Where Do Americans Stand on Retirement Planning?

While most Americans report that the pandemic has pushed their retirement plans back by several years, many also express a cautious optimism and are making changes to improve their retirement preparedness. 

According to Fidelity Investments’ 2021 State of Retirement Planning Study, more than 8 in 10 respondents (82%) indicate the events of the past year have impacted their retirement plans, with a third estimating it will take two to three years to get back on track, due to factors such as job loss or retirement withdrawals. That said, the vast majority are still confident they will be able to retire when and how they want, and 36% are now even more confident in their retirement plan than before.

“This past year has been a roller coaster, but for those Americans with a retirement plan, it should come as a relief to know the fundamentals remain sound,” said Melissa Ridolfi, senior vice president of Retirement and Cash Management at Fidelity Investments. 

The study, which focuses on the impact of the past year on retirement plans, points to the positive impact having a retirement plan in place can have on helping people weather the storm. According to the findings, the events of the past year have caused 79% to reevaluate their priorities, and 7 in 10 are making changes to improve their retirement preparedness. 

But while the level of concern has diminished in some areas, people are still more stressed than before on several fronts, with the cost of health care in retirement now causing the greatest level of stress. 

For those looking to strengthen their financial future, Fidelity recommends that simply taking steps to visualize a plan for your retirement can lead to a greater sense of confidence and control. Overall, when it comes to how people are planning, the study finds that Americans fall into three categories: 

• Have a plan in place to achieve my goals (33%)
• Have thought about it in great detail (31%)
• Have thought about it somewhat/have yet to start (34%)

According to Fidelity, the study offers strong evidence of a “transformative effect” on one’s financial outlook for those who have started thinking in detail about how to afford the retirement they want.

Across the board, those with the most detailed plan in place to achieve their goals reported experiencing the greatest confidence. But even the simple act of getting started on a plan was shown to have a positive impact. 

Men (37%) are much more likely to say they have a plan in place than women (29%). Notably, Millennials are slightly more likely than their older counterparts to report having a plan to afford their desired lifestyle in retirement (35%), compared to Gen Xers (34%) or Boomers (32%), even though Boomers are closest to retirement. Fidelity observes that part of this may be attributed to the fact that Millennials are nearly twice as likely to have reported using online tools and calculators than Boomers, allowing them to see a plan taking shape with just a few clicks. 

Retirement Guidelines

To create a strong and achievable plan, Fidelity suggests several areas of opportunity when it comes to understanding important retirement rules of thumb.

• How much to save for retirement: According to the findings, only 25% of respondents accurately indicated that financial professionals recommend having 10-12 times your last full year of working income by the time you reach retirement. Half of all respondents thought the figure would be only five times or less.
• How much to withdraw in retirement: 28% said that financial professionals would recommend a withdrawal rate of 10 to 15% of retirement savings every year, far above Fidelity’s suggested rate of 4% to 6% annually.
• Market returns: Nearly three-quarters (72%) of respondents believe the stock market has seen negative returns more frequently than positive ones over the past 35 years. In fact, the stock market has had a positive annual return for 26 out of the past 35 years, Fidelity notes.
• Out-of-pocket health care expenses: Most respondents underestimate the cost of out-of-pocket health care for a couple in retirement, with 37% guessing between $50,000-100,000. In fact, for a couple retiring at 65, the actual average cost through retirement is three times higher, at $295,000.
• Full retirement age for Social Security: While you can start receiving Social Security retirement benefits as early as age 62, claiming Social Security benefits before reaching Full Retirement Age (FRA) can lock in a permanent reduction in monthly income. Here, only 17% correctly identified their FRA for Social Security, including 44% of Gen Xers, who underestimated their FRA of 67.

The findings are based on a national online survey consisting of 1,204 adult financial decisionmakers who were not retired. Respondents had at least one investment account and those over age 34 had at least $100,000 investable assets. Interviewing for this CARAVAN Survey was conducted Feb. 5-12, 2021 by Engine Insights.