Facebook Instant Articles - Fidelity https://www.fidelity.com This is feed for Facebook Instant Articles en-us 2017-12-21T21:45:26Z Tax reform and retirees https://www.fidelity.com/viewpoints/retirement/tax-reform-implications-for-retirement 551763 11/05/2018 New tax deduction and rate rules may mean lower taxes for many retirees. Tax reform and retirees

Tax reform and retirees

New tax deduction and rate rules may mean lower taxes for many retirees.

Fidelity Viewpoints

Key takeaways

  • Retirees may benefit from higher standard deductions and lower tax rates.
  • The rules for required minimum distributions, Social Security taxes, and charitable IRA distributions have not changed.
  • Some deductions have been eliminated or altered.

If you are retired and thinking about your tax situation, you may wonder what the new tax law will mean for you. Most of the changes from the tax law go into effect in 2018. The new tax brackets, tax rates, rules for itemized deductions could all impact retirees. At the same time, the law left the rules for capital gains, tax loss harvesting, Social Security, and required distributions unchanged.

Viewpoints answers some of the top questions asked by retirees. For a roundup of the tax changes for individuals in general, read Viewpoints on Fidelity.com: New rules for deductions.

Will senior citizens still get a higher standard deduction?

Perhaps the most important tax rule change for many retirees will be the increase in the standard deduction. For older taxpayers who don’t carry a mortgage and have limited deductions, that standard deduction is often more valuable than itemized deductions. That will be the case for even more people, as the tax law roughly doubled the size of the standard deduction.

At the same time, the additional standard deduction for the elderly will still be available. In 2017, the tax rules allowed individual tax filers over age 65 to claim an additional standard deduction of $1,550, and married couples over the age of 65 could increase their standard deduction by $2,500. The new rules would increase these higher standard deductions for people over age 65 to $1,600 per individual and $2,600 per couple.

On the other hand, the new tax code eliminated personal exemptions. Still, many retirees may come out ahead due to the higher standard deduction, rate cuts, and other changes (see case studies below).

2017 2018–2025
Standard deductions Single $6,350 $12,000
Married filing jointly (MFJ) $12,700 $24,000
Elderly or blind (single and not a surviving spouse) Additional $1,550 Additional $1,600
Elderly (both over age 65 and MFJ) Additional $2,500 Additional $2,600
Exemption Personal exemption $4,050 per family member Eliminated

What happens to taxes on Social Security?

The new rules would not change the taxation of Social Security benefits. Under current and future laws, Social Security benefits are subject to federal income taxes above certain levels of combined income (see table below). Combined income generally consists of your adjusted gross income (AGI), nontaxable interest, and one-half of your Social Security benefits.

What has changed are the applicable tax brackets—the new law lowered most tax rates and adjusted the income thresholds for the different tax brackets (get details). So the taxes paid on the same Social Security benefit could be lower.


Individual – combined income Individual – taxable SS benefits Couple MFJ – Combined Income Couple – MFJ taxable SS benefits
<$25,000 0% taxable <$32,000 0% taxable
$25,000–$34,000 Up to 50% may be taxable $32,000–$44,000 Up to 50% may be taxable
>$34,000 Up to 85% may be taxable >$44,000 Up to 85% may be taxable

Can IRA withdrawals still be treated as charitable distributions?

The existing rules for IRA distributions to charity have not changed. If you are over age 70½, you may distribute up to $100,000 per year directly to charity from your IRA, and the IRS will count that money as a qualified charitable distribution. The IRS will not include the funds as taxable income, but the distribution can satisfy your required minimum distribution (RMD).

What happens to the deduction for medical expenses?

The new tax rules preserve the deduction for medical expenses, and for the 2017 and 2018 tax years the AGI threshold for that deduction will be lowered from 10% of AGI to 7.5%. That could make this deduction available to more people with significant health issues. In 2019, the threshold will revert to 10% of AGI.

At the same time, the higher standard deduction may make this deduction irrelevant for many people, because the standard deduction may be greater than their total itemized deductions, which would include the itemized deduction for medical expenses.

Do the taxes on investment gains and investment income change?


Long-term capital gains tax rate and qualified dividends AGI
0% <$38,600 single
<$77,200 MFJ
15% $38,601–$425,800 single
$77,201 -$479,000 MFJ
20% >$425,800 single
>$479,000 MFJ

*Note: Tax rates do not reflect the 2.3% Medicare surtax.

The short answer is no, the same rules exist for short- and long-term capital gains, qualified and ordinary dividends, and interest income. The rules for tax losses are left unchanged.

However, the tax rates have changed. Short-term capital gains, ordinary dividends, and interest income from most bonds are generally taxed at ordinary income tax rates, so those rates will change along with the new tax brackets (get details).

Hypothetical case studies – the new rules in action
Here are some simplified case studies to see how these changes may play out.

Higher standard deduction
Let’s take a hypothetical couple over age 65 that has already been claiming the standard deduction. Their income included pension payments worth $12,000 a year, and an RMD of $50,000 from a traditional IRA and $24,000 a year from Social Security.

Because their combined income exceeds $44,000, 85% of their $24,000 Social Security benefit is taxable, equal to $20,400.

Their itemized deductions include charitable contributions, state and local taxes, and investment interest expenses totaling $11,000. In 2017, the couple opted for the standard deduction of $12,700, plus the additional standard deduction for the elderly of $2,500, and the personal exemptions totaling $8,100.

In 2017, the couple had a marginal tax rate of 15% and had to pay income taxes on $59,100 of income. In 2017, the federal income tax bill would have been $7,933.

Assuming the same income and deductions, in 2018 the couple would again use the standard deductions and additional deduction for the elderly, but those are now worth $24,000 and $2,600, respectively. The personal exemptions are no longer available.

The increased deductions reduce the income they are taxed on to $55,800. And tax reform lowered the tax rates—they are now in the 12% marginal tax bracket. So their new tax bill is $6,315. That’s a tax cut of about $1,600, or about 20%.

No longer itemizing
Let's look at a hypothetical higher-income couple over age 65 that had itemized their tax returns. This couple earns $50,000 a year from Social Security, withdraws $120,000 a year from a traditional IRA, and still earns $20,000 a year from a position on a board. Their total income was $190,000. Only 85% of Social Security was taxable, or $42,500.

Their mortgage interest, charitable giving, and local tax deductions totaled $18,000. 

In 2017, the couple claimed the personal exemption of $8,100 and itemized deductions worth $18,000, a total of $26,100. That left $156,400 in income, a marginal tax rate of 28%, and a tax bill of $30,676.

In 2018, the new standard deduction would be worth more than the itemized deductions, and the personal exemption is gone. The standard deductions would total $26,600, leaving them with $155,900 in income, but the tax brackets changed and they would now have a marginal income tax bracket of 22%, and a tax bill of $26,177. That’s a tax cut of $4,499, or 15%.

The bottom line

The tax law changed a large number of rules, but many of the provisions most important to retirees were unaffected. Many retirees will see their tax bill go down, but not everyone. The complex changes will affect individuals differently, so be sure to consult a tax advisor.

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How to save money on prescription drugs https://www.fidelity.com/viewpoints/personal-finance/how-to-save-money-on-prescription-drugs 376799 2017-05-17T15:46:50Z Practical tips to help you be a smarter health care consumer and reduce your family’s prescription drug costs. How to save money on prescription drugs

How to save money on prescription drugs

Practical tips to help you be a smarter health care consumer and reduce your family’s prescription drug costs.

  • Fidelity Viewpoints

Three ways to save money on prescription drugs

Understand the details of your plan’s coverage.

Speak frankly with your doctors about cost.

Make your pharmacist a member of your team.

When it comes to the cost of prescription medications, the prognosis isn’t encouraging. Drug costs continue to climb: Total spending on prescriptions grew more than 16% in 2016 and is expected to do the same this year, according to a study by the Department of Health and Human Services.1 In fact, prescription drugs today account for the largest share of your health plan premium, edging out even physician services (see chart).

Why have costs risen so much? A shortage of raw materials, delays in generics manufactured outside the United States, and high demand for certain drugs all play a role, says Sharon Frazee, a spokesperson for the Pharmacy Benefit Management Institute (PBMI). The average cost to bring a new major drug to market now exceeds $2 billion and can take up to ten years.2 People are also using more medications, with nearly half of the population taking at least one prescription medication in the past 30 days and nearly 11% taking five or more.3,4 High-priced “specialty meds,” while offering new hope for hard-to-treat illnesses, also come at a cost. In a recent survey by the National Business Group on Health, large employers cite the use of specialty drugs to treat such conditions as cancer and hepatitis C as a leading contributor to higher health costs.5

To manage these escalating costs, health plans and employers are looking for ways to negotiate lower rates, including tightening their lists of covered drugs (called formularies) and requiring patients to shoulder more of the cost through copayments and coinsurance.6 Many employers have moved toward high deductible plans, too, in which enrollees must pay the full cost of their non-preventive prescriptions until they meet a deductible that can range from $1,300 to more than $7,000 for an individual.7 Not surprisingly, one in four people who takes a prescription finds it hard to afford the cost.8 If you are among that group, or you simply want to keep your drug costs down, here are some tips:

1. Understand the details of your plan’s coverage.

You can avoid surprise expenses by finding out more about your plan. A key question to ask: Do you have to meet a deductible before your non-preventive drug coverage kicks in? Approximately half of all medical plans have a deductible of some kind, says Frazee. “For others, you pay a copayment or coinsurance right away,” she explains. (see last section.)

Next, ask about your plan’s formulary, or its list of covered drugs. “During open enrollment at the end of the year, check that your plan covers your current medications, and how much of their cost it covers,” says Lisa Gill, deputy content editor for Consumer Reports Best Buy Drugs.

Many plans group the medications they cover into price categories called tiers. Tier-one drugs are typically your plan’s preferred generics, and they require the lowest copayment or coinsurance. If your medication is in a higher tier, you’ll pay a much larger share (see graphic). “Pharmacy benefit managers have moved a lot of drugs to more-expensive tiers,” adds Gill. “So out-of-pocket spending has gone up, even if the drug price hasn’t.”

Another critical question: Does your plan have preferred pharmacies where you’ll be charged a smaller copayment? Last year, 36% of plans had a preferred network, according to PBMI. Almost all plans offer a mail-order option that will allow you to fill your prescription for 90 days at a drastically reduced cost.9 “People throw away a lot of savings by not filling a 90-day supply,” says Frazee. “A 30-day regimen may cost $10, compared to $17 to $22 for a 90-day supply. Some insurers even offer free maintenance drugs if you get them through mail order.” And some preventive medicines are also free under the Affordable Care Act. For instance, bowel preparation medicine before a colonoscopy is covered for those aged 50 to 74.10

Tip: Find out if your health plan offers an app to help you estimate the cost of filling a prescription. If it does, use your smartphone to access information quickly about your covered meds and their costs. For instance, United Healthcare has a Health4Me app that lets you enter your prescription and get its cost at a network pharmacy or through mail order even before you leave the doctor’s office.

Prescription drug tier Copayment for a 30-day supply at a retail pharmacy Copayment for a 90-day supply at a retail pharmacy Copayment for a 90-day mail order prescription
Tier 1 $10.58 $22.97 $21.54
Tier 2 $31.11 $70.67 $64.88
Tier 3 $54.23 $132.33 $114.05
Tier 4 $117.28 $285.28 $194.29
Source: Pharmacy Benefit Management Institute RESEARCH REPORT:Trends in Drug Benefit Design; 2016
2. Speak frankly with your doctors about cost.

“When doctors prescribe a drug, they may choose from several options, but they don’t necessarily know which ones are covered in your plan or how much each option will cost,” explains Dr. Michael Rea, a pharmacist and CEO of Rx Savings Solutions, which helps employees of member companies reduce their drug costs. “Sometimes one drug is clearly best for you. Other times, there may be less expensive alternatives that work equally well.” Bring up cost with your doctor and check your company’s formulary together to determine the lowest-cost solution for you.

Generic drugs typically cost 80% to 85% less than brand-name drugs.11 Even among generics, drugs designed to treat the same condition may vary greatly in price. “The fastest-growing component of savings is from generic to generic,” says Rea. You may save money by moving from one generic to another, just as you would by moving from a brand-name drug to a generic.

In some instances you can save money and treat your condition equally well through the use of something called a pharmaceutical alternative. Unlike a generic, which has the same active ingredients as its brand-name counterpart, alternative medications use different active ingredients to treat the same condition.12

Alternative medications aren’t always an option, but when they are, they can provide big savings. Take the brand-name medication Crestor, which is used to treat high cholesterol. A 30-day supply of Crestor 5mg may cost around $222, according to Rx Savings Solutions. Substituting the generic Rosuvastatin 5mg could reduce the cost to $35.92 per month, but switching to a drug alternative such as Simvastatin 40 mg may cost as little as $1.12 per month—a savings of more than $2,500 a year.13 Be sure to talk to your doctor about what might work best for your particular situation.

Sometimes taking a low-cost drug before using a higher-cost one isn’t a matter of choice. In fact, 83% of insurers require so-called “step therapy” for at least one class of drugs, says Frazee. In step therapy, you and your doctor try lower-cost medications first, and move on to more expensive alternatives only if necessary. This strategy is especially common for medications that treat common conditions like diabetes and high cholesterol, says Frazee.

Tip: Read Viewpoints: "How to talk to your doctor—and save money" and research prescription drug costs and alternatives on Consumer Reports Best Buy Drugs™.

Ask your doctor about switching to a less expensive medication: Commonly prescribed drugs that received generic drug approval in 201615:
Generic drug Brand name Approved medical use
Dofetilide capsules Tikosyn Atrial fibrillation/flutter
Mometasone furoate nasal spray Nasonex Nasal symptoms/allergies
Olmesartan medoxomil tablets Benicar High blood pressure
Oseltamivir phosphate capsules Tamiflu Treatment of influenza
Rosuvastatin calcium tablets Crestor High cholesterol
Sildenafil citrate tablets Viagra Erectile dysfunction
Source: FDA Office of Generic Drugs 2016 Report
3. Make your pharmacist a member of your team.

"Pharmacists can be some of your best advocates for making sure you get the best price,” says Gill. Instead of simply handing over your insurance card so the pharmacist can fill your prescription, take a few minutes to ask if there is a way you can save money. “Taking a few extra minutes to talk to your pharmacist could potentially save you thousands," says Frazee.

For instance, pharmacists can suggest such cost-reducing options as changing from a liquid to a capsule, taking two different prescriptions rather than one combination drug, or getting a higher-dose pill and splitting it. “In many cases doctors don’t know if a medicine is scored and can be easily split,” says Dr. Heather Free, a pharmacist and spokesperson for the American Pharmacists Association.

Pharmacists also can help you determine if it would be better to use your insurance plan or pay cash. For a brand-name drug, your insurer’s negotiated price usually will be lower than you’d spend in cash, says Rea. Many pharmacies offer discount cards, too. However, you should be aware that when you use a discount card, your payment doesn’t count toward your deductible. If your family goes to the doctor a lot and tends to meet your annual deductible, a pharmacy discount card may not be a good option.

The app OneRx works with your insurance to help you determine how to get the best price. Take a photo of your insurance card, and OneRx will show estimated copayments based on your plan. The app also shows cash prices, which in some cases may be less than your copay.

Of course, getting the best price isn’t the only consideration when purchasing medications. “Once you find a pharmacy that gives you a good deal on your most expensive medication, move all of your medications to that pharmacy,” says Gill. The reason: If you take several medications, one pharmacy should oversee them to help prevent the possibility of harmful drug interactions.

