Based on the current rate of savings, the average American household will live on 59 percent of pre-retirement income once they retire, Fidelity Investments said Tuesday, in a report that says Americans are behind in funding their golden years.
The No. 1 mutual fund company, which has carved a large presence in the retirement industry, said in a report that workers aged 25 to 40 stand to save enough to live on about 55 percent of their pre-retirement income, compared to 63 percent for those aged 41 to 54 and 62 percent for those 55 and older.
Fidelity recommended saving enough to be able to live on 85 percent of income in retirement.
However, the typical household, whose decision-makers are 43 years old on average, has put aside only $18,750 for retirement and is banking on Social Security and pension benefits to live out its retired years.
“While this data may seem encouraging, Americans are relying heavily on Social Security and employer pensions and are only saving a small percentage of their personal income to fund their retirements,” said Jeff Carney, president of Fidelity Personal Investments.
“What this means is that many Americans will take a significant pay cut in their retirement years, making it difficult for them to adequately prepare financially for rising retiree medical costs and longer anticipated life spans,” he added.
Fidelity’s data was based on a national survey of more than 1,900 Americans working full time and earning $20,000 or more a year.
A flurry of recent data has shown that the average American is not saving enough for retirement.
Last month, for instance, human resources services firm Hewitt Associates said the rate of participation in 401(k) plans inched up a mere 0.5 percent in 2004 to 70.3 percent. It also reported the average plan had $69,000 and that investors put away 7.9 percent of their income on average.
“The harsh reality is that many Americans are woefully unprepared for retirement,” Ellyn McColgan, who heads the Fidelity Brokerage Co., said in a speech at the National Press Club in Washington. “They simply aren’t saving anywhere near enough and many are not investing their retirement savings wisely."
