) balance is up 4% from the fourth quarter of 2022 and up 5% from five years ago. For 403(b)s, the average account balance increased 6% from last quarter and 16% from five years ago.
Fidelity credits record employer contributions to 401(k) plans — 4.8% in the first quarter — for some of the increases. The contributions include profit-sharing and matching contributions. Additionally, more workers are contributing at a level that allows them to get the full matching contribution offered by their employers.
Despite having the greatest increase in income, millennials — those born between 1981 and 1996 — have experienced the greatest decline among the generations since 2020 as far as financial retirement readiness, according to the data.