• Dark Green: Very Good or Better (95 or over). These households are on track to cover 95 percent or more of total estimated expenses, even in a down market. 33 percent of those surveyed were dark green.
• Green: Good (80-95). On track to cover at least essential expenses, but not discretionary expenses like travel, entertainment, etc2. 12 percent of those surveyed were green.
• Yellow: Fair (65-80). Not on track to sufficiently cover all essential retirement expenses, with modest adjustments to their planned lifestyle likely. 14 percent of those surveyed were yellow.
• Red: Poor (less than 65). Not on track to sufficiently cover all essential retirement expenses, with significant adjustments to their planned lifestyle likely. 41 percent of those surveyed were red.
America’s RPM is in the Yellow, But There Are Ways to Help Get to Green
According to the RPM, many Americans are likely to fall short of meeting their retirement income goals, unless they act soon. In fact, the median score indicates working Americans are on track to meet just 74 percent of their estimated retirement expense goals and face a 26 percent income gap, placing them in the “yellow zone” and forcing them to make spending cuts in retirement that may diminish their quality of life—especially if the market experiences a severe downturn.
Here’s a closer look by generation:
• Baby Boomers (born 1946-1964): The good news is that Boomers are on track to reach 81 percent of their goals, which places them in the “green zone.” While Baby Boomers entering retirement over the next five-to-10 years are in fairly good shape to completely cover at least essential expenses, this generation has less time to take actions that can help move them into “dark green” and be able to completely cover total estimated expenses. They also have fewer options than their younger counterparts to make up any shortfall.
• Gen X (born 1965-1977): Gen X respondents are at 71 percent of their goal, placing them in the yellow.
• Gen Y (born 1978-1988): Gen Y respondents—who are the furthest away from retirement—are currently falling significantly short and are in the red at 62 percent. This number is a concern, since the survey indicated many anticipate retiring early, despite the fact they probably won’t have the benefit of a pension, as their parents did. The good news for this generation: time is on their side, which means they can improve their situation by increasing their savings rate and investing for growth.
Part of the problem is that many Americans save too little—in fact, the survey indicates 40 percent of survey respondents are saving less than 6 percent of their salaries today, which is far less than the recommended 10-15 percent suggested by Fidelity. Among Gen Y, that percentage jumps to 51 percent, versus 43 percent for Gen X and 34 percent for Boomers.
“This savings shortfall is one of the biggest reasons the median RPM is in the yellow, although there are several others, too,” said John Sweeney, executive vice president of Retirement and Investment Strategies at Fidelity. “When you factor in the expectations many have of an early retirement, along with increasing longevity and sometimes overly conservative asset mixes for investments, you can see why many people are not as prepared as they need to be to cover their expected expenses in retirement.”
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