While drug costs may continue to climb, you can save a bundle if you take the time to be a more careful consumer of health care, says Gill. Before filling a prescription, ask your doctor and your pharmacy if there are ways to keep your costs down. Keep tabs on your health plan benefits too, particularly during open enrollment. “People often assume that their plan will remain the same,” says Gill, “but covered benefits often change. If you don’t know the new details of your prescription drug coverage, you could end up spending a lot more in out-of-pocket expenses than you need to.” That’s money you could put in your pocket—or, better yet— in your retirement plan, where it could help you live a happier, healthier future.

Tip: When shopping at online pharmacies, use only U.S. websites that have the blue and red “VIPPS” seal, recommends Consumer Reports. VIPPS, which stands for Verified Internet Pharmacy Practice Site, is awarded by the National Association of Boards of Pharmacy to online pharmacies that meet strict criteria, such as the use of specific practices related to quality assurance and customers’ right to privacy.16

Use tax-advantaged savings plans to help pay for your prescriptions.

If your employer offers a health Flexible Spending Account (FSA), you can put aside up to $2,600 this year in pretax dollars to pay for prescriptions, copayments and other eligible medical expenses. This can even be applied to the cost of over-the-counter medicines if your doctor writes a prescription for the medicine.

The money you put in an FSA is deducted from your paycheck before Social Security, federal, state and local taxes are applied. That means if you set aside $1,000 and you’re in the 33% tax bracket, you’d save $330 in federal taxes alone. FSAs generally don’t allow you to carry money from one year to the next, so take care not to elect more than you will need. That said, some plans offer either a carry-over feature, allowing you to roll over up to $500 in unused funds to the next year, or a grace period, giving you up to an additional two-and-a-half months to use up your FSA funds. Lastly, your employer may also offer a “limited purpose health FSA,” which lets you set aside money before it is taxed to pay for your vision and dental care expenses.

If you’re enrolled in a qualifying high-deductible health plan (HDHP) and meet other eligibility criteria, you can save up to $3,400 for individual HDHP coverage or $6,750 for family HDHP coverage this year in a health savings account, or HSA (with $1,000 in additional catch-up contributions for people who are 55 or older by the end of the calendar year). Similar to an FSA, your contributions are made pretax and any earnings in your HSA are tax-free. Withdrawals you make to pay for qualified medical expenses are never taxed, but if you withdraw money for a non-medical cost prior to age 65, you’ll owe income taxes plus a 20% penalty tax.

Tip: Read Viewpoints: “Three healthy habits for health savings accounts.”

Act

Plan

Learn

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5 important rollover questions https://www.fidelity.com/viewpoints/retirement/rollover-questions 258430 11/15/2017 Consider cost, investments, services, and convenience. 5 important rollover questions

5 important rollover questions

Consider cost, investments, services, and convenience.

Fidelity Viewpoints

Key takeaways

  • When you leave a job, having a plan for your 401(k) can help ensure that your retirement savings continue to work hard for your future.
  • As you think about your options, these considerations may be top of mind: investment choice, fees and expenses, services, convenience, and when you'll need the money.

Your retirement savings are important. After all, the money you've saved will likely provide a large part of your income in the future. Managing your savings well will mean more choices for you after you stop working.

Take your time to make good decisions for an old 401(k). Before you make any moves, take stock of your options and choose the best one for you.

  • Leave the money in your previous employer's plan
  • Roll your savings to your new employer's plan (if permitted)
  • Roll your savings to an IRA
  • Cash out your savings and close your account

Most people who are still working should eliminate cashing out as a choice: Consider it only if you desperately need money to pay immediate, essential expenses. The reason? Taxes and penalties make cashing out enormously expensive. You'll owe income taxes on withdrawals from pre-tax funds, and typically you must pay an additional 10% penalty if you are under age 59½.

Even if you are already over that age and in retirement, there are still good reasons to keep your retirement savings in a tax-advantaged account—namely the benefit of deferring tax payments and keeping your money invested for your future.

Here are important things to consider as you decide which option may be right for you:

1. What are my investment choices?

Not all retirement accounts provide the same investment options. Some 401(k)s and 403(b)s offer a menu of investments, chosen by the plan's administrator—typically, mutual funds. Some include lower-cost, custom funds not available outside the employer-sponsored plan, and company stock. Plus, some employer-sponsored plans offer a self-directed brokerage option that allows access to brokerage investment options through the plan. Brokerage IRAs typically provide access to a wide variety of mutual funds, exchange-traded funds, stocks, bonds, and other investments. Whatever you decide, make sure that you choose an account option that meets your investment needs.

2. How much are fees and expenses?

Every retirement account—an employer-sponsored plan like a 401(k) or 403(b), or an IRA—has costs, such as administrative fees for maintaining the account, management expenses charged by each investment, and transaction costs associated with trades and other account activity.

After you leave your job, some 401(k) or 403(b) plans may also charge annual or quarterly account recordkeeping fees. On the other hand, large employers might offer institutional-class shares that are less expensive than shares of the same mutual fund in an IRA.

On the IRA side, some providers offer an account with no maintenance fee or annual cost. But there are costs associated with investing in an IRA. You could choose low-cost ETFs, but still be charged a fee for buying and selling them. There may also be costs associated with the purchase of mutual funds. If you're interested in trading stocks, there are costs associated with that as well.

Growth of $50,000 in a retirement account after 30 years

This hypothetical example assumes a real return of 4.5% annually. The ending values do not reflect taxes or fees; if they did, amounts would be lower. Earnings are subject to taxes when withdrawn. This example is for illustrative purposes only and does not represent the performance of any security. Individuals may earn more or less than this example. Investing on a regular basis does not ensure a profit or guarantee against a loss in a declining market.

Be sure to examine the total costs associated with each option carefully—even a small difference in fees can have a big impact.

3. What services do I care about?

Many employer-sponsored plans and IRA providers offer online tools that provide education and advice to help you plan and manage your investments. Managed account solutions that provide investment advisory services to help you invest more effectively have also become more common across many employer-sponsored plans and IRA offerings. Other examples of services you may want to consider when deciding what to do with an old 401(k) are check-writing and wire transfers.

4. When do I expect to need the money?

Workplace retirement plans and IRAs may have different rules for withdrawals. For example, sometimes a 401(k) or 403(b) won't be subject to required minimum distributions (RMDs) while you're still working.

  • If you plan to continue working after age 70½, you might consider a rollover to your new employer's plan.
  • If you're age 55 or older when you leave your job, and you don't plan to go back to work, you might consider leaving the money in your old 401(k), which may allow you to take penalty-free distributions, even if you haven't reached 59½ yet. (Taxes will still apply.) You should contact your plan administrator for rules governing your plan.

5. Is convenience important?

Having your retirement savings in one place could make it easier to track and manage your investments, evaluate fees, and manage distributions in retirement—particularly if you have more than one old workplace retirement account. If you prefer to manage all your finances in one place, you might consider consolidating your savings in a new employer's retirement plan or an IRA.

It's your choice

Everyone has different needs and circumstances. Regardless of your unique situation, make sure to consider costs, investment choices, service, convenience, and other factors, to help determine what may be right for you. Be sure to consider all available options and the applicable fees before moving your retirement assets. And, as always, consult a tax advisor for help with this important decision.

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Working after 65? Avoid 5 Medicare pitfalls https://www.fidelity.com/viewpoints/retirement/medicare-and-working-past-65 556009 04/03/2018 Learn how Medicare works if you are still employed after 65. Working after 65? Avoid 5 Medicare pitfalls

Working after 65? Avoid 5 Medicare pitfalls

Learn how Medicare works if you are still employed after 65.

Fidelity Viewpoints

Key takeaways

  • Your health insurance generally terminates when you leave your job. Apply for Medicare 2 to 3 months before you end employment to avoid a gap in coverage.
  • If you enrolled in Social Security before your 65th birthday, you will be enrolled automatically in Medicare Parts A and B. However, if you are still covered by an employer's health plan, you could be paying for 2 plans.
  • Speak with your HR department to coordinate the timing and coverage options between your employer plan and Medicare as you approach age 65.

As you turn age 65, your mailbox will likely be full of birthday cards, well wishes, and a deluge of information packets on Medicare, the government health care program for people age 65 and over. But what if you're not ready to retire? Do you keep your employer-sponsored health care coverage or go for Medicare?

Today, more than 23% of baby boomers* are choosing to continue to work, either part-time or full-time, beyond age 65. Although most retirees enroll in Medicare at age 65, if you're still working, you have more options to consider for quality health care coverage—and the information in the Medicare brochure you receive from Uncle Sam may not be suitable for your situation because Medicare does not know whether you are still working.

There's a lot to keep track of: enrollment deadlines, health care coverage options, and possible penalties to avoid. But with some planning and homework, you can avoid the common pitfalls if you continue to work beyond age 65.

Medicare basics

Because Medicare works very differently from employer health insurance, there are lots of things to learn. If you continue to work after reaching age 65, you technically become eligible for Medicare, but you may or may not want to enroll right away.

Here's the dilemma: Your employer must continue to cover all eligible workers, regardless of age, under its group health insurance—yet, Medicare is telling you to sign up now.

It may not be clear that you only need to sign up for Medicare once—at the point when your employer group coverage is ending—so here's the 2-part general rule for when to join Medicare:

  1. Enroll during your Initial Enrollment Period (IEP)—3 months before to 3 months after the month you turn age 65; but only if
  2. You also lose access to your employer group health insurance coverage.

If you don't enroll during your IEP because you have employer group health insurance coverage, you can enroll at any time you still have employer group coverage or within 8 months after the month your employment or group coverage ends—whichever happens first. You'll need to know what your coverage options will be at age 65 and adjust your Medicare enrollment to meet your needs.

One other situation that can cause confusion occurs if you leave your job with a "retiree" health care plan or coverage under COBRA (the Consolidated Omnibus Budget Reconciliation Act of 1985). Neither of these health insurance options is considered employer group health insurance coverage, so you would be classified as a "former worker." In this case, you would need to enroll in Medicare during your IEP.

Who pays first?

As with many laws and regulations, the devil is in the details. In the case of health insurance, you need to know who the "primary payer" is—the party responsible for paying your medical bills first and covering the majority of the costs.

  • Medicare becomes the primary payer for your health care expenses once you reach age 65 and lose your employer group coverage (assuming you work for an employer with more than 20 employees)
  • If you continue to work, your employer's insurance pays first
  • And, if you've already left the company and have a retiree plan or COBRA, those plans typically become the secondary payer the month you turn age 65. So, if you don't have Medicare in place already, you become the primary payer.

If you work for an employer with fewer than 20 employees, you need to enroll in Medicare at age 65, during your IEP. Medicare becomes the primary payer and your employer's insurance becomes secondary.

5 pitfalls to avoid when working past age 65

1. Not doing your homework: If you plan to work past age 65, or if your spouse or partner continues to work and covers you, you've got some research to do to make sure you know your options, the costs, and any restrictions.

  • Your employer is required to offer you coverage, but is that your best option?
  • Is it more expensive to stay in your employer plan or join Medicare?
  • Which plan offers you the best coverage for your health needs?
  • Can your spouse or partner remain in your employer’s plan if you decide to leave?

Tip: Review your health benefits documents and schedule a call with your company's HR or benefits group to discuss your insurance options. Read the information on Medicare.gov about working after age 65 and the coordination of benefits.

2. Failing to notify Social Security that you want to delay Medicare: If you enrolled in Social Security before your 65th birthday, you will be enrolled automatically in Medicare Parts A and B. However, if you are still covered by an employer's health plan, you could be paying for 2 plans.

  • If you signed up for Medicare as part of your Social Security application process (online, in person, or over the phone), you'll need to contact the Social Security Administration by phone or by visiting your local office to explain that you do not want Part B at this time—that's because Social Security manages the administration of Medicare.
  • If you automatically receive your Medicare card, you'll need to follow the instructions that came with the card to cancel your Part B coverage. Generally, there is a short time frame of several weeks to return your Medicare card and cancel enrollment.
  • If you haven't enrolled in Social Security by age 65, there is no automatic turn on of your Medicare benefit—you just continue as an active employee, and you can enroll in Social Security at a later date.

Read Viewpoints on Fidelity.com: Social Security tips for working retirees.

3. Enrolling in Medicare Part A, but losing the ability to contribute to your health savings account (HSA): Many employees with access to HSAs have funded their accounts hoping that they could use their HSA dollars to pay for qualified medical expenses in their retirement.

But here's the glitch: If you enroll in any part of Medicare, you lose the ability to continue contributions to your HSA. Some people who continue to work after age 65 decide to enroll only in Medicare Part A because they think it's free and that it may provide some secondary insurance coverage in the event of hospitalization; however, this move may have unintended consequences.

"If you have both employer health insurance and Medicare Part A, Medicare becomes the secondary payer," explains Steven Feinschreiber, senior vice president of Fidelity's Financial Solutions Group. "Medicare coverage typically kicks in after the employer's insurance and covers unpaid expenses up to Medicare's cost limit." He continues, "In general, employer insurance pays more to health care providers and hospitals than Medicare, so you may not get any cost savings benefit by having both plans—and you've lost the ability to contribute to your HSA."

Tip: Decide which option is more important to you: the ability to continue to contribute to your HSA or enrolling in Medicare at age 65, because you cannot do both. When you enroll in Medicare after turning age 65, your actual coverage becomes effective up to 6 months earlier. Therefore, you'll want to end contributions to your HSA at least 6 months prior to leaving your job. This will help you avoid a possible tax penalty for making ineligible contributions to your HSA after your Medicare coverage has kicked in.

4. Not coordinating the timing of your Part B with losing your employer group health plan coverage. As you leave your job, your health insurance generally terminates at the end of that month. It's important to apply for Medicare a couple of months before you end employment so that your coverage will be in place on the first month of your retirement. Otherwise, you may have a gap in health insurance coverage leaving you fully responsible for paying any medical expenses you incur during this period.

For example, say you are age 68 and retire on March 15. The last day of your employer health coverage would be March 31. If you enrolled in Medicare in advance of your retirement, Medicare coverage would begin on April 1. If you wait until after you retire to enroll in Medicare, you will have a coverage gap. Your Medicare coverage could begin on May 1 or as late as December 1, and you would be responsible for paying any medical bills that you incur during those months without health care coverage.

Tip: Fill out the appropriate Medicare forms to enroll in Part B as your employer coverage is ending (Forms CMS-40B and CMS-L564). Do so about 3 months before your last day on the job.

5. Missing the "open enrollment period" to buy a Medigap plan after employer health insurance ends. The timing for buying supplemental insurance such as a Medigap policy is different from enrolling in Medicare. If you decide to do so, you'll have 6 months to buy a Medigap plan without underwriting once you have enrolled in Part B and have been assigned your Part B plan number. You may be able buy a Medigap plan after the open enrollment period, but, generally, you then become subject to medical underwriting, and the insurance company can decline to sell you a policy or can charge you more. For more on Medigap options, read Viewpoints on Fidelity.com: Medigap 101.

Medicare and working after age 65 checklist


  • Read your employer health care benefits information specifically for employees or spouses/partners who are reaching age 65
  • Talk to your company's human resources or benefits group to confirm the status of your employment and access to health insurance
  • Explore the Medicare.gov website and order your Medicare and You book to give you the latest information
  • If you are already receiving Social Security before turning age 65, make sure to follow the instructions to decline Part B when you receive your Medicare card
  • When you are ready to retire or are losing your employer group coverage, sign up for Medicare 3 months before your last day of coverage
  • Need help? Talk to your local State Health Insurance Technical Assistance Program (SHIP) representative for specific help with your personal situation. You can find your local SHIP contact information at https://shiptacenter.org/

Learning the ins and outs of Medicare and getting the timing just right is each individual's responsibility. Do your homework, understand your options, ask for help if you need it, and make sure you receive confirmation of your enrollment.

