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.

• Read Understanding the SEP IRA for more information.

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.

• Read Understanding the Self-Employed 401(k) for more information.

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.

• Read Understanding the SIMPLE IRA for more information.

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.

5 ways to help protect retirement income

These rules of thumb can help keep your retirement on track.

Fidelity Viewpoints

Key takeaways

• Plan for health care costs.
• Expect to live longer.
• Be prepared for inflation.
• Position investments for growth.
• Don't withdraw too much from savings.

If you're approaching the off-ramp to retirement—or already there—it's important to think about protecting what you've saved and helping to ensure that you'll have enough income throughout your retirement. After all, you worked hard to get to retirement. So you want to be able to enjoy it without having to worry about money. That means thinking ahead and planning for a retirement that may last 30 years or longer.

Here are 5 rules of thumb to help manage some things that can affect your income in retirement.

1. Plan for health care costs

With longer life spans and medical costs that historically have risen faster than general inflation—particularly for long-term care—managing health care costs is important for retirees. Retirement planning conversations should include a discussion of the impact long-term care costs have on individuals and their family’s future.

According to Fidelity's annual retiree health care costs estimate, the average 65-year-old couple retiring in 2019 will need an estimated $285,000 to cover health care costs during their retirement, and that is just using average life expectancy data.¹ Many people will live longer and have higher costs. And that cost doesn't include long-term care (LTC) expenses. Having a dedicated pool of monies for long-term care expenses may be an important consideration to cover long-term care expenses, ultimately protecting your retirement income.

As reported by the US Department of Health and Human Services, about 70% of those aged 65 and older will require some type of LTC services—either at home, in adult day care, in an assisted living facility, or in a traditional nursing home.² According to the Genworth 2018 Cost of Care Survey, the average cost of a semiprivate room in a nursing home³ is about $89,297 per year, assisted living facilities⁴ average $48,000 per year, and home health care homemaker services⁵ are $48,048 a year.

Consider long-term-care insurance: Insurers base the cost largely on age, so the earlier you purchase a policy, the lower the annual premiums, though the longer you'll potentially be paying for them. It is also important to research the strength of the company you select, as well as investigate other potential options for funding LTC costs.

Read Viewpoints on Fidelity.com: Long-term care: Options and considerations

If you are still working and your employer offers a health savings account (HSA), you may want to take advantage of it. An HSA offers a triple tax advantage:⁶ You can save pretax dollars, which can grow and be withdrawn state and federal tax-free if used for qualified medical expenses—currently or in retirement.

Read Viewpoints on Fidelity.com: 3 healthy habits for health savings accounts

2. Expect to live longer

As medical advances continue, it's quite likely that today's healthy 65-year-olds will live well into their 80s or even 90s. This means there's a real possibility that you may need 30 or more years of retirement income. And recent data suggests that longevity expectations may continue to increase. People are living longer because they're healthy, active, and taking better care of themselves.

Without some thoughtful planning, you could outlive your savings and have to rely solely on Social Security for income. And with the average Social Security benefit for a retired worker currently at just over $1,419 a month, it may not cover all your needs.⁶

Read Viewpoints on Fidelity.com: Longevity and retirement and How to get the most from Social Security

Consider annuities: To cover your income needs, particularly your essential expenses  (such as food, housing, and insurance) that aren't covered by other guaranteed income like Social Security or a pension, you may want to use some of your retirement savings to purchase an income annuity. It will help you create a simple and efficient stream of income payments that are guaranteed for as long as you (or you and your spouse) live.⁷

Read Viewpoints on Fidelity.com: Smart retirement income strategies

3. Be prepared for inflation

Inflation can eat away at the purchasing power of your money over time. Inflation affects your retirement income by increasing the future costs of goods and services, thereby reducing the future purchasing power of your income. Even a relatively low inflation rate can have a significant impact on a retiree's purchasing power.

Consider cost of living increases: Social Security and certain pensions and annuities help keep up with inflation through annual cost-of-living adjustments or market-related performance. Choosing investments that have the potential to help keep pace with inflation, such as growth-oriented investments (e.g., stocks or stock mutual funds), Treasury inflation-protected securities (TIPS), real estate securities, and commodities, may also make sense to include as a part of an age-appropriate, diversified portfolio that also reflects your risk tolerance and financial circumstances.

4. Position investments for growth

Overly conservative investments can be just as dangerous as overly aggressive ones. They expose your portfolio to the erosive effects of inflation, limit the long-term upside potential that diversified stock investments can offer, and can diminish how long your money may last. On the other hand, being too aggressive can mean undue risk of losing money in down or volatile markets.

An investment strategy (asset mix) that seeks to balance growth potential and risk (return volatility) may be the answer. You should determine—and consistently maintain—an asset mix that reflects your investment horizon, risk tolerance, and financial situation.

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.

Consider diversification: Build a diversified mix of stocks, bonds, and short-term investments, according to how comfortable you are with market volatility, your overall financial situation, and how long you are investing for. Doing so may provide you with the potential for the growth you need without taking on more risk than you are comfortable with. But remember: Diversification and asset allocation do not ensure a profit or guarantee against loss. Get help creating an appropriate investment strategy by working with a Fidelity advisor or utilizing our Planning & Guidance Center.

5. Don't withdraw too much from savings

Spending your savings too rapidly can also put your retirement income at risk. For this reason, we believe that retirees should consider using conservative withdrawal rates, particularly for any money needed for essential expenses.

We did the math—looking at history and simulating many potential outcomes—and landed on this guideline: To be confident that savings will last for 20–30 years retirement, consider withdrawing no more than 4%–5% from savings in the first year of retirement, then adjust that percentage for inflation in subsequent years.

Consider a sustainable withdrawal plan: Work with a Fidelity advisor to develop and maintain a retirement income plan or consider an annuity with guaranteed lifetime income⁷ as part of your diversified plan, so you won't run out of money, regardless of market moves.

Read Viewpoints on Fidelity.com: How can I make my retirement savings last?

You can do it

After devoting many years to saving and investing for your retirement, switching from saving to spending that money can be stressful. But it doesn't have to be that way if you take steps leading up to and during retirement to manage these 5 key rules of thumb for your retirement income.

Social Security strategy for women

Women face unique Social Security challenges: These tips can help.

Fidelity Viewpoints

Key takeaways

When you play your cards right with Social Security, you get the most from your benefits. When you don't, you end up with money left on the table.

And because women, on average, outlive men and are more likely, as they get older, to be single and dependent on one income, they need to have a good strategy for Social Security, which can play out differently for women than for men:¹

Keep the following in mind to optimize your Social Security strategy:

Timing: It can pay to delay

The biggest factor in making the most of your Social Security benefits is deciding when to take them.

You can start receiving reduced benefits at age 62, rather than waiting until your full retirement age (FRA), which ranges from 65 to 67, depending on your birth date (See your full retirement age).

To strategize timing around taking Social Security, consider factors such as family longevity, how much money you'll need for retirement, and other income sources.

If you can delay taking benefits until your FRA or age 70, and you live into your 80s or 90s, you could benefit from doing so. If you have a savings shortfall, consider delaying retirement by a few more years or working with an advisor to create an income bridge from savings or other assets.

