Six Ways to Accelerate Your Retirement Preparedness

Many Americans are falling behind in their retirement preparedness, but employing some or all of these accelerators can improve their preparedness by a remarkable amount.

Many Americans are falling behind in their retirement preparedness, with 40% in poor condition when it comes to being able to cover essential living expenses in retirement, according to Fidelity Investments.

The new Retirement Preparedness Measure (RPM) is based on data from Fidelity’s 2013 Retirement Savings Assessment survey and measures whether Americans are on track. Estimated essential living expenses during retirement include housing, health care and food.

The measure places Americans into four categories based on their retirement preparedness. Households on track to cover 95% or more of total expenses, even in a down market are considered Very Good. Just 33% fall into this category. Those on track to cover the essential expenses, but not discretionary expenses like travel and entertainment are Good and just 12% of those surveyed could be considered as such.

Meanwhile 14% of households were considered Fair because they weren’t on track to sufficiently cover all essential retirement expenses, so modest lifestyle adjustments were likely. And lastly, 41% fell into the Poor category because they would need significant adjustments to their planned lifestyle. These households were on track to cover 65% or less of total estimated expenses.

Overall the country falls into the Fair category. Baby Boomers are on track to reach 81% of their goals, but they have less time to take actions so they can cover all expenses. Gen Xers are at 71% of their goal, placing them even with the country’s overall 74%. Unfortunately, Gen Y respondents (born 1978-1988) are falling significantly short and are on track to cover 62% of expenses.

“This savings shortfall is one of the biggest reasons the median RPM is in the yellow, although there are several others, too,” John Sweeney, executive vice president of Retirement and Investment Strategies at Fidelity, said in a statement. “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.”

Sweeney adds that no matter what a person’s age or income level, there are important steps to take to accelerate retirement savings. These six actions can boost your retirement readiness.

Six accelerators

1. Raise savings now

Especially for young people, even a small difference in savings can make a big difference. Fidelity recommends increasing contributions to a workplace savings plan by just one percent every year.

2. Review your asset mix

The market is unpredictable and completely out of your control, but that doesn’t mean you shouldn’t be invested. Instead, expose yourself to various asset classes that provide growth and outpace inflation.

3. Retire later

The youngest generation of workers expects to retire early, which is troublesome considering how far off track they are to cover all expected expenses. Waiting longer gives your savings more time to build and waiting until age 70 to take Social Security maximizes your monthly benefit.

4. Return to work part-time

During retirement, consider working part time, which will boost income, and keep you active and involved. According to Fidelity, half of households plan to have at least one person working in retirement.

5. Realize home equity

Downsizing can provide you with more money that you can then reinvest to help with estimated expenses and any surprises that may crop up along the way.

6. Reallocate part of your savings into an annuity.

A fixed lifetime income annuity invested into at or before retirement provides another guaranteed income source (the more, the better). However, while annuities provide income, they offer little or no access to the principal used to purchase them.

“Our analysis shows that using these six ‘accelerators’ — either individually or in combination — can have a substantial impact on retirement preparedness,” Sweeney said. “In fact, when all six are applied, the Retirement Preparedness Measure jumps an impressive 42%, putting many more individuals in a better financial position to truly enjoy their golden years.”