"Talking with your benefits department is one of the most important steps you can take if you are planning to work after age 65," Feinschreiber advises. "You don't want to be in a situation where you have a gap in your primary insurance coverage. Make sure you know how your health insurance will work after age 65, and coordinate the timing between your employer plan and Medicare."

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Ready to retire? You still need a budget. https://www.fidelity.com/viewpoints/retirement/budgeting-in-retirement 463152 02/05/2018 It’s important to start your retirement with a spending plan that works for you. Ready to retire? You still need a budget.

Ready to retire? You still need a budget.

It’s important to start your retirement with a spending plan that works for you.

Fidelity Viewpoints

Key takeaways

  • Use the budgeting process to discuss retirement priorities with your partner.
  • Try to match your essential expenses to guaranteed sources of income.
  • Think about limiting withdrawals from retirement savings accounts to 4%–5% in your first year of retirement, then make adjustments for inflation in subsequent years.
  • Consider consolidating accounts at a trusted provider.

Making a budget may not be the first thing you look forward to in retirement, but it's one of the most important things to do to start your retirement on the right path.

Along with an income plan that can deliver a steady "retirement paycheck" and an investing strategy that allows a portion of your nest egg the chance to grow, a realistic budget—based on all the sources of income you have coming every month—is an essential building block of retirement.

Whatever the size of your nest egg, retirement will mean changes in your financial life. Your sources of income will shift versus when you worked, as will the profile of your expenses. And financial priorities often change as you move from saving for retirement to generating income from your hard-earned retirement savings.

"One of the biggest things I find with recently retired or soon-to-retire clients who haven't had a budget in the past is that they're relieved when we actually run the numbers," says Tom Magee, CFP®, a Fidelity financial consultant in Boston. "When we match up their sources of income with their anticipated expenses in retirement, in most cases the budgeting exercise confirms that their plan can work."

At the same time, Magee says that people who have been diligent about following a budget throughout their working years may need to adjust their approach when making a retirement spending plan. "Many people looking ahead to retirement overestimate their expenses," he notes, "while others may need to adjust to the realities of adapting to life on a fixed income."

If you're ready to begin putting together a retirement budget, here are some tips to help:

Think big picture

For many people, the budgeting process stalls before it really gets started. That's often because they worry about the details of their discretionary spending instead of looking at the big picture. Start by understanding your essential expenses (see the "Essential expenses" section below) and how you can use guaranteed sources of income, like Social Security, pensions, and annuities, to pay for them.

Then create your discretionary budget by focusing on categories of spending—such as travel, health care, entertainment, and any charitable giving plans—rather than trying to account for every dollar you'll spend on coffee, personal care, or clothing. You'll have plenty of time to get more specific after test-driving your budget and seeing how well it fits your actual spending patterns. A good practice is to match discretionary expenses with income from individual retirement accounts (IRAs) and other tax-deferred retirement savings accounts.

Get organized

To plan ahead, you need to think about the life you want to live in retirement, based on what you can afford. You need to know the details of your recent spending patterns, and determine whether your overall spending will go up, go down, or stay the same in retirement.

To start, tabulate your average monthly expenses and know how much money is coming in versus going out. If you use credit cards, go online and look at year-end summaries to see where you spent the most money last year. Make note of any surprise categories of spending. Do the same with online bank statements.

Next, identify your ongoing monthly bills (like cable, cell phone, or landscaping/pool service bills) and determine whether you need to continue all these services. Then look through your past bills to identify work-related expenses (such as dry cleaning or fuel and transportation expenses) that you may no longer have to pay now that you're retired. Lastly, categorize expenses into "essential" and "discretionary" (see below).

Essential expenses

Cover essentials first. Health, comfort, and security are among life's most important priorities, so you'll want to make them your budget priorities too. Make sure your budget covers health care, housing, and insurance—as well as daily living expenses, from putting food on the table to paying utility bills.

Health care: Planning for health care costs can be especially daunting with estimated costs for an average 65-year-old couple retiring in 2017 hitting a total of $275,000 (in today's dollars) over their entire retirement period. Even if you're covered by Medicare and an insurance plan from your former employer, supplemental premiums and out-of-pocket costs continue to rise. For help in budgeting for health care, read Viewpoints on Fidelity.com: How to plan for rising health care costs.

Housing: If your home is paid for, good for you! But don't forget to add utilities, maintenance, and possibly larger home repairs. A good rule of thumb is to budget at least 1% of your home's value for annual maintenance. So, if your home is worth $400,000, then budget approximately $4,000 per year for standard repairs and general upkeep.

You may also want to include money for making accessibility upgrades, such as railings, ramps, or larger doorways, which may become necessary as you age. If you plan to live in a retirement community, be sure you understand the financial arrangements and monthly costs, if any, you'll be responsible for. Depending on the type of community, they could range from housekeeping fees to residents' association dues.

Transportation: No longer having commuting costs is a big bonus of retiring, but your transportation costs won't drop to zero. Most people don't retire to sit around the house, so remember to include the cost of gas or public transportation for trips to activities, as well as vehicle maintenance expenses. If you are considering buying a new or used car, add that expense too.

Food: Although you may not be eating out at lunch with colleagues, overall expenditures on food will likely remain constant. Now that you're retired, it might be a great time to do some fun things like taking cooking lessons or entertaining for friends and family.

Discretionary spending

Once you have accounted for your "must-haves," you can begin budgeting for discretionary items, such as dining out, going to the movies, weekend excursions, and those bucket-list adventures you've been dreaming of.

Travel: How you budget for travel will depend on the types of trips you're contemplating—weekend getaways, long vacations, or visits to family and friends. For short jaunts, you can build a monthly expense into your budget, putting the money you don't use into a pool for spending later. For longer vacations, you'll need to determine whether you have enough in savings to cover the trip without negatively affecting your retirement income plan. If not, you should add a vacation fund to your budget. If you are fortunate enough to own a vacation home, you should account for the cost of traveling back and forth to it. For their convenience, some retirees leave cars in different locales year-round, which, of course, is an added cost.

Entertainment/dining out/gifting: You probably already have a good idea of how much it costs to go to the movies and dine out, but many people forget to include money they use to buy gifts for family and friends for everything from birthday gifts to graduation and baby shower presents. If your budget allows for it, larger gifting priorities—such as giving money to future heirs to minimize inheritance taxes or contributing regularly to charities—should be part of an estate plan or tax-smart philanthropy strategy you craft with your estate attorney and tax adviser.

Stick to your income plan

A well-designed retirement income plan should be backed by an investing strategy that provides opportunities for your assets to generate earnings and helps your income keep pace with inflation. But investment returns will vary, and that, along with unexpected expenses, may require you to build some flexibility into your budget. One way to plan for the ebbs and flows of the financial markets is to express your discretionary spending as a range. That way, you can choose to put aside unspent money in months when your costs are at the bottom end of the range and use it during months when your discretionary spending is higher or your overall income is lower.

Fidelity suggests limiting withdrawals from retirement savings accounts to 4%–5% in your first year of retirement, and then adjusting this number higher for inflation increases in subsequent years. For more on sustainable withdrawals in retirement, read Viewpoints on Fidelity.com: How can I make my savings last? If you give in to temptation and outspend your sustainable rate, remember that it may have a cascading effect, because it can reduce the size of the nest egg that's available to generate potential investment returns over the rest of your retirement.

Communicate with your partner

Money issues can be a cause of significant strife in some marriages, even if the couple has been together for decades. "It's not surprising to find one spouse who lives for the moment while the other is still saving for that rainy day," says Ann Dowd, CFP®, a vice president at Fidelity Investments.

While disagreements about money can occur at any stage of life, they may be more pronounced in retirement, when couples move from living on income from a job to living on their retirement savings. "Not many people can live day to day on a strict budget," Dowd says. "However, creating an overall budget together can be an effective way for retired couples to identify shared goals and spending priorities."

But keep in mind that budgeting isn't just a numbers game. If you approach it with an open mind, it's a great opportunity to start a conversation with your spouse or partner about your priorities and dreams for retirement—both your individual goals and the things you want to do as a couple.

Remember to account for taxes too

During your working years, your employer was responsible for withholding income taxes and sending them to federal, state, and, perhaps, local government tax authorities. In retirement, if you have significant income from taxable accounts or other sources from which you do not have income tax withheld, you may need to make quarterly tax payments.

Then there are capital gains taxes if you sell securities or other assets at a profit. And if you're still in your home and plan to stay there, be sure to include real estate taxes in your budget. Some states and municipalities also levy an annual tax on major personal property, such as cars and boats.

Keep it simple

Remember why you retired—to have fun and do the things you never had time for when you were working! Finding ways to ease the burden of financial management is always a good idea, but it's especially important in retirement, when you're likely to spend more time traveling and pursuing your passions. One way to simplify may be to consolidate your retirement accounts with a trusted financial services provider, which enables you to organize your income, investing, and spending in one place while potentially reducing fees.

Although making a budget is one of those chores people tend to put off, it can be an essential contributor to feeling confident about your finances in retirement.

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Don't forget to take RMDs by year end https://www.fidelity.com/viewpoints/retirement/december-rmd-deadline 46326 11/21/2017 To avoid tax penalties, be sure to meet the December 29 deadline. Don't forget to take RMDs by year end

Don't forget to take RMDs by year end

To avoid tax penalties, be sure to meet the December 29 deadline.

Fidelity Viewpoints

Key takeaways

  • If you're 70½, you may need to take RMDs from certain retirement accounts
  • The deadline for taking RMDs is December 31 or April 1, depending on your age
  • The withdrawal amount of RMDs also depends on your age
  • Failure to take RMDs on time can result in substantial tax penalties

The end of the year is fast approaching. Have you taken your required minimum distribution (RMD) from your retirement account? Lots of people have not. Be warned: This can be a costly mistake, and one that may result in significant IRS penalties.

To avoid these penalties, please note that this year December 31 falls on a weekend, so if you need to sell positions to generate cash for the RMD, you have until markets close on December 29. The RMD must be taken by December 31.

Beginning when you turn 70½, IRS regulations generally require you to withdraw a minimum amount of money each year from your tax-deferred retirement accounts, like traditional IRAs and 401(k) plans. If you don't take enough, you may pay a 50% IRS penalty on the amount not taken.1 This is why it's important that you understand how RMDs work, and the timing of distributions.

How the amount is determined

Required minimum distributions are determined by your age, your account balance, and your life expectancy. If you have a spousal beneficiary who is more than 10 years younger than you and is the only beneficiary for the entire distribution year, you can base your RMD on your joint life expectancy.

Tip: For inherited IRAs, the rules are different. (Learn more)

Uniform lifetime table for required minimum distributions
Age 70 75 80 85 90 95 100 105
Years 27.4 22.9 18.7 14.8 11.4 8.6 6.3 4.5
Min. % 3.6% 4.4% 5.3% 6.8% 8.8% 11.6% 15.9% 22.2%
The table above shows, in five year increments, the minimum required distribution periods (based on age and the expected number of years for distributions) and percentages for tax. For a more complete picture, please visit the Uniform Lifetime Table.

Deadlines for withdrawals

For IRAs, the RMD deadline is December 31 each year. For your first distribution (and only your first), you get a three month extension until April 1 of the following year. The same generally holds true for 401(k) plans and other qualified retirement plans. However, if you wait until after December 31 to take your RMD, you will have to take two RMDs in one year, which could affect your income tax bracket or Medicare eligibility.

If you are over 70½ and still working, you can generally delay your RMDs from your 401(k) until after you retire.1 For all subsequent years, distributions must be made annually by December 31. Don't forget to also allow time for any trades to settle if you are selling investments.*

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Medigap 101: What you need to know https://www.fidelity.com/viewpoints/retirement/medigap-what-you-need-to-know 416421 11/29/2017 See if Medigap supplemental insurance makes sense for you. Medigap 101: What you need to know

Medigap 101: What you need to know

See if Medigap supplemental insurance makes sense for you.

Fidelity Viewpoints

Key takeaways

  • Medicare does not cover all health care expenses in retirement.
  • Medigap can help eliminate many Medicare out-of-pocket costs, extend skilled nursing home and hospital coverage, and cover health care costs when traveling abroad.
  • You can generally keep your doctors under Medigap.

Jeff and Alison Otto of Framingham, Massachusetts, knew picking a Medicare plan would take time and effort. So they talked to friends, family, and their doctor, and read extensively about their options. What really surprised them was the realization that Medicare would not cover all their health care costs in retirement, including those when traveling abroad.

"We travel a lot and want the security of knowing we can get medical treatment away from home," says Jeff, who with Alison is looking forward to visiting her family in England. So like a quarter of retirees, the Ottos decided to buy Medigap insurance to cover health care costs that Medicare does not.

Medicare and Medigap

Since its introduction in 1965, Medicare was designed to cover only a portion of a retiree's health care needs. "Original Medicare" includes 2 parts: Part A, hospitalization coverage, and Part B, physicians and outpatient services. Only selected services are covered, and costs are shared between Medicare and you.

When it's time for you to sign up for Medicare, you have 3 primary options: You can choose to pay what Medicare doesn't cover from your own pocket, buy supplemental insurance, such as Medigap, or buy an all-in-one policy called a Medicare Advantage Plan.

Medigap plans, the focus of this article, are sold by private insurance companies and are identified by capital letters—A, B, C, D, F, G, K, L, M, and N.1 Each lettered plan, regardless of the insurance company, must offer the same standardized features. (Read Viewpoints on Fidelity.com, 6 key Medicare questions to learn about other Medicare options.)

Why buy Medigap?

Here are 4 common reasons retirees choose to add Medigap to traditional Medicare.

  1. Medigap can eliminate most of your Parts A and B out-of-pocket costs. Generally, under Medicare, you are responsible for a portion of the cost after deductibles. Your Medigap insurance may pay for your portion of coinsurance, copays, and other costs you owe.
  2. Medigap provides some long-term care coverage. With Medicare, you get a limited number of coverage days for hospital stays, time in a skilled nursing facility (for example, after surgery or for rehabilitation services after a fall), or if hospice care is needed. Medigap provides additional time in these facilities, just in case.
  3. Medigap covers health care needs when traveling abroad.2 If you don't plan to travel frequently, it might be more cost effective to look into travel insurance, including medical evacuation insurance for emergencies overseas. Pricing will depend on where you are going, your age, and how long you will be traveling. Read Viewpoints on Fidelity.com: Retiree travel tips for staying healthy abroad.
  4. Medigap generally lets you keep your doctors. Still, it's important to check with your doctors, specialists, hospitals, and medical facilities to make sure they accept the exact insurance company and Medigap policy you are considering.

When should you enroll in Medigap?

You can enroll in a Medigap plan after you've enrolled in Medicare Part B. Generally, there are 2 time periods when you'll be eligible without any medical underwriting or worry about pre-existing conditions.

  • You've turned 65 and enrolled in Part B. In this "initial enrollment period," you have 6 months to select and enroll in a Medigap policy.
  • You are older than 65 and losing employer coverage. Once you enroll in Medicare Part B, you'll have 6 months to buy a Medigap policy.

If you miss your initial 6-month enrollment window, insurance companies generally require medical underwriting and you can be denied coverage, or may have to pay a higher premium for a Medigap policy, sometimes substantially higher.