Bottom line: If you're in good health and have sufficient savings, it may be better in the long run to wait until your FRA or longer to begin taking Social Security.

Investing for the future

According to Fidelity's 2018 Women and Investing Study,² only 29% of women see themselves as investors—but to build financial security in your golden years, it helps to think like an investor and to strategize about Social Security.

"When it comes to planning their retirement income, some women could be doing a lot better," says Ann Dowd, CFP^®, a vice president at Fidelity Investments. Fidelity's study found that 56% of women are not investing outside of retirement, and may be leaving money on the sidelines by keeping it in cash.

Dowd adds, "Women who claim Social Security at the earliest possibly age of 62 may be leaving money on the table. For every year you delay claiming Social Security past your FRA, you increase your annual benefit by 8%— a guaranteed source of income that is also adjusted for inflation over time."

Claiming a spouse's benefit

Your marital status also plays a significant role in your benefits strategy:

Married women may 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.

Divorced women may be able to receive benefits on their former spouse's record—even if the spouse has remarried!—but only if: the marriage lasted 10 years or more; the claimant is unmarried and age 62 or older; the former spouse is entitled to Social Security retirement or disability benefits; and the benefit you're entitled to receive based on your own work is less than the benefit you'd get based on your ex-spouse's work.

Widowed women are eligible to receive their late spouse's Social Security payment as a survivor benefit, provided it's higher than their own monthly amount. 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, claiming early may make more sense.

To find out more about claiming Social Security based on your spouse's benefit, read Viewpoints on Fidelity.com: Social Security tips for couples

Get Social Security, keep working

You can collect Social Security even if you are still working or earning self-employed income—with a few important caveats:

Once you reach FRA, there is no penalty for working and claiming Social Security at the same time, and your benefits will not be adjusted for earned income. Also, once you reach FRA, the benefit would be adjusted up to account for benefits withheld due to earlier earnings.

However, that's only part of the story. If you continue to work, you don't have to live on your savings, and it gives you the opportunity to keep building retirement savings. Keep working and you can contribute to a 401(k) or other tax-deferred workplace savings plan, or an IRA. Lastly, you can also make catch-up contributions into your 401(k) or IRA, which allows you to set aside larger amounts of money for retirement.

Tip: Your Social Security benefit is based on your top 35 years of qualifying income. If you have been out of the workforce for a number of years—say, to raise a family—or you expect to rely heavily on Social Security in retirement, consider working a few extra years, which can lead to additional savings and greater retirement assets.

Make leaving your job its own decision

Although some 39% of women claim Social Security early at age 62,³ it may not be the best financial decision for them longer term. "Many women make the mistake of coupling their decision to leave the workforce with their Social Security claiming strategy," says Ann Dowd.

"By age 60, you may decide it's time for a change after many years of working and raising your family, but don't think about Social Security as a way to quit your job early," she advises. "Make leaving your job its own decision. The good news is that you may have more resources available to you than you think. You may be able to delay claiming Social Security, especially if your husband or partner is still working."

Dowd suggests women look at the big picture and think about the future. "You still have options in your 60s, so don't leave too much money on the table. Remember, you've still got a lot more great years ahead of you and fulfilling things to do in retirement. But by the time you get into your 80s, you have fewer financial options, so don't jump at the first opportunity to claim Social Security at age 62 just because you really want to quit your job," she adds.

Read Viewpoints on Fidelity.com: 3 key decisions to make before you retire

Develop your strategy

According to Fidelity's 2018 Women and Investing Study,² women of all ages say they're looking for opportunities to make their money work harder, with nearly three-quarters (72%) of women saying they want to take steps within the next 6 months to help make their savings grow.

That spirit can apply to taking Social Security benefits. Take the time to understand exactly how much income Social Security will provide for you at different ages. Use our Social Security calculator to estimate your future benefits based on different scenarios, then create a retirement income strategy that can help maximize your monthly Social Security payments.

Get ready for your countdown to retirement

5 key questions to ask yourself—and answer—about 5 years before retirement.

Fidelity Viewpoints

Key takeaways

• Even if you are only about 5 years away from retirement, there's still time to hone your strategy to help meet your retirement goals.
• Beyond saving more and adjusting your asset mix, postponing retirement is generally an effective step for many preretirees to accumulate more wealth.
• Think through the details of your planned retirement: Where do you want to live? How will you pay for health care and other big expenses? What will you do to fill your time?

Chances are, you've thought about retirement quite a bit over the years, whether you've fantasized about how you'll spend your time or fretted about your 401(k) balance. If you're like most people, though, you may be a little fuzzy about what your retirement will really look like.

At some point, you'll need to bring your retirement into focus. Ideally, that's about 5 (or more) years before you hope to retire, when retirement is close enough to know what you want it to look like, and yet far enough away that there’s still time to hone your strategy to help meet those goals or alter your plans.

"There are still lots of big decisions to think about, 5 years out," says Ken Hevert, senior vice president of retirement at Fidelity. "Take a look at this retirement countdown to help you more clearly define how you want to spend your time, money, and energy during the next chapter in your life. And try to enjoy the process."

Begin by asking yourself these 5 key questions:

1. What are your expectations?

"It seems like a simple question," says Hevert. "But we know that more than half of couples have no idea how much they expect to receive in monthly retirement income, and most either don't know or are unsure of what their Social Security payments may be in retirement."

This lack of planning and understanding may affect more than just your happiness in retirement; it could also affect when and how you'll be able to retire. Five years before you plan to retire may be a good time to start thinking through the details and prioritizing your goals. "You need to do as accurate and realistic a projection as you can," says Hevert.

Where do you plan to live?
If you plan to move, make sure you also consider how that will impact your cost of living, including the cost of health care and your access to it. If you have your eyes on moving to another state, be sure you understand any differences in taxes as well as differences in the cost of living. If you plan to stay put, you'll want to consider how your home equity factors into your plans.

What do you want to do?
The early stages of retirement can be an expensive time. Many people overestimate how much they'll be able to work in retirement, and underestimate how much they'll spend. Take a hard, realistic look at both fronts.

How will you pay for health care?
After food, health care is likely to be your second largest expense in retirement. According to the latest retiree health care costs estimate calculated by Fidelity Benefits Consulting, a 65-year-old couple retiring this year is estimated to need $280,000¹ to cover medical expenses throughout retirement.

While many preretirees are thinking ahead and factoring health care costs into their retirement savings plan, almost 4 in 10 are not.² In fact, 48% of preretirees estimated that their individual health care costs in retirement would be less than $100,000—far lower than Fidelity's current estimates.

If you've relied on your employer to pick up most of your health care tab, retirement could be a rude awakening: Only 25% of large companies offer health care benefits to retirees, according to a 2017 employer survey by the Kaiser Family Foundation. Although Medicare kicks in at age 65, you may need to buy supplemental insurance or, at the very least, budget for higher out-of-pocket health care expenses than you had while you were working.

Read Viewpoints on Fidelity.com: How to plan for rising health care costs.

