Fidelity Retirement Savings Assessment Finds Working Americans Facing Significant Drop in Income in Retirement

Analysis Outlines the Estimated Impact of Five Actionable Steps to Help Avoid a Potential Income Drop in Retirement

BOSTON – Fidelity Investments®, the leader in helping Americans save for retirement1, today unveiled its Retirement Savings Assessment, the first industry analysis that provides actionable and quantifiable steps across three generations (Baby Boomers born between 1946–1964, X born between 1965–1978 and Y born between 1979– 1991) to potentially help close their estimated retirement income gaps.

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 Kathleen A. Murphy, president, Personal Investing, Fidelity Investments. “The study underscores the importance of early engagement in the retirement planning process and the potential impact these five actionable steps can have in helping address the retirement income gap that many Americans are facing today.”

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:

1. 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.

2. Increasing Savings – Respondents indicate they saved an average of $3,500 in 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.

3. 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.

4. 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.

5. 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 $4,900 in monthly retirement income. Based on their current household salary of $74,000 and the amount currently saved for retirement, Fidelity estimates these households will have approximately $3,200 in monthly retirement income, which represents a shortfall of $1,700 a month (see chart for complete methodology). After applying all five steps to the Generation X household, the estimated retirement income shortfall could be completely erased. The following graphic depicts the potential impact of each step individually and also if taken together (For all generational graphics, please click here):

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 $74,000 a year; a median $20,000 in investable retirement savings; and a retirement age of 67. The majority of Gen Xer survey participants reported a mix of 50% equities, 40% bonds, and 10% short-term cash in their portfolio. The asset allocation was adjusted to a more age-based strategy of 83% equities and 17% bonds. The portfolio has an assumed beginning balance of $20,000 (the median reported for this age group) and grows at a hypothetical rate of 8.35% annually, from age 37 to a male life-planning age of 92. Withdrawals are not assumed to begin until retirement age (70). Note: Increased equity exposure entails increased risk, and asset allocations should be based on one’s personal situations, time horizon, risk tolerance, financial situation, and goals. Survey participants reported an average annual current savings rate of 5% of their $74,000 pretax income in a workplace savings plan. The beginning balance is assumed to be $20,000 (the median reported for this age group). Contributions are assumed to increase from 5% to 6% of the employee’s income at age 37, and increase by 1% each year, until the employee reaches a maximum of 10%. Contributions continue from ages 37 to 66, and assume an employer matching contribution of 3% annually and a hypothetical annual return rate of 8.35%. Assumes the Gen Xer continues to makes $74,000 per year in pretax income (subject to inflation and merit increases of 2.3% and 1.5% annually), continues to contribute 5% of his income to his workplace savings plan and receives a 3% employer match, delays Social Security so he receives the maximum Social Security payment allowed upon retirement at age 70, and works full time until age 69. Assumes the Gen Xer works part time at retirement (age 70) for six years, making $30,000 before taxes (in today’s dollars) during the first three years of retirement, from ages 70 to 72, and $15,000 before taxes (in today’s dollars) the last three years in retirement, from ages 73 to 75; makes no contributions to retirement accounts during this time; and begins taking Social Security at age 68. Assumes the Gen Xer annuitizes 40% of his investable retirement assets in a fixed income annuity at age 67. Assumes the fixed income annuity is single-life male with a 10-year guarantee period and a 3% cost-of-living adjustment. For every $100,000 contributed, the Gen Xer is assumed to receive pre-tax monthly income payments of $436 in year one. The income amount is based on quotes as of April 2012 from fixed income annuities distributed by Fidelity Insurance Agency, Inc. A guarantee period provides annuity income through a specified date even if no annuitant lives to the end of the guarantee period. Assumes a 37-year-old Gen Xer currently owns a home with a median value of $190,000 in today’s dollars. At age 67, the home is sold and 75% of the proceeds of the sale go toward a smaller home. The remaining 25% of the selling price is invested into a taxable savings account, at an annual growth rate of 8.35%, and is used for retirement expenses.

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 Strategic Advisers, Inc., a registered investment adviser and a Fidelity Investments company, which analyzed the overall retirement readiness of American households based on data such as workplace and individual savings accounts, annuities, projected Social Security benefits, home equity and pension benefits. The analysis for working Americans projects the income replacement rate for the average household, compared to pre-retirement income, and modeled the estimated effect of specific steps to help improve readiness based on the anticipated length of retirement.

About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $3.7 trillion, including managed assets of $1.6 trillion, as of March 31, 2012. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit

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 $20,000 per year, and 966 self-described as retired). All are aged 25 years or older and are the financial decision-makers in their households. Data collection for the 2012 Assessment was completed in September 2011 for Fidelity Investments by Richard Day Research, Evanston, Ill., an independent research firm not affiliated with Fidelity Investments.

The Assessment calculations rely on the proprietary asset-liability modeling engine of Strategic Advisers, Inc., which has been providing asset allocation, retirement and tax-sensitive investment management services to Fidelity’s individual and institutional clients for nearly two decades. Using its modeling engine, Strategic Advisers generates the percentage of potential pre-retirement net income that each individual American household surveyed is likely to replace upon retirement. The Assessment represents the median (or midpoint) of the more than 1,800 individual accumulator household percentages produced. Results are weighted to reflect demographic trends in the United States.

3Guarantees are subject to the claims paying ability of the issuing insurance company.

4The 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.

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 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 Brokerage Services LLC, Member NYSE, SIPC 900 Salem Street, Smithfield, RI 02917

Fidelity Investments Institutional Services Company, Inc. 100 Salem St., Smithfield, RI 02917
612524.1.0 © 2012 FMR LLC. All rights reserved.