As time passes, you can switch plans based on cost or a different level of coverage, but do so cautiously. Do not stop paying premiums on your existing plan before you find a new plan that will accept you. Switching by choice usually means you'll be subject to medical underwriting. Higher costs or outright denial may be the outcome.

How much Medigap coverage?

When deciding how much gap coverage you'll need, it's important to think about your health situation at age 65 and how healthy you might be at 75, 85, and 95. Steve Feinschreiber, senior vice president at Strategic Advisers, Inc., a Fidelity Investments company, offers 4 rules of thumb to consider as you shop for Medigap insurance:

  1. Don't overestimate the status or durability of your good health. "Consider the practical reality of needing more insurance as you age," advises Feinschreiber. "Even elite athletes run into health problems as they move through the decades."
  2. Use your family health history as a guide. "Talk to your doctor about aging and take a look at your family history," says Feinschreiber. "It could be a good guide to help decide the kind of coverage you might want to plan for."
  3. Choose your insurance separately from your spouse. Since there is no "joint" or "family" coverage under Medicare, it may be most cost effective for you and your spouse to choose different coverage options from separate insurance companies.
  4. Weigh costs vs. coverage. Medigap plans can be quite costly. "If you find the costs for gap insurance are hurting the overall health of your retirement income plan, think about where you might be able to make trade-offs," says Feinschreiber. "It's about finding the right balance so you have sufficient coverage and don't run out of money over the course of your retirement."

Countdown to Medicare

Because choosing a Medigap plan can be rather time consuming and complicated, it's a good idea to get started early, perhaps by age 64, or at least 6 months before you retire. To simplify the process, use our checklist.

Checklist: Medicare and Medigap steps to take before you turn 65

(or at least 6 months before losing your employer health insurance)

Age 64

  • Order your "Medicare and You" book on www.medicare.gov.
  • Talk to your employer about coverage options if retiring or if continuing to work.
  • Schedule an appointment with your primary care physician to discuss Medicare and Medigap options.
  • Find and research the options you'll have in your state for Medigap policies. Compare what they offer and how much they cost.
  • Schedule any medical appointments needed, including vision and dental (to maximize your existing coverage).

1–3 months before turning age 65

  • Apply online for Medicare Parts A & B.
  • Make final decision for a Medigap policy.
  • Finalize any details with your employer.
  • Look for your Medicare cards to arrive in the mail.

65th birthday month

  • Confirm that your coverage is in place for the first day of your birthday month.
  • Apply for your Medigap Supplement Insurance.

Fortunately, the transition into Medicare and Medigap was quite seamless for the Ottos. They realize that their needs may change over time, especially as they curtail travel plans as they get older. "Although we've seen costs increase over the last 2 years since we enrolled in Medigap, we have the right level of supplemental coverage for now and think we're getting good value at $800 per month for the both of us including dental coverage," said Alison.

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Should you move in retirement? https://www.fidelity.com/viewpoints/retirement/relocate-in-retirement 398558 11/28/2017 The home and region where you retire can have a big impact on your finances. Should you move in retirement?

Should you move in retirement?

The home and region where you retire can have a big impact on your finances.

Fidelity Viewpoints

Key takeaways

  • Housing is primarily a lifestyle choice, not an investment. But unlocking equity and lowering the ongoing costs of ownership can improve finances.
  • To overcome high transaction costs, aim to downsize by 25% or more if you are moving to improve your finances.
  • Consider downsizing early in your retirement to maximize the benefit of cost savings.

When you buy a place to live, people often remind you it could be the biggest investment you will ever make. But a home is a lot more than just an investment. A home is shelter, to start with, but also an important part of your lifestyle, memories, and more. The many roles of a home make converting the value of your property into income a lot more complex than selling a stock and tallying up any profits.

Still, for many Americans, their home is their most valuable asset and a large portion of their total wealth (see chart). It’s also a big part of spending—accounting for almost a third of all money spent. That makes it worth considering the financial side of homeownership, along with the other facets of your home, as you build your retirement plan. For many people looking to decrease the risk of running out of money in retirement, deciding to work longer and choosing a home are the decisions with the greatest potential impacts.

If you want to consider using home equity, your options include a reverse mortgage and a home equity line of credit. But perhaps the most common approaches to reducing your housing expenses are downsizing to a smaller home in the same area, or relocating to a less expensive area, or combining elements of both—relocating to a smaller home in a less expensive area.

Home equity makes up a lot of net worth

Source: U.S. Census Bureau, "Wealth, Asset Ownership, and Debt," detailed tables. The most recent data available was as of 2013, published in 2017.


To really understand the financial impact a move might have, you have to consider more than just the potential sale price or equity in your home. The price of a new home, the taxes and costs connected with the transaction, changes in the cost of ownership, the cost of living (COL) in the new area, and other factors will all help determine just how much of a difference a move could make for your retirement income.

"Housing plays a huge role in personal finances and wealth," says Andrey Lyalko, vice president at Fidelity. "The impact of reduced costs on retirement planning, and the potential to walk away with some cash from the sale of a home, make housing a key part of a retirement income strategy."

The overlooked impact of costs

If you have owned a home for a long time, you may have seen the value of your home rise significantly. What’s more, you might have built up equity as you paid off a lot of your mortgage. If you sell and walk away with some cash, you can convert that into a stream of income. But it is easy to overlook the common costs of a real estate transaction. Along with the price of a new home, realtor fees, closing costs, moving fees, and the money that goes into redecorating all take bites out of your sale price. Estimates suggest these costs could average as much as 13% of the sale price of a home.

The impact of transaction and moving costs on profits will be even greater. Consider the sale of a home worth $500,000 and then a purchase of another home for $400,000. If costs add up to 13% of your sale price of $500,000, you have spent $65,000 by the time you are moved into your new home. That’s 65% of the profit you were going to use for retirement.

To overcome the high costs of moving, we suggest looking for a house that costs at least 25% less than your current home. This big reduction in price should mean that the savings from the move can ultimately be worth more than the added expenses. A 25% reduction may still not leave you with a huge cash inflow, but it is not the only benefit to downsizing.

Some major expenses drop when you move to a less expensive residence. Taxes, insurance, utilities, and maintenance costs all tend to scale with the price of a home, as they may average more than 4% of the sale price of a home each year. Reducing those ongoing costs could go a long way toward improving your retirement picture. If you relocate, the potential cost-of-living changes can make a big difference too.

"People tend to focus on differences in the prices of homes, while transaction costs and ongoing expenses tend to be overlooked," says Lyalko. "But for a retirement plan, those lower costs can make a big difference, sometimes far more than the lump sum realized by selling."

Beyond price: Don't underestimate the costs and savings when downsizing

Costs* Description % of sale price Savings Description % of sale price
Realtor fees Generally paid for by sellers to facilitate sale 5% Taxes Property taxes are often directly related to the market value of the home 0.18%–1.89%
state averages
Closing fees Legal costs and taxes when selling or buying a home 2% Insurance and utilities Heating, cooling and other costs tend to scale with home price Insurance 0.5%
Utilities 1%
Maintenance 0.75%
Moving costs Repairs, moving, temporary housing, and refurnishing 6% Cost of living Costs such as health care, transportation, and groceries, vary by location From 18% below the national average cost of living to 216% above that average

*Note: Broker fee applies to the sale price of the home and is usually paid by the seller. The closing fees and moving costs apply to an average of the sale price and the purchase price of the replacement home. Source: Boston College Center for Retirement Studies.


A case study: A move to save

To see just how much of an impact a move might have, let’s look at a hypothetical example. A couple is able to generate approximately $5,000 per month in retirement income and they are finding it is not providing the lifestyle they want. However, they own a home worth $750,000 with no mortgage. Let’s suppose they sell the house, and buy a smaller home for $500,000, again without a mortgage. The deal would produce a $250,000 gross profit, but they need to make changes to the new house, buy furniture, pay the realtor, the taxes, the movers, etc. We estimate that this would end up costing about $87,500, or roughly a third of the profit, leaving them with a $162,500 lump sum.

What does that mean for their retirement income? Assume that their taxes and cost of living stay the same. Also assume that they want to make their savings last, so they decide to spend about 4% of their savings each year. In this case, the lump sum could mean an extra $500 a month for the rest of their lives. So they decide to spend about 4% of their savings each year, that lump sum could mean an extra $500 a month for the rest of their lives. But, the move will also result in lower ongoing expenses. Repairs, insurance, heating, cooling, taxes … all of those costs should drop as well. In fact, we estimate that these cost savings could total about $700 per month. That means the couple’s retirement cash flow could improve by an estimated total of $1,200 a month.

Taking it one step further, what if they bought a $500,000 home in a part of the country with a lower cost of living? Let’s suppose they relocated to another state with a 11% lower cost of living. The decreased costs in the new location could allow them to improve their standard of living by the equivalent of $2,200 a month. These additional monthly savings could mean even more in a place that costs less, and so could their existing retirement income. In total, the increased retirement income from the sale of the home, combined with the lower cost of living, could feel like a $7,200-a-month lifestyle. Put another way, this couple could increase the purchasing power of their retirement income by almost 50%, by downsizing and relocating.

How moving can impact retirement income: a case study

For illustration only. All data is hypothetical and based on Fidelity estimates using data from the Bureau of Labor Statistics and Boston College Center for Retirement Studies. As of September 2017.

Bottom line

Where to live is more than a financial decision. Leaving your memories may be difficult. Family and friends will likely also influence where you relocate in retirement. However, because housing is such a large part of our expenses and such a large store of wealth for so many people, it can be a powerful lever when it comes to the financial side of retirement. That’s why it’s critical to consider carefully where you will live as you map out your retirement income plan.

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Retirement rules of the road https://www.fidelity.com/viewpoints/retirement/rules-of-the-road 385366 10/09/2017 From your 20s and on, here are some steps to consider on your road to retirement. Retirement rules of the road

Retirement rules of the road

From your 20s and on, here are some steps to consider on your road to retirement.

Fidelity Viewpoints

Key takeaways

  • In your twenties and thirties, it's important to set good financial habits. That means establishing an emergency fund, limiting debt, and saving for the future.
  • In your thirties and forties, life may get more complicated, and your finances might as well. Trying to accomplish all of your goals may require a plan.
  • In your fifties and sixties, you may begin to think about retirement. That means creating income from savings and managing your finances without a regular paycheck.

Life is a journey with surprising twists and turns—and so is saving for your future (AKA retirement). Marriage, babies, divorce, bills, bonuses, job changes, and more can throw you off course—or give you an unexpected boost forward. But, while there are lots of things you can't predict, there are a few key things to think about at every age that can help increase the odds of success.

Here are some road-tested ideas—by age—to consider along the way. They are not meant to be rigid, one-size-fits-all directives, but guideposts to help you stay on track.

Starting out

In your twenties and thirties you're likely at the beginning of your career, and much of your take-home pay may be going to pay student loans, credit card debt, and monthly living expenses. Saving for "the future" may not be top of mind—but when it comes to retirement planning, it's never too early to start saving.

Consider saving at least a total of 15% of pretax income each year.
It should help ensure enough retirement savings to maintain a person's current lifestyle in retirement. While 15% may seem like a lot, "free money," like employer-matching contributions, to a 401(k), 403(b), or other workplace retirement account, or profit sharing from an employer, counts toward the annual savings rate.

No 401(k)? There are still ways to save for retirement. As long as you have some earnings, there are some tax-advantaged saving options, such as IRAs and self-employed 401(k)s.

If saving 15% immediately is tough, save what you can, and perhaps aim to increase the savings rate each year by 1%. For example, an investor starting at 5%, can aim to increase to 6% by year-end, bump it up to 7% the year after that, etc.

Watch "must-have" expenses, working to keep them at no more than 50% of take-home pay.
Some expenses simply aren't optional, such as housing, food, health care, transportation, child care, and debt payments. But just because some expenses are "essential" doesn't mean they're not flexible. Small changes can add up, such as turning down a thermostat a few degrees in the winter (and up in the summer), buying—and stocking up on—groceries when they are on sale, and bringing lunch to work.

Try to save 3 to 6 months of essential expenses in an emergency fund.
An emergency, like an illness or job loss, is bad enough, but not being prepared financially might only make things worse. Think of an emergency fund contribution as a regular bill every month, until there is enough to cover essential expenses for 3 to 6 months. After that, save for those short-term expenses that pop up unexpectedly. Setting aside 5% of monthly pay can also help with these "one-off" surprise expenses. If saving enough in an emergency fund is challenging, consider having this money automatically taken out of a paycheck and deposited in a separate account just for short-term savings.

Building for the future

In your thirties and forties, you're probably focused on buying a home, funding your kids' college and your retirement, and just paying the monthly bills. Managing your finances may be a balancing act. That's why it's important to have a plan.

Make the most of tax-advantaged accounts.
When saving for retirement, it's makes sense to do it in tax-advantaged accounts like traditional and Roth IRAs and 401(k)s, and health savings accounts (HSAs).

For those saving in taxable accounts too, consider having less tax-efficient investments (like taxable bonds and bond funds or stocks you trade short term) in tax-advantaged accounts and more tax-efficient assets (like stocks and stock funds held for the long term) in taxable accounts.

A balance between accounts where withdrawals in retirement are taxable [like traditional IRAs and 401(k)s] and those where withdrawals are tax free1 (like Roth IRAs and HSAs) can also help manage taxes in retirement.

Invest for growth.
If retirement is decades or more away, there is plenty of time to ride out the inevitable ups and downs of the stock market. So make sure to consider stocks, which historically have produced higher long-term returns than bonds and cash, albeit with more volatility.

Plan.
Building a mix of investments for the long term, which reflects your time horizon, financial situation, and risk tolerance, is important. It is a good idea to stay diversified. Remember that you may have 25-plus years in retirement and you’ll need to outpace inflation, so you'll probably need to keep growing your portfolio and have an investment mix tilted toward growth.

If you don’t have the skill, will, or time to manage your investments, consider a target date fund, asset allocation fund, or a managed account, each of which typically adjusts the investment mix over time, and also provides professional management. And remember to revisit and review your investments at least once a year or when your situation changes.

Getting ready for retirement

In your fifties and sixties, you're getting closer to a point when you might like to retire. So, it's a good time to think about a plan for generating income in retirement. Think about the lifestyle you want, and creating a retirement savings and spending plan.

Make the most of Social Security.
The longer you can wait to take Social Security (up to age 70), the higher your monthly benefit will be. Consider this hypothetical example: Colleen is 62, with a full retirement age of 66. (Full retirement age is the age when you first become entitled to full or unreduced Social Security benefits.) If she starts taking benefits at 62, she will receive $1,200 a month. If she waits until 66, she will receive 33% more, or approximately $1,600 a month. If she waits until 70, her benefits will increase another 32%, to almost $2,112 a month.2 If she were to live to age 89 (her life expectancy), her lifetime benefits would be about $38,000, or 13%, greater if she waited until age 70 rather than age 66 to collect benefits.3

If you're married, there are more advanced strategies to maximize your combined benefits. And if you are divorced, you may still be able to claim your ex’s benefit, if it's higher than yours. 

Think 45% of retirement income from savings. 
Fidelity analyzed extensive spending data and found that most people needed to replace between 55% and 80% of their preretirement income after they stopped working to maintain their lifestyle.4 Of course, you may need more or less depending on your situation. While some costs—like savings, taxes, and insurance—may decline in retirement, you may spend more on health care, travel, and entertainment. Where will the money come from? Social Security may cover some of your spending needs. But, our research shows that at least 45% of a person's pretax paycheck may need to be replaced from savings,5 including pensions, although the exact amount will vary depending on income, retirement age, and other factors.