2. Will you have enough?

This is the most important question that many preretirees need to answer. According to Fidelity Investments' latest Retirement Savings Assessment (RSA),² the median baby boomer is on track to meet 86% of estimated retirement expenses: enough to cover the basics, but not sufficient to cover all discretionary expenses.

With 5 years to go, you'll want to run some real numbers, either with help from an adviser or our Fidelity Planning & Retirement Guidance Center.³ If the numbers aren't encouraging, you may need to rethink your plans, step up your savings, or both. The good news: If you're age 50 or older, you may be able to make up for a savings shortfall with additional catch-up contributions to your 401(k) or IRA. If you are age 55 or older, you can also make an additional $1,000 catch-up contribution annually to your health savings account.

Read Viewpoints on Fidelity.com: How much do I need to save for retirement?

"Consider an annual savings goal of at least 15% or more (including any employer match), including 401(k) and other workplace plans, IRAs, and other savings," says Steven Feinschreiber, senior vice president of Financial Solutions Group at Fidelity. "But that's only a rough guideline, and assumes continuous savings for 40 years of work and an age-appropriate asset mix."

For baby boomers who are nearing retirement, saving more and adjusting their asset mix has less impact for the simple reason that they have less time for those changes to impact accumulated wealth—though it may still help. For them, postponing retirement is generally the most effective step. Delaying retirement from 65—the average age people planned to retire, according to the RSA study—to their full Social Security retirement age (between 66 and 67, depending on their birth year) may be the best way for most preretirees to boost their retirement savings and increase their retirement income levels.

3. Are you invested properly?

As you round the bend toward retirement, it’s not a good idea to take on any more investment risk than necessary for your time frame, financial circumstances, and risk tolerance. But remember that this does not mean the answer is always to become more conservative. The consequences of being too conservative can be just as worrisome when you account for inflation and the possibility that you could outlive your savings. That is why it is important to think about an appropriate asset allocation.

Although you can't control market behavior, you can help manage its long-term effect on your portfolio through investment choices and by modifying portfolios so they have an age-appropriate mix. According to the RSA survey, in 2018, 58% of all respondents had allocated their assets in a manner Fidelity considers age appropriate², compared to 56% in 2013.

An ideal investment mix will depend on a number of factors, including your age, time horizon, financial situation, and risk tolerance. "Retirement is often the time to take some risks off the table," notes Hevert, "but some people are tempted to become too conservative. But don't forget that you goal is for your retirement savings to last for a 30-plus-year retirement time horizon. This usually means some longer-term growth potential is needed in the portfolio." A financial adviser can help you rebalance your portfolio to get the appropriate asset mix to help you meet your needs.

Read Viewpoints on Fidelity.com: The guide to diversification.

4. Where will your retirement income come from?

At the same time you think about shoring up your retirement nest egg, you need to begin thinking about how you'll convert some of these savings into retirement income. For many people, it's helpful to start by grouping potential sources of income into 2 basic buckets: guaranteed income from sources such as Social Security, pensions, and annuities, and variable income from a job, retirement savings, and other sources such as rental real estate.

Next, map out ways to meet essential expenses with guaranteed income sources, and discretionary expenses with non-guaranteed income. If you plan to work a bit during retirement, that may provide a conservative boost to your retirement income. But be cautious here. Survey data shows that many people are not able to work as long as they wanted. Finally, before you rush out to file for your Social Security benefits at age 62, consider the big picture: Generally, the longer you wait, the higher the potential lifetime benefits.

Read Viewpoints on Fidelity.com: Should you take Social Security at 62?

You may also want to consider shifting a portion of your investment portfolio into income-producing assets, such as bonds or dividend-paying stocks. A guaranteed income annuity³ is another option to consider if you're interested in converting your assets to income. Generally, the older you are when you buy an annuity, the higher the monthly payout, but there may be advantages to thinking about an annuity before you reach retirement age. But these potential moves should still be done within the context of maintaining an appropriate overall asset mix across stocks, bonds, and cash. Remember, your retirement income will likely need to last for 30 years or more, which typically requires some exposure to stocks.

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

5. How does your home factor into your retirement?

Your home is likely one of your most valuables assets. If either downsizing or relocating is in your plans, you may want to start plotting the move now. If moving isn't in the cards, you may still want to think through whether it makes sense to pay down your mortgage faster—thereby saving on interest payments and improving cash flow in retirement.

Read Viewpoints on Fidelity.com: Should you move in retirement?

Alternatively, consider how to use some of your home equity to help finance your retirement. If tapping home equity is only a temporary solution to bridge the gap until you start to draw down your retirement assets or start receiving guaranteed income payments, consider applying for a home equity line of credit while you're still employed and more likely to qualify for the best rates. If home equity factors into your long-term planning, you could also consider a reverse mortgage. But proceed with care and be sure you understand all the associated costs and requirements. Before considering any of these ideas, make sure you consult a tax professional or attorney.

Get started

Between your investment portfolio, your home, and your lifestyle plans, there's a lot to cover between now and your retirement. Moreover, you'll likely revisit these topics several times over the next several years, as you well should. The point isn't to have all the answers right away, but to start preparing for the big decisions you'll soon face.

Working in retirement: a rulebook

See how to tap into financial, health care, Social Security, and other benefits.

Fidelity Viewpoints

Key takeaways

For 67-year-old Marilyn Arnold, finances played a role in her decision to keep working when she retired four years ago from her position as a managing partner at New York Life Insurance Company after 29 years in the insurance business.

"I felt that if I could continue to work doing something I wanted to do and not have to start taking Social Security, or draw from my retirement funds too much, it would be a win all around," she says.

Tapping into her childhood love of sewing, she opened her own small business, Marilyn Arnold Designs, in Lee's Summit, Mo. Her forte: creating 18-inch-by-18-inch pillows, christening dresses, and blankets as keepsakes made from precious wedding gowns that had been consigned to the attic.

Many older Americans are continuing to work during retirement for a plethora of reasons—from a personal reward like rediscovering a childhood passion to staying socially connected with a network of people to doing something that provides a sense of purpose and a chance to give back.

A paycheck, too, is a silver lining for many workers who worry that they will outlive their money. Many people want to continue working well past "normal retirement age". But intentions and reality don't always match when it comes to working in retirement. In fact, according to a Fidelity-sponsored survey , only 3% of pre-retirees and 32% of recent retirees surveyed said they wanted to retire at or before age 60. Most wanted to keep working. However, 38% of recent retirees actually retired at or before age 60– many because of layoffs or forced early retirement. Bottom line: Far fewer people actually work in retirement than say that they want to work in retirement.

For some, saving more money for retirement earlier in their career may be a smart move, especially if they leave the workforce earlier than planned.

"People are clearly concerned about not having enough savings to last for their lifetime," says Chris Farrell, author of Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and the Good Life. For a lot of people, working longer makes it possible to add to their savings, or not tap into their existing savings too soon. Their goal is to preserve their quality of life as they get older."

