Fidelity Survey Finds 58% Retirement Replacement Rate

March 12, 2007 ( - A new Fidelity Investments survey found that the typical working American household is in an ever-so slightly more advantageous position with its retirement savings than it was last year.

A news release from the Fidelity Research Institute about its 2007 Retirement Index found that typical household will be able to replace 58% of its pre-retirement income when members stop working – a slight uptick from the 2006 study result of 57%.

According to the announcement, working Americans have a median of $22,500 in total household retirement savings and anticipate receiving $29,500 in annual Social Security payments. In addition, just over half (51%) of households expect to receive a median annual pension benefit of $18,000.

Baby boomers had the highest level of readiness, with an income replacement level of 62%, up two points over 2006 and a median of $45,000 in total household retirement savings, Fidelity said.

Among the nearly one quarter of workers (23%) who believe they are saving enough for retirement, the Index found they should be ale to generate 68% of their pre-retirement income, due largely to better saving habits. The median savings rate for these workers is 7.5% of their annual pay, compared with 3.5% for workers overall, the announcement said.

Improving Retirement Readiness

Additionally, just over four in 10 (42%) of workers say they improved their retirement readiness by actions such as reallocating their retirement portfolios, increasing contributions to their workplace plans and seeking professional guidance.

“We’re beginning to see a positive savings trend in the Index, as significant numbers of workers have reported taking financial action during the past two years to improve their retirement readiness,” said Guy Patton, executive director of the Fidelity Research Institute, in the news release. “But these numbers also tell us that the typical American household, who is on track to replace 58% of their income in retirement, will need to adjust to living on 42% less income when they retire. This is worrisome since many retirees say they’re spending more money than planned and some have not been able to work as long as they would have liked.”

The Retiree Perspective

As part of the Institute’s survey of 793 retirees, age 55 or older, two-thirds reported their expenses either went up (39% on average) or stayed the same (28%), when compared to just before retirement.

Most retirees (82%) expected their monthly retirement expenses to mirror what they were pre-retirement (34%) or go down (48%). Many retirees (55%) reported leaving the workforce earlier than planned. In fact, nearly one-quarter (22%) of retirees were forced to retire early because of poor health or a disability.

The Index also found that one in five working Americans between the ages of 25 and 42 currently provide or expect to provide financial support in the future to their parents or in-laws.

Not surprisingly, this generation also has the least amount saved. One in five Gen Xers have yet to begin saving for retirement and the median total household retirement savings for the group overall is $11,250. This personal savings will be increasingly important as less than half of Gen Xers (41%) expect to receive a pension, compared with the majority of Boomers (60%).

“We are beginning to see that Gen Xers are becoming ‘sandwiched’ — much like baby boomers have been for years — shouldering multiple financial pressures that include caring for aging parents, providing for their own families and saving for retirement,” Patton said.

Data for the Index is collected annually through a national online survey of more than 2,000 Americans who work full time; are 25 years or older; earn $20,000 a year or more; married/partnered with individuals who are also not yet retired; and are the financial decision-makers in their home.

The research summary report is here .