Figure out expenses.
As you near retirement, make a detailed retirement budget to see how much money is needed to cover essential expenses such as food, shelter, and insurance, and see what can be covered by guaranteed income from sources such as Social Security or a pension. An annuity is one way to create a simple and efficient stream of income payments that are guaranteed for as long as you (or you and your spouse) live.6

Thriving in retirement

Now is the time to reap the benefits of your hard work and years of saving and planning. It is important to manage withdrawals from savings so you won't run out of money. That means learning a few more rules of the road. Consider the following to make sure your plan stays on track.

Manage withdrawals.
As a rule of thumb, Fidelity research suggests holding portfolio withdrawals to no more than 4% to 5% of your initial retirement assets, adjusted each year for inflation, over the course of your retirement horizon. Of course, your particular withdrawal rate will likely depend on a variety of factors, including your investment mix, your anticipated life span, and market performance.

Update or establish your estate plan.
No matter how much money you have, it’s important to have an estate plan and decide who will inherit your assets. An estate plan goes much further than a will. Not only does it deal with the distribution of assets and legacy wishes but it may help you and your heirs pay substantially less in taxes, fees, and potential legal expenses.

Keep your eyes on the road

While budgeting and saving may not be fun, worrying about money when you're retired sure isn’t either. If you still have many years until retirement, saving more now can have the biggest impact. If you are close to retirement, consider working a bit longer, thereby potentially boosting savings and increasing your Social Security benefit. If you're in retirement, you can also try to boost cash flow by cutting spending, working part time, or tapping home equity. And at any stage, attention to expenses and tax-savvy planning can help.

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50 or older? 4 ways to catch up your savings https://www.fidelity.com/viewpoints/retirement/catch-up-contributions 276675 03/21/2018 See how to save up to $6,000 more in tax-advantaged retirement accounts. 50 or older? 4 ways to catch up your savings

50 or older? 4 ways to catch up your savings

See how to save up to $6,000 more in tax-advantaged retirement accounts.

Fidelity Viewpoints

Key takeaways

  • If you're over 50, taking full advantage of catch-up provisions in tax-advantaged savings accounts can help boost your income in retirement.
  • Traditional and Roth IRAs and 401k(s), as well as HSAs, offer catch-up contributions for those age 50 and over.
  • Even if you're on track with your retirement savings, tax-advantaged accounts can help you build more assets.

2018 catch-up opportunities

  • Traditional and Roths IRAs - $1,000
  • 401(k), Roth 401(k) or similar plan - $6,000
  • SIMPLE IRA - $3,000
  • Health Savings Account (HSA) - $1,000

The notion that turning age 50 means starting to slow down is likely a young person's opinion. People who have hit the big five-oh know better. The prospect of retiring is getting closer, and there's a lot of living ahead. So it's important to ensure you have the money to live the life you've planned.

Fortunately, the federal government recognizes that people approaching retirement age often need to pick up the pace to ensure they have saved enough for retirement. The tax code provides "catch-up" savings opportunities so people aged 50 and older can increase their tax-advantaged contributions to IRAs, 401(k)s, and health savings accounts.

Taking advantage of catch-up contributions can deliver a significant boost to your retirement saving. For example, if you turn 50 this year and put an extra $1,000 into your IRA for the next 20 years, and it earns an average return of 7% a year, you could have almost $41,000 more in your account than someone who didn't take advantage of the catch-up1. And the impact can be even greater for a 401(k) or similar plan, where the catch-up contribution opportunity is larger.

Ready to start catching up with your retirement savings? Here's how:

1. Know if your retirement saving is on track

More than half of households are at risk of not covering essential expenses in retirement, according to a recent Fidelity study of Americans' retirement preparedness2. Some 41% have considered postponing retirement to make sure they can afford health care in retirement.

Are you on track? The first step is to find out how your savings—and savings rate—stack up. To get an indication of how prepared you really are, get your Fidelity Retirement ScoreSM. It takes about 60 seconds to answer 6 simple questions.

Whatever your score or your age, you can take some simple steps to stay on track or improve your retirement readiness. Fidelity Retirement ScoreSM can show you how adjustments to monthly savings, investment style and other factors could impact your preparedness.

Tip: Want a more in-depth analysis of your retirement readiness? Visit Fidelity's Planning & Guidance Center.

2. Make the most of catch-up provisions

Once you reach age 50, catch-up provisions in the tax code allow you to increase your tax-advantaged savings in several types of retirement accounts.

  • For a traditional or Roth IRA, the annual catch-up amount is $1,000, which boosts your total contribution potential to $6,500 in 2018.
  • If you participate in a 401(k), Roth 401(k), 403(b), or similar workplace retirement savings plan, the catch-up opportunity is even greater—up to $6,000 a year. That means you can contribute up to $24,000 in 2018.
  • Participants in a SIMPLE IRA or 401(k), designed for self-employed individuals and small businesses, can take advantage of a $3,000 catch-up contribution, bringing their total contribution potential to $15,500 for 2018.

Once you've reached 553, there's another opportunity to make catch-up contributions—Health Savings Accounts, or HSAs. Like in an IRA, the catch-up amount for an HSA is $1,000. With the catch-up, the total HSA contribution potential for 2018 is $4,450 for individuals and $7,900 for families.

Learn more about tax-advantaged retirement savings accounts.

3. Harness the power of tax-advantaged accounts

Even if you're on track with your retirement savings, tax-advantaged accounts are attractive long-term investment vehicles and tax-efficient planning tools.

With traditional IRAs or 401(k)s, contributions reduce your taxable income in the current year, as long as you are eligible, though withdrawals are taxable4. These traditional accounts also offer tax-deferred compounding. With Roth IRAs, you pay taxes upfront but withdrawals are tax-free when you reach 59½, assuming certain conditions are met4. Roth IRAs offer the potential for tax-free compounding. That means you'll have more money available to work for you and potentially grow faster than in a fully taxable account.

Tip: Compare IRA options—traditional or Roth— to see which might be right for you.

If your employer offers a high-deductible health care plan (HDHP) with a health savings account (HSA), you may want to consider electing the HDHP and opening an HSA. HSAs have a unique triple tax advantage5 that can make them a powerful savings vehicle for qualified medical expenses in current and future years: Contributions, earnings, and withdrawals are tax free for federal tax purposes.

To make the most of your HSA (if you have access to one and you can afford it), you may want to consider paying for current-year qualified medical expenses out of pocket, and letting your HSA contributions remain invested in your HSA. That way, the money has the potential to grow tax free and be used to pay for future qualified medical expenses, including those in retirement.

For more on HSAs, read Viewpoints on Fidelity.com: Three healthy habits for health savings accounts.

4. Invest for the future

While regular contributions to tax-advantaged retirement accounts may help keep you on track to reach your retirement savings goal, your investment mix (asset allocation) is an important factor, too. Consider whether investing a significant portion of your savings in a mix of US and international stocks and stock mutual funds may help you reach your long-term savings goals, since stocks have historically outperformed bonds and cash over the long term. You may want to think about gradually reducing the percentage of investments that you allocate to stocks as you get older.

Whatever your projected retirement date, your goal should be to have a portfolio with exposure to various types of investments that can provide the opportunity for growth and the potential to outpace inflation, along with investments that offer some degree of risk-reducing diversification. Of course, stocks come with more ups and downs than bonds or cash, so you need to be comfortable with those risks. You should always make sure that your investment mix reflects your time horizon, tolerance for risk, and financial situation.

Read Viewpoints on Fidelity.com: Three reasons to invest in stocks.

Goal: Enjoy retirement

As you plan for the day you retire, taking full advantage of tax-advantaged savings accounts, including catch-up provisions, may help you arrive in a significantly stronger position to enjoy the retirement lifestyle you envision.

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Just 1% more can make a big difference https://www.fidelity.com/viewpoints/retirement/save-more 275987 05/15/2018 Increasing your savings by just 1% now could mean a lot in retirement. Just 1% more can make a big difference

Just 1% more can make a big difference

Increasing your savings by just 1% now could mean a lot in retirement.

Fidelity Viewpoints

Key takeaways

  • Consistently saving a little bit more can add up over time.
  • Whether it's $10 or $100, saving money early in life, doing it consistently, and increasing the amount you're able to save over time can help you live the life you want in retirement.

Often it's the little things in life that can make the biggest difference. That's true when it comes to saving for retirement. Putting just 1% more into a tax-advantaged retirement account like a 401(k), 403(b), or an IRA could make a noticeable difference in your lifestyle in retirement. Whether you choose to make Roth or traditional contributions, the benefits of saving just a little more now can pay off later.

Read Viewpoints on Fidelity.com: Traditional or Roth account—2 tips for choosing.

"Saving for retirement may seem like a steep mountain to climb, but the climb doesn't have to be as steep as it looks," says Jeanne Thompson, senior vice president of retirement insights at Fidelity. "Small steps now can turn into big strides later."

While 1% is a small percentage of your annual earnings today, after 20 or 30 years it can make a big difference in your account balance when you retire. That's because the longer you give your money a chance to grow, the better. And it works no matter how old you are—or how far off retirement is.

Let's look at some examples.

See your numbers

Want to create an example like the ones shown above to see what a difference even a 1% increase can make for you? Use our interactive tool. See how a small change can make a BIG DIFFERENCE.

Consider small steps

As you can see in our examples—and probably in your own too—small weekly amounts like $12, $14, and $16 can make a noticeable difference in your savings. So how do you find the money? We won't say to skip buying something if you really need it, but there are probably places in your spending that may be easy to cut. Even bringing your lunch or using coupons could save you $16 or more. And the beauty of 401(k) contributions is that they come right out of your paycheck, so you may not even miss the spending money.

If a one-time bump-up isn’t ideal now, consider aiming to increase contributions each year. For instance, if your 401(k) lets you set automatic increases every year, consider signing up. If you usually get a raise each year, you may be able to time the increase to happen when you get a bump in pay so you won't feel the impact in your paycheck.

Consider saving 15%

We ran the numbers and determined that aiming to save 15% of income toward retirement annually—which includes any matching contributions or profit sharing an employer may make to a workplace retirement account like a 401(k) or 403(b)—can help ensure that you can maintain your lifestyle in retirement.

Read Viewpoints on Fidelity.com: How much should I save each year?

Not saving that much? Don't fret. Few people get there overnight. Think of planning for retirement as a journey. The key is to save as much as you can now and try to increase savings over time. If possible, save at least enough to get any match from your employer.

"Starting early, saving regularly, and increasing the amount you save as your income increases will help you to achieve the retirement you envision," says Thompson.

Don't have a 401(k)?

You may be self-employed or maybe your employer doesn't offer a 401(k). But you can save in a tax-advantaged account like an IRA. There are several types of IRAs.

If you are already contributing to an IRA, chances are you may not be saving up to the limits. The average contribution to a Fidelity IRA in 2017 was about $4,280—despite the $5,500 limit for those under age 50 and the $6,500 limit for those age 50 or older. Saving $50 more a month, or $600 a year, can make a real difference in the long run.

See how you're doing

We made it easy to begin measuring how you are doing when it comes to saving for retirement. Answer 6 simple questions to get The Fidelity Retirement ScoreSM. It's like a credit score for retirement. Whatever your score, you can take some simple, clear steps to stay on track or improve it.

Go for it

Challenge yourself to save a little more. Whether it's a 1%, 3%, or even 5% increase, the extra money saved today could make a big difference in helping achieve the retirement you envision. Think about it this way: Do you want to be worrying about money in retirement?

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9 compelling reasons to consider a Roth IRA https://www.fidelity.com/viewpoints/retirement/why-have-a-roth-ira 258959 04/12/2018 Get tax-free growth potential, tax-free withdrawals, no required distributions, and more. 9 compelling reasons to consider a Roth IRA

9 compelling reasons to consider a Roth IRA

Get tax-free growth potential, tax-free withdrawals, no required distributions, and more.

Fidelity Viewpoints

Do you want to help lower your taxes and increase your retirement savings? A Roth IRA, with its tax-free growth potential and tax-free withdrawals for you and your heirs, is a way you may be able to do just that (as long as certain requirements are met).1 And those are just a few of the benefits of a Roth IRA.

One important note: Not everyone can contribute to a Roth IRA, because of IRS income limits. If your income is over the limits, you still may be able to have one by converting existing money in a traditional IRA or other retirement savings account. (See the section "If you earn too much to contribute," at the end of the article.)

1. Money may grow tax free; withdrawals are tax free, too

You contribute money that has already been taxed (after-tax dollars) to a Roth IRA. There's no tax deduction as there can be with a traditional IRA. But, any growth or earnings from the investments in the account—and money you take out in retirement—is free from federal taxes (and usually state and local taxes too), with a few conditions.1

2. There are no required minimum distributions

Roth IRAs do not have required minimum distributions (RMDs) for the owner. Traditional IRAs and, generally, 401(k)s, 403(b)s, and other employer-sponsored retirement savings plans—both Roth and traditional—do. If you don’t need your distributions for essential expenses, RMDs may be a nuisance. They have to be calculated and withdrawn each year, and may result in taxable income. Because a Roth IRA eliminates the need to take RMDs, it may also enable you to pass on more of your retirement savings to your heirs (see below).

3. Leave tax-free money to heirs

In many cases, a Roth IRA has legacy and estate planning benefits, but you need to consider the pros and cons—which can be subtle and complex. Be sure to consult an attorney or estate planning expert before attempting to use Roth accounts as part of an estate plan. While RMDs are also required for inherited Roth IRAs, those distributions generally remain tax free.

4. Tax flexibility in retirement

You've already paid the taxes on the money in a Roth IRA, so as long as you follow the rules, you get to take out your money tax free. Mixing how you take withdrawals between your traditional IRAs and 401(k)s, or other qualified accounts, and Roth IRAs may enable you to better manage your overall income tax liability in retirement. You could, for example, take withdrawals from a traditional IRA until your taxable income reaches the top of a tax bracket, and then take additional money you need from a Roth IRA.

5. Help reduce or even avoid the Medicare surtax

A Roth IRA may potentially help limit your exposure to the Medicare surtax on net investment income. This is because qualified withdrawals from a Roth IRA don’t count toward the modified adjusted gross income (MAGI) threshold that determines the surtax. RMDs from traditional (i.e., pretax) accounts such as a workplace retirement plan—like a traditional 401(k)—or a traditional IRA, are included in MAGI and do count toward the MAGI threshold for the surtax. Depending on your income in retirement, RMDs could expose you to the Medicare surtax.

6. Hedge against future tax hikes

Will tax rates rise in the future? There's no way to know for certain, but the top tax rate remains far below its historical highs, and if you think it might go up again, a Roth IRA may make sense.

7. Use your contributions at any time

A Roth IRA enables you to take out 100% of what you have contributed at any time and for any reason, with no taxes or penalties. Only earnings in the Roth IRA are subject to restrictions on withdrawals. Generally, withdrawals are considered to come from contributions first. Distributions from earnings—which can be taxable if the conditions are not met—begin only when all contributions have been withdrawn.

8. If you're older, you can continue to contribute as long as you work

As long as you have earned compensation, whether it is a regular paycheck or 1099 income for contract work, you can contribute to a Roth IRA—no matter how old you are. There is no age requirement for contributions.

9. If you're young, your income is likely to rise

The younger you are, the greater the chance that your income will be higher when you retire. For instance, if you’re under age 30, it's likely that your income and spending during retirement will be significantly higher than it is at the beginning of your career. And the greater the difference between your income now and your income in retirement, the more advantageous a Roth account can be.