The payback can be far more than purely financial, though, even if finances are a primary incentive. "The activity of working, of using your brain, of interacting with others is extremely valuable for your health and your happiness," says Steven Feinschreiber, senior vice president of research in Fidelity's Financial Solutions, Inc. "Research suggests that working can actually help you live a longer and healthier life." Read Viewpoints on Fidelity.com: Ready to work after your primary career ends?

Regardless of why you decide to keep earning a paycheck in retirement, there are certain financial rules and regulations to keep in mind.

Contributing to retirement accounts

A key advantage of ongoing income is that you can regularly contribute to your retirement savings accounts, says Farrell.

For 2018, total contributions to all your traditional and Roth IRAs can be add up to $5,500 ($6,500 if you're age 50 or older), or your taxable compensation for the year, if your compensation is less than this dollar limit, per Internal Revenue Service rules.

One caveat: You can't make regular contributions to a traditional IRA in the year you reach 70½ and thereafter. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age. You must also take the required minimum distribution (RMD) from your traditional IRA beginning at 70½, regardless of your work status. If you have a Roth IRA, RMDs don't apply to it during your lifetime.

Your 401 (k), or similar employer-based retirement plan, is a different story. In general, you can continue stashing away money in your current employer-provided plan as long as you're still working there, even part time. And you can delay taking your RMD until after you retire . You will, however, need to take the RMD from any former employer's plan beginning at age 70½ , unless the money was rolled into your current employer's plan.

Employees may contribute up to $18,500 to their 401(k) plans in 2018, with a higher total contribution limit (employer plus employee) of $55,000. For those ages 50 and older, an additional "catch-up" employee contribution of up to $6,000 is also allowed. "To have enough money to pay for your expenses in retirement, we generally recommend saving at least 15% of your income per year," explains Feinschreiber. "That's total—your and your employer contributions combined, and assumes working to age 67. It may make sense to continue working past age 62, so you can contribute more to your 401(k) and other retirement savings accounts."

Social Security benefits

Another plus of working longer is that you to delay filing for Social Security benefits. You can begin taking monthly Social Security retirement benefits at age 62, but the amount will be reduced by about 30% versus the amount you would receive if you wait until you're what Social Security calls full retirement age (FRA)—66 or 67 if you were born from 1943 to 1959; 67 if you were born in 1960 or later.

If you can delay Social Security beyond FRA, your Social Security benefits are boosted by 8% a year (over the amount at FRA) for every year you postpone receiving checks from your FRA to age 70. That's a powerful boost.

Earning income after you reach your FRA or older doesn't affect your benefits, no matter how much you earn. For those who opt to apply for benefits before they reach FRA and continue to earn income, there's a temporary hitch. By law, if you're younger than FRA and receiving Social Security benefits, you can earn up to $17,040 in 2018, according to Social Security rules, without a reduction in your benefit amount.

If you're younger than FRA, and earn more than the limit, Social Security deducts $1 from your benefits for each $2 you earn above the threshold. In the year you reach FRA, $1 in benefits is deducted for every $3 you earn above a different limit. If you reach your FRA in 2018, the on your earnings is $44,360, but only earnings before the month you reach FRA are counted.

The "earnings" counted are what you make from your job and/or your net earnings from self-employment. These include bonuses, commissions, and vacation pay, because they're all based on employment, but do not include investments, pensions, and other retirement income, or veterans' or other government or military retirement benefits.

In truth, you don't ultimately lose any of your Social Security benefit. If you exceed the limit allowed from age 62 to 66, the funds you were docked will be returned to you in the form of a permanent increase that the Social Security Administration (SSA) recalculates for you. The SSA website stipulates that after you reach FRA, "your benefit amount is recalculated to give you credit for any months in which you did not receive a benefit because of your earnings." "It can be a bit of a shock when the reduction happens," says Farrell. "But you don't lose the benefit. Most people don't understand that."

The good news is that your Social Security benefits can actually ramp up as a result of your employment after you reach FRA, because they are calculated using your highest 35 years of earnings. If your earnings after FRA would replace any of your 35 highest-earnings years used to calculate your benefit, then the SSA will do a recalculation, and your monthly benefits will bump up accordingly.

Keep in mind, of course, that SSA benefit actual benefit could be subject to income tax if you are also earning compensation from a job or self-employment. For more information, review the publication "How Work Affects Your Benefits", on the Social Security website.

Tip: Even though your benefits are not lost from working and collecting Social Security at the same time, the earned income you receive while collecting Social Security could result in up to 85% of your Social Security income becoming subject to Federal income taxes. Read Viewpoints on Fidelity.com: Social Security and working

Health and medical

If you're planning on your former employer picking up part of the tab for your health care in retirement, think again. Only 25% of large companies offer health care benefits to retirees, down from 35% in 2004, according to a 2017 employer survey by the Kaiser Family Foundation.

So if you're hunting for a new job in retirement, consider seeking an employer who offers health insurance while you are employed at your "retirement job". At the very least, continuing to earn some income can help defray your health care bills before and after Medicare kicks in at 65. "Health care expenses are generally one of the largest expenses in retirement," notes Feinschreiber. Couples retiring at age 65 are expected to incur $275,000 in health care costs on average during their retirement years, according to the 2017 Retiree Health Care Cost Estimate by Fidelity Investments . The estimate doesn't include the added expenses of nursing home or long-term care and assumes traditional Medicare coverage. "This is the money on top of Medicare," Feinschreiber says. "So it's thousands of dollars per year, which may be more than many people can afford. Working longer, even part time, can help."

Read Viewpoints on Fidelity.com: How to plan for rising health care costs

Traditional pension plans

Although increasingly rare these days, you or your spouse may have qualified for a defined-benefit plan that guarantees a specific benefit or payout upon retirement. Make sure you fully grasp how your benefit is determined before you decide to stay or leave your job. If you've maximized your pension income, it may give you the financial freedom to pursue an "encore" career. Some defined benefit plans calculate your benefit based only on a precise number of years you have worked for your employer. So ask your HR representative if your plan stops earning benefits after 30 years, if your benefit is frozen, or whether your pay may impact your final benefit.

In some plans, the pension benefit is calculated as a percentage of earnings during your final years on the job. So if you enter a "phased retirement" working arrangement and trim back your hours and earnings during your last few years, you might shrink your pension benefits, too.

For some, staying on job later in your career may have more to do with qualifying for a retiree medical benefit. For example, you may have been offered an early retirement option at age 54. However, if you stayed on the job for another year, you may have qualified for early retirement subsidy or other benefits at age 55 because you would have worked for at least, say, 10 years for the same employer. Do your homework and know your options.

Lastly, even if your pension benefit has stopped accumulating, you may choose to stay on the job because you want to continue your employer-sponsored health care coverage until you reach Medicare eligibility at age 65.

Tip: Watch a short Learning Center video: Choosing your pension payout option

Impact on taxes

According to Farrell, it's possible that staying on the job an extra year or two might push you into a higher tax bracket, especially if you begin to take taxable distributions from your IRA, or other pension benefits that count as income on top of your salary.

Employees can avoid being tripped up by knowing how close their current earned income level may be to the next tax bracket, advises Feinschreiber. If you need more money than you're earning to live on, or are required to take an IRA distribution, try to avoid using any other tax-deferred accounts (that don't yet require a distribution). Instead, consider taking remaining funds from your after-tax accounts, like your checking accounts, savings accounts, or brokerage accounts, for which the bulk of the money has really already been taxed.

