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Building your master plan for retirement

Key takeaways

  • The rising cost of health care should be a major consideration when developing your plan for retirement.
  • A good plan will bring into alignment your retirement goals, your investment strategy, and your long-term health care needs.
  • Working with a professional may be helpful in balancing your need for investment growth with your tolerance for risk.

When it comes to retirement planning, there are 2 big things you need to be concerned with: Saving enough money to support yourself for the remainder of your life and making sure you live long enough to spend what you've saved.

That's right—unless your savings and investment strategy has been developed with your anticipated health care needs in mind, your retirement plan may not be able to get you where you need to be when the time comes. What you need is a single, fully integrated approach that rolls your retirement, investment, and health care plans into a single financial plan.

It's important to recognize that you are probably going to live longer than you expect—and may begin to feel the effects of aging sooner than you'd have hoped. That means your health care needs are likely going to comprise a significant portion of your overall expenses in retirement, far more than you're used to. So you'll have to pay special attention to your cash flow in retirement and be thoughtful about how you withdraw funds from your savings.

But first, you'll need a solid foundation on which to build your plan. Here's how you can start.

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Look for ways to reduce your expenses and exposure to taxes

An effective savings strategy can be a key part of growing your assets for retirement. By cutting back on nonessential expenses and keeping more of what you earn, you can help ensure that you have more to invest in order to take advantage of the potential for long-term, compounding growth.

By implementing strategies such as maximizing contributions to your tax-advantaged retirement accounts and opening a health savings account (HSA), you may potentially position yourself to work toward your retirement and legacy goals.1

Similarly, tax-smart strategies such as reducing your taxable income, maximizing potential deductions, and being thoughtful about what types of investments you place in certain accounts may have a big impact on your ability to grow your wealth.

Invest for growth, but be mindful of risk

Investing your savings could help you to keep up with both inflation and the rising cost of health care, which typically increases by about twice the rate of inflation.2 The key to investing is to think long term and to do your best to avoid overreacting to short-term volatility. If you're saving for the future, a down market in the present may have less of an impact on your portfolio than you would expect.

A well-diversified portfolio that is developed with both your long-term goals and your tolerance for risk in mind can help you navigate volatility. How your assets are allocated plays a big role in your ability to be successful. Research has concluded that up to 90% of the variability of a fund's return over time may be explained by how its assets are allocated.3 The key is finding an allocation that contains just enough risk you feel comfortable taking that accounts for your investment horizon, but not so much that you become skittish and end up deviating from it.

If you're concerned about your ability to weather the ups and downs of the market, implementing defensive investing techniques may help you get through the tough times. Or you may want to consider complementing your portfolio with a strategy that seeks to provide a smoother investment experience. For example, The Fidelity® U.S. Low Volatility Index Strategy is a separately managed account that may help reduce volatility, as it invests in securities that have historically shown less volatility than the broader market.

Whatever path you choose, the ultimate goal is to tune out the short-term turbulence and keep yourself focused on your desired, long-term outcome.

Get ready to get older

Aging means having to think about things you've likely not considered before. You may want to take stock of your living situation and evaluate whether your current home will remain suitable for you when you reach retirement. It's not just about downsizing. Perhaps you want to move closer to family who can help you as you get older. If you stay in place, it may be necessary to remodel or renovate your home to ensure it is sufficiently accessible.

If you haven't already, you should put your important documents in order: Wills, powers of attorney, and health care proxies, as well as any important contacts, passwords, or PINs that your family may need in the event you are ill or otherwise incapacitated. Be clear about your intentions and desires and put them in writing so your family understands what they may need to do when the time comes.

Those in their 50s may want to begin exploring long-term care insurance, as it may be more affordable at that age than it would be later on. The longer you wait, the more likely it is you will experience a serious medical issue that could potentially disqualify you from purchasing a policy.

Work with a trusted professional

If all of this seems too complicated or too overwhelming, that's understandable. But that doesn't mean it isn't an important and necessary step to help ensure you're able to live the lifestyle you want in retirement. If you feel like you need some help navigating the ins and outs of building out your retirement master plan, you may want to consider working with a trusted professional. People who seek professional financial advice may feel more confident about achieving their goals, and studies have shown that professional financial advice can potentially lead to better investment outcomes in the long term, depending on the time period and how returns are calculated.4

A professional can help you develop a plan specific to your goals and needs and help you keep it on the right track through changing market conditions and as your personal circumstances evolve. For something as important as your retirement, you may want all the help you can get.

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1. In order to be eligible to contribute to an HSA, you must be enrolled in an HSA-eligible health plan (often called a high-deductible health plan or HDHP) and you cannot be enrolled in Medicare, be claimed as a dependent or have other non-HDHP coverage. For eligibility requirements see IRS Publication 969. 2. US Bureau of Labor Statistics as of 8/28/2024. 3. "Does Asset Allocation Policy Explain 40%, 90% or 100% of Performance?”, Roger G. Ibbotson and Paul D. Kaplan, Financial Analysts Journal, January/February 2000. Diversification and asset allocation do not ensure a profit or guarantee against loss. 4. Depending on the time period and how returns are calculated. Value of advice sources: Envestnet’s “Capital Sigma: The Advisor Advantage” estimates advisor value add at an average of 3% per year, 2023; Russell Investments 2023 Value of a Financial Advisor estimates value add at approximately 5.12%; and Vanguard, “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha®,” 2022, estimates lifetime value add at an average of 3%. The methodologies for these studies vary greatly. In the Envestnet and Russell studies, the paper sought to identify the absolute value of a set of services, while the Vanguard study compared the expected impact of advisor practices to a hypothetical base-case scenario. Fidelity® Strategic Disciplines provides nondiscretionary financial planning and discretionary investment management for a fee. Fidelity® Strategic Disciplines includes the Fidelity® U.S. Low Volatility Index Strategy. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, FBS, and NFS are Fidelity Investments companies.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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

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