If you earn too much to contribute

In order to contribute to a Roth IRA, you must have employment compensation, and there are also income limits. If your income is over the IRS limits, the only way you can take advantage of a Roth IRA is by converting money from an existing retirement account, such as a traditional IRA.2 There is a cost, though. You need to pay taxes on what you convert.

In conclusion

No matter what your age, because a Roth IRA may improve your tax picture, it makes sense to take the time to see whether you would benefit from one.

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Your bridge to Medicare https://www.fidelity.com/viewpoints/retirement/transition-to-medicare 260785 04/24/2018 Explore 4 health care coverage options as you transition to Medicare at age 65. Your bridge to Medicare

Your bridge to Medicare

Explore 4 health care coverage options as you transition to Medicare at age 65.

Fidelity Viewpoints

Key takeaways

  • Know the 4 key health care coverage options open to you as a pre-65 retiree.
  • Understand your Medicare options as you become eligible at age 65—and know how your coverage decisions affect the cost of your monthly Medicare premiums.
  • Re-evaluate your Medicare options every year.

Although you may have done a noble job of planning for your retirement, approaching age 65 is still full of complexities—including how your health care coverage will change and how you will pay for it.

According to Fidelity's Decision to Retire research, conducted with the Stanford Center on Longevity,1 people retire an average of 4 years sooner than they had planned. For many who do have gap years between when they actually retired and when they had planned to retire, it can be a mad scramble to find affordable, quality health care coverage until they are eligible for Medicare at age 65.

Even after Medicare eligibility kicks in, there are still additional costs to cover. Health care is one of the biggest expenses for retirees. Fidelity's 2017 Retiree Health Care Cost Estimate2 pegs the total out-of-pocket cost of health care in retirement at $275,000 for a couple both aged 65. This is up from $260,000 in the 2016 study.

4 key health care options between early retirement and Medicare

"With more and more employers dropping their pre-65 retiree medical plans,3 the questions of where and how to get the right coverage did not disappear with the Affordable Care Act, and may still create indecision and uncertainty in someone who is otherwise ready to retire," says Greg Gagliano, vice president of health solutions at Fidelity.

If you are retiring before you're 65 and don't have access to retiree health care coverage from your employer, there are 4 main ways to obtain health care coverage to bridge the period between retirement and Medicare:

  1. COBRA coverage. The Consolidated Omnibus Budget Reconciliation Act of 1985, or COBRA, allows you to continue your current health care coverage for a certain amount of time, but you may be required to pay the full cost of your health coverage plus an additional 2% charge. While you are working, your employer will typically cover a significant portion of the cost of your coverage, reducing the cost for active employees, but that is rarely the case for those who continue coverage through COBRA.
  2. Spouse's plan. If your spouse or partner is employed and has health coverage, you may be able to get covered on their employer's plan—and this may be your best and most cost-effective option. If your spouse or partner is already retired and has retiree medical coverage, you may be able to be added to that coverage as well.
  3. Public marketplace. The marketplace was established by the Affordable Care Act and provides plan options available to anyone who is not yet eligible for Medicare. You can no longer be denied coverage for any reason, including a pre-existing condition. This was often a significant issue for those contemplating early retirement because affordable health insurance coverage was hard to find and obtain, particularly for those with pre-existing medical conditions. Costs for these plans can vary widely, but some people qualify for government-provided subsidies through premium tax credits that can make the coverage more affordable. Tip: Read Viewpoints on Fidelity.com: Are public health exchanges for you?
  4. Private insurance. To obtain coverage, you can also look to your local health insurance agent, trade or professional associations, and other so-called "private exchanges" that offer plans from multiple carriers. You may have more plan options available to you through these outlets than the public marketplace, but note that government-funded premium tax credits cannot be applied to these plans.
medicare_gap_popup_2016v2

"The public marketplace is usually a good outlet for pre-65 retirees who do not have access to an employer-sponsored retiree medical plan, but these exchanges are still very new and many insurance companies have withdrawn from the market," says Gagliano. "The good news is that there are other outlets available to you, such as private exchanges, which can offer coverage regardless of your health status."

Use our widget at the right to answer a few questions and find out what choices may be available to you until you can enroll in Medicare.

Getting ready for Medicare

Once you've figured out how to bridge the gap to Medicare, you'll need to explore Medicare itself as you approach 65, the age when most people become eligible. There's a lot to learn. If you're like most people, you may be confused about how and when to transition from your interim coverage to Medicare—and when you need to do it. And remember, Medicare coverage is provided to each eligible individual who enrolls—you cannot cover your spouse under your Medicare coverage; they will have to enroll on their own when eligible. Here are answers to 6 common questions:

  1. I'm eligible to claim my Social Security benefit as early as age 62. Will Medicare kick in at the same time?
    The answer is generally no. For most of us, the age to qualify for Medicare is 65, with a few exceptions: People with certain disabilities or kidney failure can qualify at a younger age.
  2. Will Medicare contact me directly prior to my becoming eligible?
    If you are already receiving Social Security benefits or railroad retirement benefits, Medicare will mail you a Medicare enrollment kit a few months before you become eligible. If you are within 3 months of turning age 65, reside in the United States or one of its territories or commonwealths, and don't want to apply for monthly Social Security retirement benefits just yet, but do still want to apply for Medicare benefits, you can enroll in Medicare online.
  3. Are there deadlines for Medicare sign-up?
    Yes. Retirees who are already receiving Social Security benefits are automatically enrolled in Medicare Parts A and B, and coverage generally begins the month they turn 65. But retirees who haven't claimed Social Security will need to take action to sign up for Medicare. You can first sign up for Medicare Part A hospital insurance and Medicare Part B medical insurance during the 7-month initial enrollment period that begins 3 months before the month you turn 65. If you enroll in Part A and/or Part B the month you turn 65 or during the last 3 months of your initial enrollment period, the start date for your Medicare coverage may be delayed.

    Regardless of how you get Parts A and B, you must sign up for Part D if you want prescription drug coverage. Or, if you prefer, sign up for a Medicare Advantage Plan (Medicare Part C), which replaces parts A, B, and often D. Medicare Advantage Plans, a private-sector alternative to original Medicare, have the same initial enrollment period, as does Part D for prescription drug coverage.

    If you don't enroll in Medicare during the initial enrollment period around your 65th birthday, you can sign up between January 1 and March 31 each year thereafter for coverage that will begin on July 1. However, you could be charged a late-enrollment penalty when your benefit starts. For example, if a penalty applies, monthly Part B premiums increase by 10% for each 12-month period you delay signing up for Medicare after becoming eligible for benefits.
  4. How do I sign up for Medicare if I am still working at age 65?
    If you retire after age 65 and have employer-sponsored health coverage, you will have an 8-month special enrollment period to sign up for Part A and/or Part B, which starts the month after your employment ends or the group health plan insurance based on current employment ends, whichever happens first. Usually, you don't pay a late-enrollment penalty if you sign up during a special enrollment period.
  5. Can I make changes every year?
    Yes. The Medicare open enrollment period runs from October 15 through December 7 annually. This gives you the opportunity to re-evaluate your situation every year and make any changes.
  6. If I retire outside the United States, can I bring my Medicare coverage with me?
    In most cases, no. The US government generally precludes Medicare from paying for medical services for retirees outside the country and its territories. A possible silver lining: You may be able to purchase affordable health insurance in some countries or tap into their private health care systems. But, some insurance companies operating outside of the United States and its territories may limit your participation or acceptance based on your age.

Read Viewpoints on Fidelity.com: 6 key Medicare questions.

You may have to pay more

High-income retirees—in 2018, individuals with a modified adjusted gross income (MAGI) over $85,000 or married couples with a combined MAGI of more than $170,000—pay higher monthly premiums for both Medicare Part B and the Medicare Part D prescription drug plans, and in some cases, a lot more.

There are 5 Medicare premium brackets for Parts B and D. In 2018, the surcharges for Part B coverage range from $53.30 to $294.60 per month (in addition to the standard $134.00 monthly premium). The brackets are based on the income from your latest tax return, so your 2017 tax return filed in 2018 will be the basis for your Medicare premiums paid in 2019.

"Pre-65 retirees—particularly affluent ones who are unlikely to qualify for federal premium tax credits—need to know that even under the provisions of the Affordable Care Act, coverage is likely to cost significantly more than when they were active employees or when they become eligible for Medicare," adds Gagliano. Read Viewpoints on Fidelity.com: Medicare taxes and you.

Remember to also sign up for Medicare Part D

Whether you are currently taking prescription medications or not, you need to know the ins and outs of Medicare Part D—the Medicare Prescription Drug Plan. Prescription drug coverage may be included as part of a Medicare Advantage plan. There are lots of options to compare. When you first enroll in Medicare, it's important to plan for your future needs. Take the time to look into Medicare Part D prescription drug coverage.

Keep these 2 additional things in mind when enrolling in Medicare Part D:

  1. If you don't enroll in Medicare prescription drug coverage when first eligible, you may be hit with a late-enrollment penalty, which will apply for the rest of your life. If you waited for more than 63 days since you were first eligible for Part D coverage and did not have "creditable coverage" (such as employer-sponsored coverage with prescription drug coverage that is as good as or better than what is offered under Medicare Part D), you will be subject to permanent financial penalties of an additional 1% per month that you go without coverage. This penalty is added to the premium for the plan you enroll in.
    Tip: Don't delay signing up for Medicare Part D if you don't have other prescription drug coverage. Say you delay enrolling for 20 months from when you no longer have creditable prescription coverage; when you finally sign up, your premium will be 20% higher.
  2. You may have heard of the so-called "donut hole." If you fall into this "coverage gap," you may have to pay more for medications because there is a temporary limit on what the drug plan will cover for prescription drugs. For 2018, once you and your drug plan have spent $3,750 for covered medications, you will be in the "donut hole" coverage gap and then may be required to pay 35% of the cost of your brand-name prescription medications. Medicare pays 56% and a participant pays 44% of generic drugs in the donut hole. You exit the donut hole once your out-of-pocket cost for prescription drugs exceeds $5,000 for the year.
    Tip: You may want to consider scheduling a Medication Therapy Management consultation with your local pharmacist to explore combinations of prescriptions that may help you maintain your health, but at a lower cost. Then go back and discuss the pharmacist's recommendations with your doctor. All Medicare prescription drug plans (Part D) cover this consultation.

There are lots of health care and financial decisions to make as you transition to retirement. In addition to needing a strategy to generate retirement income and claim Social Security, you may need to develop a strategy to help you bridge the gap until you are eligible for Medicare coverage at age 65. Once you are eligible to enroll in Medicare, be sure to get the health care part of the equation right.

The Medicare system is different in many ways from employer-sponsored health coverage, so take time to understand the basics of Medicare. You and your spouse or partner may have different needs and may be better off choosing different Medicare plans. So do your homework, shop around, and compare prices. Remember, as long as you remain enrolled in the Medicare system, you can make changes every year as your situation and health care options and needs change and evolve.

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No 401(k)? How to save for retirement https://www.fidelity.com/viewpoints/retirement/no-401k 246810 04/16/2018 Don't worry—there are tax-advantaged options for people without a 401(k). No 401(k)? How to save for retirement

No 401(k)? How to save for retirement

Don't worry—there are tax-advantaged options for people without a 401(k).

Fidelity Viewpoints

Key takeaway

  • Freelancers and independent contractors have some of the same retirement plan options as small-business owners including the IRA, SEP IRA, SIMPLE IRA, and self-employed 401(k).

When it comes to saving for retirement, the advice is usually, "Save in your 401(k)." But lots of people don't have a 401(k), 403(b), or other workplace retirement savings account. About 30% of working households don't have access to workplace retirement plans, according to data from the Department of Labor.1

If you are one of the millions of freelancers, entrepreneurs, workers with a side gig—or an employee with no workplace retirement plan—you can still save for retirement. As long as you have some earnings, you have some tax-advantaged saving options.

IRA

You've probably heard of IRAs, short for individual retirement accounts. If not, or you're not sure how they work, here are the basics. An IRA is a type of retirement savings account that comes with some nice tax benefits, including tax-free or tax-deferred compounding. Other tax breaks depend on the type of IRA you choose—the basic types are a traditional IRA and a Roth IRA.

Who can open one?
Anyone with earned income (including those who do not work themselves but have a working spouse) can open an IRA. Alimony is also considered income for IRA contribution purposes. You can contribute up to $5,500 in 2018 ($6,500 if you’re age 50 or older). The Internal Revenue Service (IRS) periodically adjusts the contribution limit for inflation.

There are some income limitations on both traditional and Roth IRA contributions.2,3

How it works
Contributions to a traditional IRA might be fully deductible, partially deductible, or entirely nondeductible depending on whether you and/or your spouse are covered by a retirement plan through your employer. If a taxpayer is covered by a retirement plan at work, their income determines whether their IRA deduction will be limited. Retirement plans at work include 401(k) plans, 403(b) plans, and pensions.

Deductibility of traditional IRA contributions depends on your modified adjusted gross income (MAGI). Deductibility is phased out at applicable MAGI levels.

After age 59½, you can withdraw contributions and earnings without penalty—but your withdrawals will be taxed as ordinary income. An exception to this occurs if your contributions were not deducted from your taxable income when you made them. In that case, the portion of your withdrawals that corresponds to the nondeductible contributions will be tax free. After age 70½ you can no longer contribute to the traditional IRA and must begin taking required minimum distributions (RMDs).

A Roth IRA contribution does not give you a current tax deduction—contributions are made with after-tax money. But when you withdraw money after age 59½ (provided that the 5-year aging requirement has been satisfied), no taxes are due on earnings or contributions as long as you have met the 5-year holding requirements for the account. The Roth IRA does allow you to withdraw up to the total amount of your contributions from the account at any time tax free and penalty free—but not the earnings on these contributions. If you have earned income, you can contribute up to that amount past age 70½—with no required minimum distributions at any time during the lifetime of the original owner.

Who it may help
The IRA—either a traditional or Roth IRA—is good for nearly everyone with an earned income, or a nonworking spouse. High earners who have, or whose spouses have, workplace plans may not be able to get a deduction for a traditional IRA contribution, and those who have high incomes may not qualify for a Roth contribution, either—but they may be able to convert a traditional IRA into a Roth IRA.2,3 Other than that, the only drawback is, that compared with other retirement accounts, the IRA has a relatively low contribution limit.

Things to keep in mind
The deadline for contributing for 2018 is the tax deadline next year—April 15, 2019.4 Every tax year, you get about 15½ months to get your contribution into the account. The deadline is generally set in stone—getting an extension on your taxes won't give you any extra time to contribute to a traditional or Roth IRA.

Though there is typically a 10% penalty imposed on early withdrawals, some situations like disability and first-time home purchases qualify for a waiver of the early withdrawal penalty. Visit IRS.gov for more information about qualified early distributions.

Read Viewpoints on Fidelity.com: Traditional or Roth account—2 tips for choosing.

SEP IRA

If you are self-employed or have income from freelancing, you can open a Simplified Employee Pension plan—more commonly known as a SEP IRA. Even if you have a full-time job as an employee, if you earn money freelancing or running a small business on the side, you could take advantage of the potential tax benefits of a SEP IRA.

Who can open one?
The SEP IRA is available to sole proprietors, partnerships, C-corporations, and S-corporations.

How it works
The SEP IRA, like a traditional IRA, allows contributions to potentially be tax deductible—but the SEP IRA has a much higher contribution limit. The amount you can put in varies based on your income. In 2018, the most an employer can contribute to an employee's SEP IRA is either 25% of eligible compensation or $55,000, whichever is lower. (Note that the rules on determining eligible compensation, which are different for self-employed and employee SEP participants, can be complex. Consult a tax expert or the IRS website for details.)