Read Viewpoints on Fidelity.com: Manage your tax brackets in retirement

For many people, like Arnold, the main thing about working in some fashion in their 60s and beyond isn't truly "about paying the mortgage and getting rid of debts—though that can be part of it—but it's typically, ‘Let's do something where I can use my knowledge, my skills, my experience, and have some fun,'" Farrell says.

50/15/5: a saving and spending rule of thumb

It isn’t about managing every penny. Track your money using 3 categories.

Fidelity Viewpoints

Key takeaways

Budget. Does anyone like that word? How about this instead—the 50/15/5 rule? It’s our simple rule of thumb for saving and spending: Aim to allocate no more than 50% of take-home pay to essential expenses, save 15% of pretax income for retirement savings, and keep 5% of take-home pay for short-term savings. (Your situation may be different, but you can use our rule of thumb as a starting point.)

Why 50/15/5? We analyzed hundreds of scenarios in order to create a saving and spending guideline that can help people save enough to retire. Our research found that by sticking to this guideline, there is a good chance of maintaining financial stability now and keeping your current lifestyle in retirement. To see where you stand on our 50/15/5 rule, use our Savings and spending check-up.

Essential expenses: 50%

Some expenses simply aren’t optional—you need to eat and you need a place to live. Consider allocating no more than 50% of take-home pay to “must-have” expenses, such as:

Keep it below 50%: Just because some expenses are essential doesn’t mean they’re not flexible. Small changes can add up, such as turning the heat down a few degrees in the winter (and turning your AC up a few degrees in the summer), buying—and stocking up on—groceries when they are on sale, and bringing lunch to work. Also consider driving a more affordable car, carpooling, or taking public transportation. Consider a high-deductible health plan (HDHP), with a health savings account (HSA) to reduce health care costs and get a tax break. If you need to significantly reduce your living expenses, consider a less expensive home or apartment. There are many other ways you can save. Take a look at which essential expenses are most important, and which ones you may be able to cut back on.

Retirement savings: 15%

It’s important to save for your future—no matter how young or old you are. Why? Pension plans are rare. Social Security probably won’t provide all the money a person needs to live the life they want in retirement. In fact, we estimate that about 45% of retirement income will need to come from savings. That’s why we suggest people consider saving 15% of pretax household income for retirement. That includes their contributions and any matching or profit sharing contributions from an employer. Starting early, saving consistently, and investing wisely is important, as is saving in tax-advantaged retirement savings accounts such as a 401(k)s, 403(b)s, or IRAs.

How to get to 15%: If contributing that amount right now is not possible, check to see if your employer has a program that automatically increases contributions annually until a goal is met. Another strategy is to start by contributing at least enough to meet an employer match, and then if you get a raise or annual bonus, add all or part of these funds to your workplace savings plan or individual retirement account until you have reached the annual contribution limit.

Short-term savings: 5%

Everyone can benefit from having an emergency fund. An emergency, like an illness or job loss, is bad enough, but not being prepared financially can only make things worse. A good rule of thumb is to have enough put aside in savings to cover 3 to 6 months of essential expenses. Think of emergency fund contributions as a regular bill every month, until there is enough built up.

While emergency funds are meant for more significant events, like job loss, we also suggest saving a percentage of your pay to cover smaller unplanned expenses. Who hasn't been invited to a wedding—or several? Cracked the screen on a smartphone? Gotten a flat tire? In addition to those there are certain category of expenses which are often overlooked, for example; maintenance and repairs of cars, field trips for kids, copay for doctor's visit, Christmas gifts, Halloween costumes to name a few. Setting aside 5% of monthly take-home pay can help with these "one-off" expenses. It's good practice to have some money set aside for the random expenses, this way you won't be tempted to tap into your emergency fund or tempted to pay for one of these things by adding to an existing credit card balance. Over time, these balances can be hard to pay off. However, if you pay the entire credit card balance every month, and get points or cash back for purchases, using a credit card for one-off expenses may make sense.

How to get to 5%: Having this money automatically taken out of a paycheck and deposited in a separate account just for short-term savings can help a person reach this goal.

What next?

Our guidelines are intended to serve as a starting point. It is important to evaluate your situation and adjust these guidelines as necessary. If you’re close to the 50/15/5 target spending and saving amounts, good job. And for those staying within the guidelines, any remaining income is theirs to save or spend as they would like. Some ideas: First, pay down high-interest debt. For other goals, like paying for a child’s college or wedding, you could use the remaining income to save for them. And, finally, for those who want to retire early, or haven’t been saving diligently, putting it toward retirement savings may make sense.

The good news is that it isn’t about micromanaging every penny. Analyzing current spending and saving based on our 3 categories can give you control—and confidence. Most everyone's financial situation will change over time. A new job, marriage, children, and other life events may change cash flow. It’s a good idea to revisit spending and saving regularly, particularly after any major life events.

50 or older? 4 ways to catch up your savings

Learn ways to save more in tax-advantaged retirement accounts.

Fidelity Viewpoints

Key takeaways

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 that people age 50 and older can increase their tax-advantaged contributions to IRAs, 401(k)s, and HSAs (starting at age 55).

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 $48,000 more in your account than someone who didn't take advantage of the catch-up.¹ 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 US households are at risk of not covering essential expenses in retirement, according to a recent Fidelity study of Americans' retirement preparedness.² Some 41% of respondents 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 Score^SM. 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 Score^SM 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.

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 taxable.⁴ These traditional accounts also offer tax-deferred compounding. With Roth IRAs, you pay taxes up front but withdrawals are tax-free when you reach age 59½, assuming certain conditions are met.⁴ Roth IRAs offer the potential for tax-free compounding. That means you'll have more tax-free money available to work for you 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 an 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: 5 ways HSAs can fortify your retirement

Tip: Learn more about HSAs and consider opening a Fidelity HSA. Since HSAs are portable, you can transfer account balances in HSAs from any of your previous employers to a Fidelity HSA.³

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: 3 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.

How to take care of aging parents and yourself

Protect your financial future while caring for aging loved ones.

Fidelity Viewpoints

Key takeaways

• Understand the long-term impact of caring for an aging loved one.
• Explore all your options to keep working and saving for retirement.
• Beware of taking on too many caregiving responsibilities on your own.
• Find time for yourself.

Caring for an aging parent is a compassionate—but often stressful—undertaking. It can take a huge emotional toll on everyone in a family, but for women, who are far more likely to be caregivers vs. men, the financial impact can hit especially hard. "Women who become caregivers for an elderly parent or friend are more than twice as likely to end up living in poverty than if they aren't caregivers," says Cindy Hounsell, president of the Women's Institute for a Secure Retirement (WISER). If caregivers take time off work, not only do they lose pay, but also those lost wages can affect their Social Security, pension payouts, and other savings—threatening their future finances.

