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| During retirement you draw on assets which have taken you many years to save, and you tap into programs like Social Security and Medicare to help cover your expenses. Preparing a plan to help avoid the five key risks to your
retirement income can help your money last throughout your retirement. |
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| Let's look at how a hypothetical couple, Robert and Barbara, are managing their retirement income. |
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| Robert retired two years ago, and Barbara just retired this year. They are making plans to travel and spend time with their three grandkids. They started retirement without a plan to manage their spending, assuming Social Security
would cover most of their necessary expenses. |
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| The couple currently spends about $5400 a month. This includes travel, as well as some extras, like lunches out and a new car. |
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| But now that Barbara has retired, they are actually spending more than when they were working. They are concerned that their retirement savings may not last throughout their retirement. |
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| Risk #1 Overspending |
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| Obviously, the amount you spend has an enormous effect on whether your money will last throughout your retirement. A slightly higher rate of withdrawal can significantly decrease your years of retirement income. As a hypothetical example, a portfolio of $1 million with a 4% annual withdrawal rate could provide 6 years more retirement income than a 5% annual withdrawal rate. |
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| As Barbara and Robert thought about making an income plan, they realized that they would have to guess at how many years their plan would need to
cover. While they did want to leave money to their children, their first priority was maintaining their income stream throughout their retirement years. |
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| Risk #2 Not Planning for a Long Retirement |
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| While you cannot know for certain exactly how long you will live, it's possible you may end up spending more years in retirement than the years you spent working. |
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| Robert and Barbara realized they could have another thirty years of retirement ahead of them. Thinking longterm reminded them to be aware of the effects of inflation on their spending power. |
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| Risk #3 Market Risk |
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| Historically, retirees have taken a conservative approach-investing primarily in bonds and CDs to avoid the volatility of the stock market and to keep cash relatively accessible. However, these "ultra-conservative" strategies can
significantly reduce the opportunity for growing your assets during your retirement years, and eliminate the hedge against inflation that diversified stock investments offer. Note that diversification does not ensure a profit or guarantee against loss. |
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| Risk #4 Inflation |
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| Even a 3% inflation rate can have a large impact on purchasing power. For example, a retiree with roughly $72,000 of living expenses in 2003 would find they need nearly twice as much, over $150,000, to meet expenses 25 years later. Furthermore, some costs, like health care, may rise even faster than the general inflation rate. |
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Your retirement may span 20 years or more.
Your portfolio should reflect a long-term investment strategy. |
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Past Performance is no Guarantee of Future Results
Important Information About this Chart2 |
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| Robert and Barbara knew they were lucky to be enjoying good health. But ever since a minor fall turned into an extended hospital stay for a close friend, they knew that protection from the rising costs of health care had to be a priority. |
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| Risk #5 Health Care Expenses |
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| Roughly 50% of Americans now turning 65 will be admitted to a nursing home at some point in their lives with half staying up to six months and 10% staying more than three years. However long the stay, full-service nursing home care is expensive with annual cost estimates ranging from $33,000 to $91,000 depending on location and services.3 |
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| A 2002 study4 estimates that a couple retiring today at age 65 without an employer-funded retirement health plan will need current savings of $160,000 to cover their expected health care. |
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| Consider seeking out ways to cover these unpredictable expenses, such as a long-term care policy. |
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| Our hypothetical couple Robert and Barbara turned to Fidelity to help manage their retirement spending. Robert and Barbara sat down together to enter current assets, expected expenses, and anticipated income from pensions and Social Security into Fidelity's Retirement Planning Tools. |
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| At first glance, the results were discouraging. The tool predicted a 9-year shortfall in their retirement income. It also identified a few of the five key risks that could significantly affect their plan in the coming years. |
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| Robert and Barbara became less discouraged when they explored Fidelity's suggested changes. The action plan they received outlined steps they could take to address the shortfall. |
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Contact Fidelity at |
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Investigate All-in-One Investment Strategies:
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Combined income before retirement: |
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Desired monthly income after retirement: |
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Fidelity IRA and brokerage accounts: |
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Non-Fidelity brokerage account |
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Pension: |
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Combined Social Security |
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Essential: |
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Discretionary: |
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| Couple has Medigap, does not have long-term care insurance. |
| Robert and Barbara used Fidelity's . This tool helped them understand how their assets would support them during their retirement. It also let them "play" with the results to see what would happen if their situation changed. |
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