If you have employees, you have to set up accounts for those who are eligible, and you have to contribute the same percentage to their accounts that you contribute for yourself. Employees cannot contribute to the account; the employer makes all the contributions.

The employer contributions to a SEP IRA won't affect your ability to contribute to an IRA as an individual. So, depending on your eligibility, you could still contribute to a traditional or Roth IRA.

Who it may help
This account works well for freelancers and sole entrepreneurs, and for businesses with employees (as long as the owners don't mind making the same percentage contribution for the employees that they make for themselves). The SEP IRA is generally easy and inexpensive to set up and maintain. Plus, there are generally no tax forms to file.

Things to keep in mind
Catch-up contributions aren't allowed with the SEP IRA, nor are employee deferrals. As the employer, you can contribute up to 25% of each employee's eligible compensation, up to $55,000 per employee—as long as the same percentage is contributed for all employees.

The deadline to set up the account is the tax deadline—so for 2018 it will be April 15, 2019.4 But, if an extension is granted for filing the employer's tax return, the employer has until the end of the extension period to set up the account or deposit contributions.

Self-employed 401(k)

A self-employed 401(k), also known as a solo 401(k), can be an option for maximizing retirement savings even if you're not making a ton of money. Before-tax and after-tax employee contributions are technically allowed in a self-employed 401(k) but not all financial institutions offer the option.

Who can open one?
If you are self-employed or own a business or partnership with no employees you can open a self-employed 401(k). A spouse who works in the business can participate as well.

How it works
You get 2 opportunities for contributing to a self-employed 401(k)—first as the employee, and again as the employer.

As the employee, you can choose to make a tax-deductible or Roth contribution of up to 100% of your compensation, with a maximum of $18,500 in 2018. Once you're over age 50, you can also make catch-up contributions—for 2018 you can save an extra $6,000, for a total of $24,500.

As the employer, you can contribute up to 25% of your eligible earnings The employer contribution is always made before tax. (Again, consult a tax expert or the IRS website for details on computing eligible earnings.)

Who it may help
The self-employed 401(k) is another account that offers a high potential contribution limit for self-employed people. The total that can be contributed for employee and employer is $55,000, plus an additional $6,000 for people age 50 and over.

The ability to make catch-up contributions may appeal to people over age 50.

Things to keep in mind
The self-employed 401(k) can be a little complicated to run. After the plan assets hit $250,000, you have to file Form 5500 with the IRS.

The deadline for setting up the plan is the end of the fiscal year, generally the last business day of the year, which in 2018 is Monday, December 31. You can make employer contributions to the account until your tax-filing deadline for the year, including extensions.

SIMPLE IRA

A SIMPLE (Savings Incentive Match Plan for Employees) IRA is another option for people who are self-employed. Like a 401(k), this account offers tax-deferral and pretax contributions, plus an employee contribution and an employer match.

Who can open one?
Anyone who is self-employed or a small-business owner can open a SIMPLE IRA. Small businesses with 100 employees or fewer can also open a SIMPLE IRA plan.

How it works
Like the self-employed 401(k), you get 2 chances to contribute.

  • As the employee, you can contribute up to 100% of your compensation, up to $12,500 in 2018.
  • As the employer, you must either put in a 3% matching contribution or a 2% non-elective contribution. The latter is not contingent on the employee contribution, the way a matching contribution to a 401(k) typically is.

But be aware that a SIMPLE IRA can require the employer to make contributions to the plan even if the business has no profits.

Who it may help
The SIMPLE IRA is an inexpensive plan for businesses with fewer than 100 employees. It also allows for salary deferrals by employees and there are no tax forms to file.

The SIMPLE IRA also allows those age 50 and over to save an additional $3,000 a year.

Things to keep in mind
The deadline to set up the plan is October 1. You can make matching and nonelective contributions until the company's tax filing deadline—including extensions.

Pick a plan and start saving

There's a wide variety of retirement saving options. After evaluating your choices, get started saving. Time is one of the most important factors when it comes to building up your retirement fund. While you're young, time is on your side. Don't let the absence of a workplace retirement plan like a 401(k) stand in your way. There are plenty of other retirement savings options—pick a plan and start saving and investing.

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4 reasons to contribute to an IRA https://www.fidelity.com/viewpoints/retirement/why-contribute-to-ira-now 249921 03/22/2018 Saving in an IRA comes with tax benefits that can help you grow your money. 4 reasons to contribute to an IRA

4 reasons to contribute to an IRA

Saving in an IRA comes with tax benefits that can help you grow your money.

Fidelity Viewpoints

Key takeaways

  • Give your money a chance to grow.
  • Get tax benefits.
  • The earlier you start contributing, the more opportunity you have to build wealth.

It can pay to save in an IRA when you're trying to accumulate enough money for retirement. There are tax benefits, and your money has a chance to grow. The deadline for a 2017 traditional or Roth IRA contribution is the same as the 2017 tax-filing deadline—April 17, 2018—so time is running out to contribute for the 2017 tax year.

Why an IRA? An IRA is one of several tax-advantaged options for saving. If you have a retirement plan at work, an IRA could offer another tax-advantaged place to save.

If your employer doesn't offer a retirement plan—or you're self-employed—an IRA may make sense.

Read Viewpoints on Fidelity.com: No 401(k)? How to save for retirement.

Here are some reasons to make a contribution now

1. Put your money to work

Eligible taxpayers can contribute up to $5,500 per year to a traditional or Roth IRA, or $6,500 if they have reached age 50, for 2017 and 2018 (assuming they have earned income at least equal to their contribution). It's a significant amount of money—think about how much it could grow over time.

Consider this: If you're age 35 and invest $5,500, the maximum annual contribution in 2017 and 2018, that 1 contribution could grow to $82,360 after 40 years. If you’re age 50 or older, you can contribute $6,500, which could grow to about $17,900 in 15 years.1 (We used a 7% long-term compounded annual hypothetical rate of return and assumed the money stays invested the entire time.)

The age you start investing in an IRA matters: It's never too late, but earlier is better. That’s because time is an important factor when it comes to compound growth. Compounding is what happens when an investment earns a return, and then the gains on the initial investment are reinvested and begin to earn returns of their own. The chart below shows just that. Even if you start saving early and then stop after 10 years, you may still have more money than if you started later and contributed the same amount each year for many more years.

2. You don't have to wait until you have the full contribution

The $5,500 IRA contribution limit is a significant sum of money, particularly for young people trying to save for the first time.

The good news is that you don't have to put the full $5,500 into the account all at once. You can automate your IRA contributions and have money deposited to your IRA weekly, biweekly, or monthly—or on whatever schedule works for you.

Making many small contributions to the account may be easier than doing one big one.

3. Get a tax break

IRAs offer some appealing tax advantages. There are 2 types of IRAs, the traditional and the Roth, and they each have distinct tax advantages and eligibility rules.

Contributions to a traditional IRA may be tax-deductible for the year the contribution is made. Your income does not affect how much you can contribute to a traditional IRA—up to the annual contribution limit. But the deductibility of that contribution is based on income limits. If neither you nor your spouse are eligible to participate in a workplace savings plan like a 401(k) or 403(b), then you can deduct the full contribution amount, no matter what your income is. But if one or both of you do have access to one of those types of retirement plans, then deductibility is phased out at higher incomes.2 Earnings on the investments in your account can grow tax-deferred. Taxes are then paid when withdrawals are taken from the account—typically in retirement. Just remember that you can defer but not escape taxes with a traditional IRA: Starting at age 70½, required minimum withdrawals become mandatory, and these are taxable (except for the part—if any—of those distributions that consist of non deductible contributions).

On the other hand, you make contributions to a Roth IRA with after-tax money, so there are no tax deductions allowed on your income taxes. Contributions to a Roth IRA are subject to income limits.3 Earnings can grow tax-free, and, in retirement, qualified withdrawals from a Roth IRA are also tax-free. Plus, there are no mandatory withdrawals during the lifetime of the original owner.4

As long as you are eligible, you can contribute to either a traditional or a Roth IRA, or both. However, your total annual contribution amount across all IRA accounts is still $5,500 (or $6,500 if age 50 or older).

What's the right choice for you? For many people, the answer comes down to this question: Do you think you'll be better off paying taxes now or later? If, like many young people, you think your tax rate is lower now than it will be in retirement, a Roth IRA may make sense.

Need help deciding? Read Viewpoints on Fidelity.com: Traditional or Roth IRA, or both?

4. You may think you can't have an IRA, but make sure

There are some common myths about IRAs—especially about who can and who can't contribute.

Myth: I need to have a job to contribute to an IRA.

Reality: Not necessarily. A spouse with no earned income can contribute to a spousal Roth or traditional IRA as long as their spouse has earned income. Note, however, that all other IRA limits and rules still apply.

Myth: I have a 401(k) or a 403(b) at work, so I cannot have an IRA.

Reality: You can, with some caveats—as mentioned earlier. For instance, if you or your spouse contributes to a retirement plan—like a 401(k) or 403(b)—at work, your traditional IRA contribution may not be deductible, depending on your modified adjusted gross income (MAGI).2 But you can still make a nondeductible, after-tax contribution and reap the potential rewards of tax-deferred growth within the account. You can contribute to a Roth IRA, whether or not you have contributed to your workplace retirement account, as long as you meet the income eligibility requirements.3

Myth: Children cannot have an IRA.

Reality: An adult can open a custodial Roth IRA (also known as a Roth IRA for Kids) for a child under the age of 18 who has earned income, including earnings from typical kid jobs such as babysitting or mowing lawns, as long as this income is reported to the IRS.5

An adult needs to open and maintain control of the account. When the child reaches the age of majority, which varies by state, the account's ownership switches from the parent over to them.

Make a contribution

Your situation dictates your choices. But one thing applies to all: the power of contributing early. Pick your IRA and get your contribution in and invested as soon as possible to take advantage of the tax-free compounding power of IRAs.

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Smart retirement income strategies https://www.fidelity.com/viewpoints/retirement/retirement-income-strategies 229285 04/25/2018 Learn how to manage for inflation, market ups and downs, longevity, and more. Smart retirement income strategies

Smart retirement income strategies

Learn how to manage for inflation, market ups and downs, longevity, and more.

Fidelity Viewpoints

Key takeaways

  • Plan for a long retirement, inflation, market volatility, and withdraw the right amount from savings to help reduce the chances of running out of money.
  • A retirement income plan should include guaranteed income, growth potential, and flexibility.
  • Prepare for life's eventual curveballs with an income plan that combines income from multiple sources to create a diversified income stream in retirement.

You worked hard and saved diligently for retirement. Now comes the fun part: getting to enjoy the retirement you've been envisioning along the way. But before you do that, you need to have a strategy to generate income that can last your entire lifetime—income that can weather inflation, market ups and downs, unexpected expenses, and, yes, longevity.

In general, retirement income can come in many forms—such as dividends, interest, capital appreciation, investment principal, Social Security benefits, pensions, insurance, and even inheritances—to name a few.

To help frame this topic, here are the 4 key factors to consider before you start constructing your income strategy, the 3 building blocks you'll need to lay a sturdy foundation, plus 5 simple steps that may help you put and keep a plan in place.

4 key things to keep in mind

1. A long retirement

It's quite likely that today's healthy 65-year-olds will live well into their 80s or even 90s. And recent data suggests that longevity expectations may continue to increase. Read Viewpoints on Fidelity.com: Longevity and your retirement.

This means there's a real possibility that you may need 30 or more years of retirement income. Without some thoughtful planning, you could easily outlive your savings and have to rely solely on Social Security for your income. And with the average Social Security benefit being just over $1,369 a month, it likely won't cover all your needs.1

Read Viewpoints: How to get the most from Social Security.

2. Inflation

While inflation has been low in recent years, it can have a powerful impact over the course of 20 or 30 years. That's especially true in retirement, when you can't count on raises like you might have had when you were working.

Even a relatively low inflation rate can have a significant effect on a retiree's purchasing power. For example, using a 2% inflation rate, $50,000 today would be worth only $30,477 in 25 years. Or, if you flip this example, in 25 years, you would need $82,030 to purchase something that costs $50,000 today. That's why it's so important to start planning early to protect your future lifestyle.

Read Viewpoints on Fidelity.com: How to manage inflation.

3. Market volatility

Market declines can be unsettling when you’re relying on what you have saved to last the rest of your life. But you still need stocks for growth potential, which is as critical in your retirement as it is when you are saving for it. You may need those assets to last 30 years or more.

Even if your time horizon is long enough to warrant an aggressive portfolio, you have to be comfortable with the short-term ups and downs you'll encounter. If watching your balances fluctuate is too nerve-racking for you, think about reevaluating your investment mix to find one that feels right.

But be wary of being too conservative, especially if you have a long time horizon, because strategies that are more conservative may not provide the growth potential you need to achieve your goals. Set realistic expectations too. That way, it may be easier to stick with your long-term investing strategy. Remember, both more conservative and aggressive strategies may fluctuate over time, but to different degrees depending on market conditions.

The sample target investment mixes below show illustrative blends of stocks, bonds, and short-term investments with different levels of risk and growth potential. With retirement likely to span 30 years or so, you'll want to find a balance between risk and growth potential.

Find an investment mix with the right amount of growth potential and risk for you

Source: Strategic Advisers and Morningstar/Ibbotson Associates. Hypothetical value of assets held in untaxed portfolios invested in US stocks, bonds, or short-term investments. Stocks, bonds, and short-term investments are represented by total returns of the S&P 500 Index from 1/1926 – 1/1987; Dow Jones Total Market from 2/1987 – 12/2017, US Intermediate -Term Government Bond Index from 1/1926 – 1/1976; Barclays Aggregate Bond from 2/1976 – 12/2017, and 30-Day T-Bills. Inflation is represented by the Consumer Price Index. Numbers are rounded for simplicity. Past performance is no guarantee of future results.

Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent the actual or implied performance of any investment option. It is not possible to invest directly in an index. Stock prices are more volatile than those of other securities. Government bonds and corporate bonds have more moderate short-term price fluctuation than stocks but provide lower potential long-term returns. US Treasury bills maintain a stable value (if held to maturity), but returns are generally only slightly above the inflation rate. Foreign stocks are represented by the Morgan Stanley Capital International Europe, Australasia, Far East Index for the period from 1970 to the last calendar year. Foreign stocks prior to 1970 are represented by the S&P 500® Index. The purpose of the target asset mixes is to show how target asset mixes may be created with different risk and return characteristics to help meet a participant's goals. You should choose your own investments based on your particular objectives and situation. Remember that you may change how your account is invested. Be sure to review your decisions periodically to make sure they are still consistent with your goals. These target asset mixes were developed by Strategic Advisers, Inc., a registered investment adviser and a Fidelity Investments company.

Read Viewpoints on Fidelity.com: 6 strategies when markets become volatile.

4. Withdrawing the right amount from savings

You don't know what the future will hold for you, and the financial past is no guarantee of what will come next. Nevertheless, our historical research suggests that limiting withdrawals to 4% to 5% is a good place to start, provided that an investor with a balanced portfolio is planning for roughly 30 years of retirement. To maintain this rate throughout retirement, though, the investor should stick to a balanced portfolio for the duration of their retirement, and review the portfolio at least annually to monitor and rebalance as needed.

Read Viewpoints: How can I make my savings last?