Nearly half of caregivers report experiencing high emotional stress.¹ So what can women do to take care of themselves while they care for others? While helping an aging loved one can easily become all-consuming, there are steps you can take to protect your finances and your retirement. And because women tend to live longer, every penny counts.

Watch our webcast: "Role Reversal: Taking Care of Older Loved Ones" and hear from a panel of experts discussing all aspects of caring for loved ones as they get older—without losing sight of your own goals.

Understand the long-term impact

"For many women, fewer contributions to pensions, Social Security, and other retirement savings vehicles are the result of reduced hours on the job or fewer years in the workforce," explains Ann Dowd, vice president at Fidelity. "Women caregivers are likely to spend an average of 12 years out of the workforce raising children and caring for an older relative or friend."

Women enter and exit the workforce more often than men, usually to care for their children or their parents. Others make some sort of workplace accommodation, such as going in late or leaving early, shedding job responsibilities, dropping back to part-time status, or opting for reduced hours, when possible. This can mean lower wages, lost income, and missing out on potential promotions, which can add up.

Consider this example: Laura, age 56, left a $70,000-a year job to care for her mother for 3 years. The cost to her-$218,000 in lost salary and $63,000 in lost Social Security benefits, for a total of $281,000.² The long-term price can be even higher. You lose the opportunity to contribute to a 401(k) plan- (or other workplace retirement saving plan), as well as to receive contributions from your employer. Those periodic absences also significantly slice into your Social Security benefits.

Balancing work and family

If you are caring for an aging parent, what can you do to soften the effect of these financial changes?

Because leaving a job means losing not only your paycheck but also your benefits, try to continue working at least until you're vested in your company's pension or profit-sharing plan. You may be able to scale back your hours, but put in enough time to continue to get benefits like health insurance or retirement plan contributions. Also, check with your employer's human resources manager to see whether the company offers services to employees who are also caregivers.

You can also consult Eldercare Locator (www.eldercare.gov), sponsored by the US Administration on Aging, to find local services that might help you find a way to balance your job with your caregiving responsibilities.

If you are still able to work for a while longer, then be sure to participate fully in your employer's 401(k) plan and matching contributions. Remember, if you are over age 50, you can make additional contributions.

If your employer also offers a high-deductible health plan (HDHP) paired with a health savings account (HSA), the HDHP can play a valuable role in your financial future. Generally, an HDHP with an HSA enables you to set aside pretax dollars—many employers offer this as a payroll deduction—that can accumulate tax-free and can be withdrawn tax-free to pay for current or future qualified medical expenses,³ including those in retirement. Since health care is likely to be among your largest expenses in retirement, planning for medical expenses both now and in the future can be an important part of your overall savings plan.

If you must give up your current job in order to become a full-time caregiver, consider asking your family to pay you as an independent contractor for the care you are providing. If you are paid, you can set up a self-employed pension plan, such as a Simplified Employee Pension Plan (SEP), or an IRA. If you are married and have the support of your spouse, take advantage of a spousal IRA contribution (available to non-working spouses) to help keep your retirement savings growing. And, fund these accounts to the limit, if you can.

Beware of taking on too much on your own

While sons and daughters care more or less equally for their parents, a MetLife study⁴ found that daughters tend to take care of physical caregiving, while sons tend to help financially. Despite this, the disparity comes with long-term financial consequences for daughters. For example, if you're a woman providing more hands-on assistance, you're likely to be the first to notice that the supply of nutritional supplements is running low or that it's time for your father to begin using a walker. And, if you're providing more hands-on assistance, it's natural to reach for your own wallet to cover the costs. Yet, such miscellaneous expenses can cost an average of $12,000 a year, according to MetLife research, and can seriously eat into the money available to set aside for your retirement.

Some 3 in 10 US adults (29%) have a child younger than 18 at home, and 12% of these parents provide unpaid care for an adult as well. These so-called multigenerational caregivers provide more than 2.5 hours of unpaid care a day, on average, according to a new Pew Research Center analysis of Bureau of Labor Statistics data.⁵

"Do not be a martyr," warns WISER's Hounsell. "Ask for financial help from brothers and sisters." Work with a financial advisor to create a budget that encompasses both present and future care needs, as well as a system to record all costs to prevent family disputes.

Tip: Don't forget to tap into resources from advocacy groups such as the National Council on Aging which help people aged 60+ meet the challenges of aging by partnering with nonprofit organizations, government, and businesses.

Find time for yourself

Research from the National Alliance for Caregiving shows that, on average, adult caregivers spend nearly 19 hours a week in their helping role—or nearly 3 hours a day. So finding ways to save time is essential for reaching your personal and financial goals.

Investors interested in something to assist parents in handling their financial affairs might consider a managed account. For an annual fee, a professional advisor manages the assets, freeing the family from spending time on administrative chores—or having to justify their decisions to other family members. That's what Polly Walker, from the Boston area, chose to do when she took charge of her mother's care and finances 10 years ago. Although she is a Chartered Financial Consultant® and a financial writer, having a managed account gave her important peace of mind, she says, "Because it eliminated any concerns among my brothers and sisters about who was making the investment decisions."

Finally, with that bit of extra time you've gained, remember to protect your own health. That's especially important for women, who are more likely than men to feel the emotional stress of giving care, says the National Alliance for Caregiving study. Stress can affect your mental and physical health, as well as your ability to work productively—with unpleasant repercussions for your financial health too.

While it's natural for women to want to do all they can for their aging loved ones, the most important lesson to take to heart is this: Taking care of yourself first will enable you to do a better job of taking care of others.

Tip: Know when to get involved. "On average, children step in when parents are 75 years old—often after a loved one has made a direct request for financial assistance, when the parents' health becomes a significant factor, or when you notice a change in your parents' ability to handle daily living tasks," explains Dowd.

5 important rollover questions

Consider cost, investments, services, and convenience.

Fidelity Viewpoints

Key takeaways

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.

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.

Create income that can last a lifetime

Generate a "retirement paycheck" that isn't vulnerable to market ups and downs.

Fidelity Viewpoints

What a lifetime income annuity can do

• Lifetime annuities can hedge against market swings.
• They can provide guaranteed income for life.
• Also, lifetime annuities can help diversify your income sources.

The face of retirement in America has changed radically in recent decades. People are living longer. Pensions are increasingly rare. Add in market volatility, as well as questions surrounding the long-term financial health of Social Security, and it's no wonder many people feel anxious about funding their retirement.

If you were a newly hired employee at a Fortune 500 company in 1998, you had a 59% chance of having access to a pension plan. But, by 2017, only 16% of employees did. Over that same 19-year stretch, 42% of Fortune 500 employers froze their primary pension plan and 24% closed pension plans to new hires.¹ Today, the responsibility of financing your retirement is likely to fall squarely on your shoulders.

But there is a way to create a plan that can give you a regular "retirement paycheck"—through a lifetime income annuity. Resembling a traditional pension plan,² this investment vehicle can provide a guaranteed³ stream of income that lasts a lifetime and is not vulnerable to the inevitable ups and downs of the market.⁴

An added benefit is that by locking in some guaranteed income, you will have more freedom to invest the remainder of your retirement assets for growth potential as part of a diversified income plan. Investors might want to consider an income annuity to cover the portion of their essential expenses not covered by other guaranteed income sources like Social Security or a pension.

