So how do you prepare for retirement confidently? Making the right decisions at the right time about Social Security and health care can help make you more successful.
Each financial retirement decision you make can have a big impact on when you retire, as well as on your expenses, income, and, ultimately your lifestyle. Some of those decisions you will make on your own, and others you will want help with. You'll see some age guidelines to help you figure out which decision you should start thinking about at which age.While each individual decision is important, all are interconnected and shouldn't be made in isolation.
You can claim at 62, but the longer you wait, the better your monthly benefits may be. Once you claim, you can't go back, so claim wisely!
Health care can be a big expense. Understanding how much it will cost is key. Medicare eligibility starts at age 65. How does that affect your retirement?
Because retirement decisions are complex and interdependent we encourage you to call your advisor or investment professional to discuss your personal situation.
Tip: Before you start working with a financial firm, consider using FINRA's BrokerCheck to look into that firm's background. See Fidelity's profile.
Fidelity has developed a series of savings factors and salary multipliers in order to provide customers with one measure of how their current retirement savings might be compared with potential income needs in retirement. Fidelity's savings factors consider a user's current age, retirement age, and expected lifestyle in retirement. They are calculated for an assumed 1.5% constant real wage growth to potentially support a range of income replacement targets (assuming no pension income) through age 93.
For the base case assumption of retirement at age 67 and the objective to maintain a lifestyle similar to before retirement, the income replacement target is 45% of annual preretirement income in pretax terms. The income replacement target is based on the Consumer Expenditure Survey 2011 (BLS), the Statistics of Income 2011 Tax Stat, IRS 2014 tax brackets, and Social Security Benefit Calculators. The 45% income replacement target (excluding Social Security and assuming no pension income) from retirement savings was found to be fairly consistent across a salary range of $50,000 to $300,000. The target may have limited applicability if your income is outside that range. The savings factor target for the base case is estimated to be around 10x annual preretirement income.
For a below-average lifestyle selection, the income replacement target drops from 45% to 35% of preretirement annual income. For an above-average lifestyle selection, the income replacement target increases to 55% of preretirement annual income.
Fidelity developed the savings factors through multiple market simulations based on historical market data. These simulations take into account the volatility that a variety of asset allocations might experience under different market conditions. Given the above assumptions for retirement age, planning age, wage growth, and income replacement targets, the results were successful in 9 out of 10 hypothetical market conditions where the average equity allocation over the investment horizon was more than 50% for the hypothetical portfolio. Remember that past performance is no guarantee of future results. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in these hypothetical calculations. Returns also will generally be reduced by taxes.
Guidance is educational in nature, is not individualized, and is not intended to serve as the primary basis for your investment or tax-planning decisions. We encourage you to build a retirement plan based on your personal time horizon, risk tolerance, retirement goals, and financial situation.
Retirement savings factors are hypothetical illustrations, do not reflect actual investment results or actual lifetime income, and are not guarantees of future results. Targets do not take into consideration the specific situation of any particular user, the composition of any particular account, or any particular investment or investment strategy. Individual users may need to save more or less than the savings target displayed depending on their retirement age, life expectancy, market conditions, desired retirement lifestyle, and other factors.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
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