Analysis Outlines the Estimated Impact of Five Actionable Steps to Help Avoid a Potential Income Drop in Retirement
The research finds working American households may experience a potential income drop of 28 percent in retirement2, and nearly four-in-ten (38 percent) retiree households report not having sufficient income to cover their monthly expenses. These estimated retirement income gaps could force significant sacrifices that could include cuts in discretionary expenses. To help improve Americans’ retirement readiness, Fidelity conducted an analysis that quantifies the potential monetary benefits of five straight-forward steps – such as adjusting asset allocation and annuitizing retirement assets. Within the context of a comprehensive retirement plan, this analysis can help individuals better understand which steps may make the greatest impact.
“While there is evidence that Americans are saving more for retirement, our analysis finds that they need to take additional steps to prepare for the future and take better control of their personal economy,” said
Five Steps That Can Improve Monthly Income in Retirement
Based on the analysis, Fidelity modeled five steps for three generations (Baby Boomers, X and Y) to determine the potential impact on future retirement income. The steps, which are actions often considered when developing and implementing a comprehensive retirement plan, include a mix of strategies that can be taken now, whether an investor is working or in retirement:
- Adjusting Asset Allocation – Twenty-one percent of those surveyed are invested too conservatively with limited exposure to stocks, based on their current age and planned retirement date. This highlights how many investors have improperly allocated their assets and are losing the long-term earnings potential of stocks.
- Increasing Savings – Respondents indicate they saved an average of
$3,500in 2011, but most are still not fully benefiting from the tax-advantaged/deferred savings potential of their workplace or individual retirement accounts. This is especially important for younger investors, who have a longer timeframe and more potential for their money to grow.
- Adjusting Retirement Date – The average planned retirement age is 65, but delaying full retirement by a couple of years or continuing to work part-time can help preserve assets so they have a better chance of lasting through retirement. This tactic can be especially powerful for Boomers, many of whom Fidelity found are facing a potential drop in retirement income.
- Annuitizing Retirement Assets – Fewer than one-fifth (17 percent) of retirees are using an annuity to create a guaranteed lifetime income stream3 to cover essential expenses, but it can be an important tool to help ensure savings last through retirement – particularly if a retiree lives beyond his or her mid-eighties.
- Tapping into Home Equity – Seventy-two percent of respondents own a home and one-third (32 percent) of homeowners have no mortgage. Through downsizing and expense reduction, this home equity could be harnessed to generate income in retirement.
“Most Americans have the potential to get significantly closer to achieving their retirement goals, but they have to take action and consider implementing a mix of these five steps,” said Murphy. “Whether you’re a younger investor deciding to save a little more in a 401(k) or an older investor adjusting investment plans, it’s never too early or too late to impact your personal economy and take steps to improve your retirement readiness.”
To help Americans take steps to improve their current retirement plan, Fidelity published a Viewpoints article today titled “Don’t take a lifestyle cut in retirement.” The article outlines the five steps and the hypothetical impact of each for a Baby Boomer and Generation X household.
As highlighted within the Viewpoints article, the following hypothetical example outlines the profile of a Generation X household, based on the age group’s survey responses4. This generation reported an estimated need of
About the Generation X Graphic Methodology
The Retirement Savings Assessment (RSA) survey data resulted in the following: a median age of 37, with a median current pretax income of
The hypothetical illustrations are for educational purposes and do not reflect actual investment results. An investor’s actual account balance at any point in the future will be determined by the contributions that have been made, any plan or account activity, and any investment gains or losses that may occur. The illustrations of future balances should in no way be construed to imply any guarantee of future benefits.
About the Fidelity Retirement Savings Assessment
These findings are the culmination of a yearlong research project with
About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of
Before investing, consider the investment objectives, risks, charges and expenses of the fund or variable annuity and its investment options.Call or write to Fidelity or visit Fidelity.com for a free prospectus and, if available, summary prospectus containing this information. Read it carefully.
Although consultations are one on one, guidance provided by Fidelity is educational in nature, is not individualized and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions.
Real estate is a cyclical industry that is sensitive to interest rates, economic conditions (both nationally and locally), property tax rates, and other factors.
Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.
In general, the bond market is volatile and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.
Investing in a variable annuity involves risk of loss – investment returns, contract value, and, for variable income annuities, payment amount are not guaranteed and will fluctuate.
Fidelity Investments Institutional Services Company, Inc.
1 Cerulli Associates Quantitative Update Retirement Markets 2011 and Cerulli Edge Retirement Edition, Q4 2011
2 Data for the Assessment were collected through a national online survey of more than 2,800 Americans (1,846 who currently work and earn at least
3Guarantees are subject to the claims paying ability of the issuing insurance company.
4 The results in these examples are hypothetical in nature and are not the result of an individual’s interaction with any specific investment analysis tool, but are based on specific categories of investors from the survey and the projected impact on future income one, or all of these steps may play. These are not actual investment results of any investor or a guarantee of future results.
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Source: Fidelity Investments
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