"What people may not realize is, once you have your essential expenses covered by guaranteed lifetime income, you gain peace of mind and the freedom to pursue the things you love in life," observes Tom Ewanich, vice president and actuary at Fidelity Investments Life Insurance Company. "Additionally, you may invest your remaining assets for growth, rather than worrying about how to preserve and stretch your portfolio for the rest of your life."

A lifetime income annuity represents a contract with an insurance company that allows you to convert a portion of your retirement savings (an amount you choose) into a predictable lifetime income stream. In return for a lump-sum investment, the insurance company guarantees to pay you (or you and your spouse) a set amount of income for life. You also have the option of starting your income either immediately or at a date you select in the future.

Because an annuity's guarantees are only as strong as the insurance company providing them, you should consider the strength of the company you select and its ability to meet its future income obligations.

Having the backing of an insurance company can help mitigate 3 key retirement risks that, generally, can be very challenging to manage by yourself:

But not all lifetime income annuities are alike—some might provide higher levels of income with little or no flexibility in accessing assets, while others may provide lower levels of income with greater flexibility.

So you'll want to take the time to understand the differences among them and figure out which features might best meet your particular needs. Let's take a closer look at 2 categories of lifetime income annuities, namely, a fixed lifetime income annuity and a fixed annuity with guaranteed lifetime withdrawal benefits.

What is a fixed lifetime income annuity?

As part of a diversified income plan, a fixed lifetime income annuity can provide you with guaranteed income for the rest of your life with payments starting immediately or at a future date that you select when you purchase the annuity.

These annuities offer:

The trade-off with an income annuity is that you typically must give up control of the portion of the savings you use to purchase one. In exchange, you don't have to manage your account to generate income, and you can secure a predictable income that lasts the rest of your life. However, be sure to ask your financial advisor about withdrawal features that are available on some income annuities, which may alleviate liquidity concerns. What's more, fixed lifetime income annuities are often able to provide higher income payments than other products, such as bonds, CDs, or money market funds, due to the "longevity bonus" they can provide (see the chart below). While the payments from traditional income solutions are limited to return of principal and interest from an investment, fixed lifetime income annuities also make available the ability to share in the longevity benefits of a "mortality pool." Effectively, assets from annuitants with a shorter life span remain in the mortality pool to support the payouts collected by those with a longer life span. Put simply, the longer you live, the more money you will receive.

What are the payment options and features?

Fixed lifetime income annuities offer various options that pay different amounts of income, based on the types of guarantees they provide. The 3 most common payment options are:

In addition to different payment options, annuities can include different features. One example is an annual increase option. This feature provides for annual increases in the payment amount beginning on the anniversary following your initial payment. The annual increase can be based on a fixed percentage or linked to changes in the Consumer Price Index (CPI), referred to as "inflation." Note that the initial payment amount for an annuity with this option may be lower than an identical annuity without the option.

Let's take a look at how these payment options might differ, using Fidelity's Guaranteed Income Estimator tool. Shown below are the results for a hypothetical 65-year-old man who invests $100,000 in a lifetime income annuity starting today. We assume that he was born on November 1, 1953, and started receiving income on December 1, 2018.

What's right for you? Choosing a payment option means focusing on the specific features of a fixed lifetime income annuity and your personal goals. "Consider what's most important to you regarding your retirement plans. Do you need the most guaranteed income available, or are you willing to accept a slightly lower payment to help provide additional protection for your beneficiaries?" says Ewanich.

What is a fixed annuity with a guaranteed lifetime withdrawal benefit?

As part of a diversified income plan, a fixed deferred annuity with a guaranteed lifetime withdrawal benefit (GLWB) can provide guaranteed income for the rest of your life, starting on a date you select when you’re ready to start receiving income.

These annuities offer:

From the time of purchase, you will know how much income you are guaranteed (or you and your spouse for joint contracts) at any age you decide to start lifetime withdrawals. Most importantly, you will have the security of a guaranteed cash flow, regardless of market fluctuations and downturns. Finally, in the event of your death, your beneficiaries will receive any remaining balance in your policy.

How do lifetime income annuities fit into a retirement portfolio?

A lifetime income annuity can help diversify your retirement income portfolio so a portion of your income is shielded from market volatility. Generally, Fidelity believes that assets allocated to annuities should represent not more than 50% of your liquid net assets. Why? Well, even though these products provide guaranteed income for life, they may also require that you give up some liquidity and access to that part of your portfolio.

Ultimately, your overall portfolio may benefit from a lifetime income annuity to help meet essential expenses throughout your retirement.

Do your retirement savings measure up?

Find out with Fidelity's Retirement Score^SM, plus get catch-up tips by age.

Fidelity Viewpoints

Keys takeaways

Saving for retirement is such a long-term project, it can be difficult to know if you're on track—or need to make some course corrections to lead the life you want down the road.

Fidelity's recent Retirement Savings Assessment (RSA)¹ found that 50% of people are almost "in the green" when it comes to retirement savings. That puts the median retirement score at 80, meaning people on average are on track to have 80% of the income Fidelity estimates they will need to maintain their lifestyle in retirement.²

There are 4 categories on Fidelity's retirement preparedness spectrum, which are based on your ability to cover estimated retirement expenses, even in a down market:³

A retirement score of 80 isn't quite "in the green"—that starts at 81—but it's very close. And it's a dramatic improvement over past surveys. America's median score was 76 in 2016, and only 62 in 2006. One possible reason for the improvement: People have been saving more. The national saving rate has more than doubled from 3.6% in 2006 to 8.8% currently.⁴ Market appreciation has likely played a role as well in the increase between 2006 and 2018.

How prepared are you? Find out with the Fidelity Retirement Score.

You may be able to improve your score no matter where you fall on the spectrum of retirement readiness.

Some things will make more of a difference than others depending on your age. For example, if you're "in the red," the steps you can take to improve your retirement readiness are different if you're young versus in or near retirement.

The RSA looked at 3 actions people can take to increase their retirement readiness:

• Save more
• Delay retirement
• Invest appropriately for your goals and time frame

To really make sure you're prepared to fund decades of retirement, consider taking advantage of all 3 of these of levers. Their impacts vary, but together they can be powerful.

Below we'll show you the single most impactful step you can take depending on your age.

In the red zone

If you're in the red you are not yet on target to be able to pay for basic living expenses in retirement. There's no way to sugarcoat it: People in the red zone need to save more for retirement right now. According to the RSA survey, the median savings rate for people who are in the red zone is 5%, including any employer contributions.

Many in this zone should also examine if they are invested appropriately given their time horizon until retirement, financial circumstances, and goals. According to the RSA results, 38% of people in the red zone have less than 20% of their retirement portfolios invested in stocks. It's hard to draw firm conclusions from that, but it could suggest that there is room for improvement with regard to investing, particularly for people with many years until retirement. For instance, nearly half of Millennials, 47%, have less than 20% of their investment mix in stocks.