As you can see in the chart below, based on investment performance for the 35-year period beginning in 1972, a hypothetical balanced portfolio of 50% stocks, 40% bonds, and 10% short-term investments would have done quite well for a retiree who limited withdrawals to 4% annually. 

On the other hand, someone who retired at 65 and withdrew 8% adjusted for inflation would have been out of money shortly after age 75. 

Market conditions can impact how long your retirement investment portfolio lasts

How fast a portfolio would have been depleted for an investor who retired in 1972, at the beginning of a prolonged down market with rising inflation

* Hypothetical value of assets held in a tax-deferred account after adjusting for monthly withdrawals and performance. Initial investment of $500,000 invested in a portfolio of 50% stocks, 40% bonds, and 10% short-term investments. Hypothetical illustration uses historical monthly performance, from Ibbotson Associates, for the 35-year period beginning January 1972: stocks, bonds, and short-term investments are represented by the S&P 500® Index, US intermediate-term government bond, and US 30-day T-bills, respectively. Initial withdrawal amount based on one-twelfth of applicable withdrawal rate multiplied by $500,000. Subsequent withdrawal amounts based on prior month's amount adjusted by the actual monthly change in the Consumer Price Index for that month. This chart is for illustrative purposes only and is not indicative of any investment. Past performance is no guarantee of future results.

The sequence of good and bad market performance years may also have a major effect on your portfolio's ability to sustain your income. For example, a portfolio that starts out strong in retirement and has losses later will likely be in much better shape than one that has down years early, even if strong performance in later years brings its average return back in line with historical averages.

For this reason, it's important take into account the potential effects of fluctuating financial markets when you're deciding how much to withdraw early in retirement, as well as your ability to stay invested during these periods of volatility, and how to divide your retirement portfolio among asset types and diverse investments.

OK, so now you know what to keep in mind as you prepare a retirement income plan. Now let's turn to the elements of a sound plan.

3 key building blocks

Your retirement income plan should provide 3 things:

  • Guarantees to help a retirement plan succeed
  • Growth potential to meet long-term needs
  • Flexibility to refine a plan over time

1. Guaranteed income for essential expenses to help a retirement plan succeed

When you create your plan, first and foremost, you'll want to make sure your day-to-day expenses—nonnegotiable costs, such as housing, food, utilities, and health care—are covered by lifetime guaranteed income sources. There are essentially 3 sources of guaranteed income.

Social Security: This is a foundational source of income for most people. When you decide to take it may have a big impact on your retirement. It can be tempting to claim your benefit as soon as you're eligible for Social Security—typically at age 62. But that can be a costly move. If you start taking Social Security at 62, rather than waiting until your full retirement age (FRA), you will receive reduced monthly benefits. (FRA ranges from 66 to 67, depending on the year in which you were born.) Find out your full retirement age, and work with your trusted financial consultant to explore your options.

Pensions: Although pensions used to be commonplace, they aren't so much anymore. Indeed, only 14% of workers have a defined benefit pension plan, according to the US Department of Labor.2 If you're one of those people, you'll want to weigh the pros and cons of how you withdraw the money—as a lump sum or stream of income. If you're one of those people without one, there are other ways to create a pension-like stream of income. 

Annuities: A fixed-income annuity is a contract with an insurance company that, in return for an up-front investment, guarantees3 to pay you (or you and your spouse) a set amount of income either for the rest of your life (and the life of a surviving spouse in the case of a joint and survivor annuity) or a set period of time. There are different types of income annuities you may consider: an immediate income annuity, a deferred income annuity, or a fixed deferred annuity with a guaranteed lifetime withdrawal benefit (GLWB). Each allows you to buy an annuity now that would provide payments for the rest of your life to supplement retirement income and/or to manage longevity risk. Fixed payments continue and don't change regardless of what happens in the financial markets.

There are a few things to keep in mind, though. You may give up access to the savings you use to purchase an immediate or deferred income, so you'll need to have other money available for unexpected expenses. If you purchased these annuities, you also forgo any growth potential for this money; however, you can pay extra for annual increases in payments to help offset inflation. In addition, you can select to provide protection for your beneficiaries if that is important to you.

A fixed deferred annuity with a GLWB allows access to your investment. When you purchase this type of annuity, your future income amount is guaranteed to increase on each contract anniversary for a set period of time or until your first lifetime withdrawal, whichever comes first. You will know how much income you (or you and your spouse for joint contracts) will receive each year at any age you decide to take withdrawals. While each annuity offers an attractive blend of features, determining which annuity or a combination of annuities is appropriate for you is part of building a diversified income plan.

Read Viewpoints on Fidelity.com: Create income that can last a lifetime.

2. Growth potential to meet long-term needs

As you build your income plan, it's important to include some investments with growth potential that may help keep up with inflation through the years.

You'll want to consider how you can pay for those fun things you've always dreamed about doing when you finally have the time—discretionary expenses like vacations, hobbies, and other nice-to-haves. It's a smart strategy to pay for these discretionary expenses from your investment portfolio. That's because if the market were to perform poorly, you could always cut back on some of these expenses.

It's important to consider a mix of stocks, bonds, and cash that takes into account your time horizon, financial situation, and tolerance for market shifts. An overly conservative strategy can result in missing out on the long-term growth potential of stocks, while an overly aggressive strategy can mean taking on undue risk during volatile markets.

Creating and managing an investment portfolio in retirement requires some effort along with the discipline to stay on plan even during volatile markets. You need to carefully research investment options and choose ones that match your goals. You also need to monitor your investments and portfolio, and rebalance when needed. And it's important to manage taxes on your investments too. If you don’t have the skill, will, or time to do that, a professionally managed account might be a better option.

3. Flexibility to refine a plan over time

You want to have a plan that can adapt to life's inevitable curveballs. Five years into your retirement, you might receive an inheritance, have your parents move in, or experience another significant life event. When these things happen, you need a plan that gives you the ability to make adjustments along the way.

That's why it's important to combine income from multiple sources to create a diversified income stream in retirement. Complementary income sources can work together to help reduce the effects of some important key risks, such as inflation, longevity, and market volatility. For example, taking withdrawals from your investment portfolio doesn't guarantee income for life, but gives you the flexibility to change the amount you withdraw each month.

On the other hand, income annuities provide guaranteed income for life, but may not offer as much flexibility or income growth potential. As part of your overall financial plan, you may wish to preserve some principal for use in an emergency or to leave a legacy for heirs. You can accomplish this separately from, or in conjunction with, a diversified income plan.

Making a decision

Everyone's situation is unique, so there’s no one income strategy that will work for all investors. You'll need to determine the relative importance of growth potential, guarantees, or flexibility to help you pinpoint the strategy that is right for you in retirement.

Of course, there are trade-offs. For instance, more growth potential can mean settling for less guaranteed income. With more guarantees, you get less growth potential and less flexibility. Consider, too, your family's history regarding longevity and whether you plan to leave a legacy to your heirs.

Components of a diversified retirement income strategy

5 steps to consider

So, how do you get started? Here are 5 steps to consider taking to help create a diversified income plan:

  1. Identify your personal and financial goals.
  2. Complete a retirement income plan to determine the probability that you will have enough money to last throughout retirement.
  3. Determine when to take Social Security; how much of your investment portfolio you want to allocate to an emergency fund, protection, and growth potential; and who will manage your investment portfolio.
  4. Implement your plan with the right mix of income-producing investments to balance your financial needs and investment priorities in retirement.
  5. Set up regular reviews with your Fidelity financial advisor or an investment professional to refine your portfolio to help meet your lifestyle and income needs.
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Social Security tips for couples https://www.fidelity.com/viewpoints/retirement/social-security-tips-for-couples 22867 06/07/2018 See 3 ways that may help married couples boost their lifetime benefits. Social Security tips for couples

Social Security tips for couples

See 3 ways that may help married couples boost their lifetime benefits.

Fidelity Viewpoints

Key takeaways

  • A couple with similar incomes and ages may want to consider maximizing lifetime benefits by both delaying their claim.
  • For couples with big differences in earnings, consider claiming the spousal benefit which may be better than claiming your own.
  • A couple with shorter life expectancies may want to consider claiming earlier.

Married couples may have some advantages when deciding how and when to claim Social Security. Even though the basic rules apply to everyone, a couple has more options than a single person because each member of a couple1 can claim at different dates, and may be eligible for spousal benefits.

Making the most of Social Security requires some strategy to take advantage of the basic benefit rules, however. After you reach age 62, for every year you postpone taking Social Security (up to age 70), you could receive up to 8% more in future monthly payments. (Once you reach age 70, increases stop, so there is no benefit to waiting past age 70.) Members of a couple may also have the option of claiming benefits based on their own work record, or 50% of their spouse’s benefit. For couples with big differences in earnings, claiming the spousal benefit may be better than claiming your own.

What's more, Social Security payments are guaranteed for life and should generally adjust with inflation, thanks to cost-of-living increases. Because people are living longer these days, a higher stream of inflation-protected lifetime income can be very valuable.

But to take advantage of the higher monthly benefits, you may need to accept some short-term sacrifice. In other words, you'll have less Social Security income in the first few years of retirement in order to get larger benefits later.

"As people live longer, the risk of outliving their savings in retirement is a big concern," says Ann Dowd, a CFP® professional and a vice president at Fidelity. "Maximizing Social Security is a key part of how couples can manage that risk."

A key question for you and your spouse to discuss is how long you each expect to live. Deferring when you receive Social Security means a higher monthly benefit. But it takes time to make up for the lower payments foregone during the period between age 62 and when you ultimately chose to claim, and for the future higher monthly benefits to compensate for the retirement savings you need to tap into to pay for daily living expenses during the delay period.

But when one spouse dies, the surviving spouse can claim the higher monthly benefit for the rest of their life. So, for a couple with at least one member who expects to live into their late 80s or 90s, deferring the higher earner's benefit may make sense. If both members of a couple have serious health issues and therefore, anticipate shorter life expectancies, then claiming early may make more sense.

How likely are you to live to be 85, 90, or older? The answer may surprise you. Longevity has been steadily increasing, and surveys show that many people underestimate how long they will live. According to the Social Security Administration (SSA), a man turning 65 today will live to be 84.3 on average and a woman will live to be 86.6 on average. For a couple at age 65, the chances that one person will survive to age 85 are more than 75%. Further, the SSA estimates that one out of every four 65-year-olds today will live past age 90, and one out of ten will live past age 95.2

Tip: To learn about trends in aging and people living longer, read Viewpoints on Fidelity.com: Longevity and your retirement

Strategy No. 1: Maximize lifetime benefits

A couple with similar incomes and ages may maximize lifetime benefits if both delay.

Maximize Social Security—for you and your spouse—by claiming later

Note: All lifetime benefits are expressed in today's dollars, calculated using life expectancies of 88 for the husband and 90 for the wife. The numbers are sensitive to, and would change with life expectancy assumptions.

How it works: The basic principle is that the longer you defer your benefits, the larger the monthly benefits grow. Each year you delay Social Security from age 62 to 70 could increase your benefit by up to 8%.

Whom it may benefit: This strategy works best for couples with normal to high life expectancies with similar earnings, who are planning to work until age 70 or have sufficient savings to provide any needed income during the deferral period.

Example: Willard's life expectancy is 88, and his income is $75,000. Helena's life expectancy is 90, and her income is $70,000. They enjoy working.

Suppose Willard and Helena both claim at age 62. As a couple, they would receive a lifetime benefit of $1,100,000. But if they live to be ages 88 and 90, respectively, deferring to age 70 would mean about $250,000 in additional benefits.

Strategy No. 2: Claim early due to health concerns

A couple with shorter life expectancies may want to claim earlier.

With shorter life expectations, claiming early may maximize benefits

Note: All lifetime benefits are expressed in today's dollars, calculated using life expectancies of 78 for the husband and 76 for the wife. The numbers are sensitive to, and would change with life expectancy assumptions.

How it works: Benefits are available at age 62, and full retirement age (FRA) is based on your birth year.

Whom it may benefit: Couples planning on a shorter retirement period may want to consider claiming earlier. Generally, one member of a couple would need to live into their late 80s for the increased benefits from deferral to offset the benefits sacrificed from age 62 to 70. While a couple at age 65 can expect one spouse to live to be 85, on average, couples who cannot afford to wait or who have reasons to plan for a shorter retirement, may want to claim early.

Example: Carter is age 64 and expects to live to 78. He earns $70,000 per year. Caroline is 62 and expects to live until age 76. She earns $80,000 a year.

By claiming at age 66, Carter and Caroline are able to maximize their lifetime benefits. Compared with deferring until age 70, taking benefits at ages 66, respectively, would yield an additional $112,000 in benefits—an increase of nearly 22%.

Strategy No. 3: Maximize the survivor benefit

Maximize Social Security—for you and your spouse—by claiming later.

How it works: When you die, your spouse is eligible to receive your monthly Social Security payment as a survivor benefit, if it's higher than their own monthly amount. But if you start taking Social Security before your full retirement age (FRA), you are permanently limiting your partner's survivor benefits. Many people overlook this when they decide to start collecting Social Security at age 62. If you delay your claim until your full retirement age—which ranges from 66 to 67 depending on when you were born—or even longer, until you are age 70, your monthly benefit will grow and, in turn, so will your surviving spouse's benefit after your death. (Get your full retirement age)

Whom it may benefit: This strategy is most useful if your monthly Social Security benefit is higher than your spouse's, and if your spouse is in good health and expects to outlive you.

Delaying lifetime Social Security survivor benefits

Disclosure: Note: All lifetime benefits are expressed in today's dollar, calculated using life expectancies of 88 for the husband and 90 for the wife. The numbers are sensitive to, and would change with life expectancy assumptions.

Example: Consider a hypothetical couple who are both about to turn age 62. Aaron is eligible to receive $2,000 a month from Social Security when he reaches his FRA of 66 years and 4 months. He believes he has average longevity for a man his age, which means he could live to age 85. His wife, Elaine, will get $1,000 at her FRA of 66 years and 4 months and, based on her health and family history, anticipates living to an above-average age of 94. The couple was planning to retire at 62, when he would get $1,466 a month, and she would get $733 from Social Security. Because they’re claiming early, their monthly benefits are 25% lower than they would be at their FRA. Aaron also realizes taking payments at age 62 would reduce his wife's benefits during the 9 years they expect her to outlive him.

If Aaron waits until he's 66 years and 4 months to collect benefits, he'll get $2,000 a month. If he delays his claim until age 70, his benefit—and his wife's survivor benefit—will increase another 30%, to $2,586 a month. (Note: Social Security payout figures are in today’s dollars and before tax; the actual benefit would be adjusted for inflation and possibly subject to income tax.)

Waiting until age 70 will not only boost his own future cumulative benefits, it will also have a significant effect on his wife's benefits. In this hypothetical example, her lifetime Social Security benefits would rise by about $72,000, or 16%.

Even if it turns out that Elaine is overly optimistic and she dies at age 90, her lifetime benefits will still increase approximately 35% and she would collect approximately $132,000 more in Social Security benefits than if they had both claimed at 62 (vs. both waiting until age 70 to claim Social Security).

In situations where the spouse's Social Security monthly benefit is greater than their partner's, the longer a spouse waits to claim Social Security, the higher the monthly benefit for both the spouse and the surviving spouse. For more on why it's often better to wait until at least your FRA before claiming Social Security, read Viewpoints on Fidelity.com: Should you take Social Security at 62?

In conclusion

Social Security is a key part of retirement income for most people. When you decide to claim is a major decision that will have a long-lasting impact on you and your spouse. When making your choice, be sure to consider how long you may live, your financial capacity to defer benefits, and the impact it may have on your survivors.

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