American households’ retirement readiness declined by five points last year to 78 from 83—after reaching an apex in 2020—signifying savers have accumulated 78% of the income needed to cover retirement costs in a down market, according to new Fidelity Investments research.

The Fidelity Investments Retirement Savings Assessment measures a household’s ability to cover estimated retirement expenses in a down market, with a participant’s savings for retirement scored from 0 to 150 and above.   

Two primary factors driving the drop are that individuals are saving less for retirement and investing more conservatively, stated the report. 

American savers continue to navigate through uncertainty and as a result may reduce saving for retirement, Rita Assaf, vice president of retirement at Fidelity Investments, stated in a press release.

The research finds 52% of households may need to make modest to significant adjustments to their expected lifestyle in retirement if they don’t act to make up for the savings shortage. One-third (34%) of households are in the red zone on the preparedness spectrum, meaning significant adjustments likely are needed to avoid a major savings shortfall.

“More than one-third (34%) in the red on the preparedness spectrum means many Americans are not on target with their retirement savings and will need to make significant adjustments to their retirement lifestyle if they don’t take action to make up for the shortage,” Assaf ads via email. “This would include essentials expenses, such as the cost of housing, health care expenses, and food: what you need to fully cover necessary daily living expenses in retirement. It would also include discretionary expenses such as travel, getting a gym membership, pursuing a few hobbies, etc.”

On the other hand, 48% of households are accumulating retirement savings that will be sufficient to cover at least their essential expense in retirement.

Fidelity figures for Americans’ retirement preparedness show the household changes to 2022, from 2020:

• 34% of households were in the red in 2022, compared to 28% in 2022.
• 18% of households were in the yellow zone in 2022 the figure was flat from in 2020.
• 16% of households were in the green zone in 2022, compared to 17% 2020; and.
• 32% of households were in the dark green zone in 2022, compared to 37% in 2020.

The assessment uses colors that equate to specific levels of retirement preparedness. Scores from zero to 64, in red, mean needs attention; 65 to 80 represent a fair level of readiness; 80 to 95, in light green, are in a good state of readiness; and dark green participant scores of 96 and above are on target to cover expenses in retirement, the research shows.  

The retirement readiness dip drove the overall assessment down to fair—colored yellow, from good represented in green—research shows.   

Although Americans have more money saved for retirement across generations of workers—account balances have increased by an average of $40,000—Millennials since 2020, the research shows.

Contrarily, Gen Xers increased their savings rate 1.4%, Fidelity finds.

“When it comes to long-term investing, staying focused on your individual goals is critical,” stated Assaf. “Having a plan in place is one solid way to help weather any storm, as we’ve seen the last few years and weeks with the pandemic, inflation and market volatility.”

Fidelity’s savings assessment is calculated by data from Fidelity’s proprietary financial planning engine, the research stated.

Data for the Fidelity Investments Retirement Savings Assessment were collected through a national online survey of 3,569 working households earning at least $25,000 annually with respondents ages 25 to 75, from August 22 through September 26, 2022. All respondents expect to retire at some point and have already started saving for retirement.

Data collection was completed by Versta Research using NORC’s probability-based nationally representative online panel.