401(k) savings up, but still too low: Fidelity survey

Americans are in much better shape to retire than they were 15 years, largely as a result of the Pension Protection Act, according to a report released today by Fidelity Investments.

Higher savings rates within retirement plans and investments in asset allocation products have vastly improved account balances, according to Fidelity. The company gave the U.S. an 83 for retirement savings in 2019, up from a score of 62 in 2006, the year in which PPA was passed.

“We’re seeing the median savings rate increasing steadily – it’s now at 10%,” said Melissa Ridolfi, vice president of retirement and college leadership at Fidelity. Moreover, “Americans who are saving are better at asset allocation,” she said.

That 10% savings rate compares to a median savings rate of 3.6% in 2006, according to Fidelity.

The findings are based on a survey last year of 3,200 people ages 25 to 74.

Among different generations, baby boomers had the highest median savings rate in 2019, at 11.7%, followed by Gen Xers and millennials, both at about 9.7%.

The PPA led to the use of automatic features within 401(k)s, including auto enrollment and contribution escalation. And nowadays, retirement plan participants most often are defaulted into target-date funds or other asset allocation products. Sixty percent of participants had “age appropriate” portfolios last year, compared with 48% in 2006, according to Fidelity.

Despite the overall improvement in the score, the median savings rate is well below the 15% level that Fidelity recommends, Ms. Ridolfi said.

Lack of savings well established

It seems that Americans are generally aware that they are not saving enough for retirement.

According to the results of a survey published this month by TD Ameritrade, most people gave their retirement savings a letter grade of “C” or lower. That was particularly the case among people younger than 70 – only the group 71 to 79 had a majority (54%) saying that their savings merited an A or a B.

The TD report was based on a survey conducted last year by the Harris Poll of 2,000 people ages 40 to 79 who have at least $25,000 in investible assets.

That survey found that 44% of people have withdrawn money from their retirement accounts, including 46% of people ages 40 to 49.

Further, the age at which respondents said they plan to retire increased with each age group: People 40 to 49 had an average target of age 65, but that increased to 66 for people 50 to 59; to 70 for those currently ages 60 to 69; and to 75 for people who are 70 to 79 years old.