Fidelity warns Social Security, 401(k)s and IRAs at risk

Fidelity, one of the largest U.S. retirement services firms, said in recent research and client communications that Social Security, 401(k)s and individual retirement accounts face risks that could lower retirement income for many Americans.

On Social Security, the firm flagged financing pressures tied to demographic trends. Fewer workers per retiree, longer life expectancy and current payroll contribution levels mean trustees project trust fund shortfalls unless benefit levels, revenue or both change. Fidelity noted that reductions to scheduled benefits or delayed payments would reduce income for households that depend on the program.

For workplace and individual accounts, Fidelity outlined vulnerabilities that can shrink balances. Market volatility can cut account values, especially for retirees withdrawing during downturns. Low contribution rates and gaps in participation leave many workers with balances unlikely to replace a meaningful share of pre-retirement income. The firm also highlighted sequence-of-returns risk, where poor investment returns early in retirement can permanently erode a portfolio’s ability to generate income.

Fidelity pointed to rising retirement costs as a separate pressure. Health care and long-term care expenses increase the total savings needed. Longer retirements raise lifetime spending requirements and make portfolios more sensitive to prolonged inflation or weak market returns. The firm said fees and plan design choices can further reduce long-term balances.

The research identified groups at greater risk. Lower- and middle-income workers with limited access to employer plans or low contribution rates face larger shortfalls. Older workers nearing retirement have less time to rebuild savings after market losses. Fidelity noted that employer contribution practices, plan design and public policy decisions will affect how broadly these risks materialize.

Fidelity outlined responses for individuals and plan sponsors. For participants, the firm recommended reassessing savings rates, reviewing investment allocations and planning the timing of Social Security claims. For plan sponsors, it encouraged evaluating features that increase participation and automatic escalation of contributions. The firm said planning assumptions, contribution behavior and timing decisions will shape retirement outcomes for millions of Americans.