"Perhaps the pain of watching their parents' investments shrink during the financial crisis soured them on stocks," says Ann Dowd, CFP^®, vice president at Fidelity Investments. "But to reach their retirement goals, most young people, and particularly those who are behind in their retirement savings, need to invest for growth, and that means a significant allocation to a diversified mix of stocks."

The good news is that you can improve your retirement score, no matter your age. But that means taking action, and the sooner, the better.

Millennials

If you're a Millennial and find yourself in the red, the most important thing to consider is increasing your savings rate. If you can start saving at age 25, aim to save at least 15% of income per year until you are 67. Following this path could help you stay on target for a comfortable retirement. And don't forget—any employer match or profit sharing to a 401(k) or other workplace retirement account counts toward the annual goal of saving 15%. If you start saving after age 25, you may need to save more than 15% in order to afford the lifestyle you want in retirement.

How saving more could help a Millennial: The median score for Millennials in the red zone is 48. Saving the suggested 15% of income boosts the median score more than 20 points, to 69.

To get to the green zone, also consider putting most of your portfolio in a diversified mix of stocks. With more than 40 years until retirement, you have time to withstand the ups and downs that come with the stock market, and benefit from its growth potential. From 1926 through 2016, stocks returned an average 10% annually, versus 5.4% for bonds and 3.5% for short-term investments. If you had invested $100 in stocks in 1926, it would be worth $587,000, versus $11,800 if you'd invested in bonds, and $2,300 in short-term instruments.⁵

To give your savings time to grow, you may want to consider working a few more years if you can. Taken together, increased savings, a more age-appropriate investment mix, and working until 67 could help you move safely into the green. Taking all 3 steps bumps the median score from 48 to 102.

Generation X

Saving more and investing for growth will also help America's middle child. But to get from red to green, the most powerful step is delaying retirement. Doing so could give you more time to save, and more time for those savings to grow.

How retiring later can help a Gen X'er: The median score for Gen X'ers who fall into the red zone is 52. If they retire at their full retirement age (likely 67 for most Gen X'ers), versus 65, their retirement score increases 9 points to 63.

The next most important step is saving more. Just saving a little bit more can be helpful, but to really move the needle on your ability to retire, consider saving more than 15%. You can find out just how much with Fidelity's savings calculator.

Of course, investing for growth should also help. But the best strategy of all is taking all 3 steps. The result: Gen X'ers' median score jumps to 83, comfortably in the green.

Baby Boomers

Like Gen X'ers, the most impactful step Baby Boomers in the red can take to improve their retirement security is to work longer. Doing so can help maximize Social Security benefits and build savings. But getting to the green will likely take boosting saving and investing for growth too.

How retiring later could help a Baby Boomer: The median score for Boomers in the red is 52. Pushing back retirement from 65 to full retirement age (age 66–67 depending on when you were born) increases the score 5 points to 57.

To really boost your readiness for retirement, saving more is a must. But because Baby Boomers have fewer years for their savings to grow than, say, Millennials, saving at a higher rate is required to get to the same place.

Consider 2 savers, one is 25 and one is 55. Let's say each wants to retire at age 70 with $1 million in retirement savings and both are starting from scratch right now. In this example, let's assume they are both going to get a constant hypothetical, annual rate of return of 5.5% (of course, your results may differ).

To get to $1 million, the 25-year-old needs to save about $5,150 each year consistently for 45 years with no withdrawals. With 30 years fewer to save, the 55-year-old needs to save about $37,200 each year consistently for 15 years with no withdrawals—more than 7 times what the 25-year-old needs to save annually.

Investing for growth can also help Boomers' savings grow. Consider a diversified mix of investments that's appropriate for your goals, time frame, and risk tolerance. If retirement is more than 5 years away, it may not be wise to abandon stocks completely from your investment mix.

Taking all 3 steps can help Boomers in the red zone move their score from 52 to 64. To get to the green, saving more than 15% is necessary.

Read Viewpoints on Fidelity.com: The guide to diversification

In the yellow zone

If you're in the yellow, be encouraged by the fact that you've taken a lot of the right steps to prepare for retirement. You're part of the way there, but still need to do a little more work to afford your lifestyle in retirement.

People who are in the yellow zone have reported better saving and investing behaviors than those in the red. The median savings rate for those in the yellow zone is 8%. Only 25% of the people in this zone do not have an appropriate investment allocation. If you're in the yellow, now may be the time to kick it into higher gear if you can by saving a little more and considering working longer.

Millennials

Millennials are still at the beginning of their careers and it's probably difficult to envision tacking on a few more working years. But since they are already strong savers, planning to work longer gives the biggest boost to their retirement readiness.

How working longer could help a Millennial: The median score for Millennials who are in the yellow is 73. Pushing back retirement from age 65 until 67 increases the median score to 81.

Taking all 3 steps can increase the median retirement score from 73 to 115.

Want to aim for an earlier retirement? Consider saving more money in order to boost your retirement preparedness. And remember to continue investing for long-term growth with a diversified portfolio tilted toward stocks.

Generation X

For a Gen X saver in the yellow zone, the most impactful step to take will be increasing saving. Between raising families and caring for older parents, it's easy to lose sight of saving for the future. Figuring out how to save more—even just 1%—could have a significant impact on the retirement security of Gen X'ers.

How increasing savings can help a Gen X'er: Increasing the savings rate to 15% of total income boosts the median score from 73 to 80, just about in the green zone. Don't forget that this 15% includes any employer match or profit sharing contribution.

Planning to work a few more years can move the needle on Gen X'ers' preparedness as well. As we showed in the past section, giving your savings extra time to grow and compound can make a big difference in the amount of money you'll have for retirement spending. Taking all 3 steps for this group boosts their retirement score from 73 to 99.

Read Viewpoints on Fidelity.com: Just 1% more can make a big difference

Baby Boomers

Of all the generations, Baby Boomers are under the most pressure to get their financial house in order. With retirement looming, using all the tools available to increase savings is crucial. But the most important step to consider may be staying in the workforce longer. Working longer can give Baby Boomers extra time to save more money—and can give their retirement savings more time to grow. The additional benefit is that you'll have fewer years of retirement to fund.

How working longer can help a Baby Boomer: Working longer can move the median retirement score from 72 to 77.

Setting aside as much money as possible—and continuing to invest at least some of it for long-term growth—is also vital to improving your retirement score when you don't have the luxury of decades for compounding. The good news: Once you're over age 50 you can take advantage of catch-up contributions in retirement accounts like an IRA or a 401(k).

Taking all 3 steps moves Baby Boomers in the yellow zone into the green with a median retirement score of 81.

In the green zone

If you're in the green, congratulations! You're on target to cover your necessary expenses in retirement and maybe even have some left over for travel or hobbies.

Even though you're doing great, you may be able to improve. The 3 levers the RSA considers—saving more, working longer, and investing appropriately for your goals and time frame—can have a significant impact on retirement savings.

There are other steps you may still be able to take to get ready for retirement:

Use every available strategy

Saving enough to fund your retirement is a long-term project. It takes commitment and consistency over decades. You can make it a little bit easier by taking advantage of all the 3 strategies that the RSA highlights: Save more; invest in a mix of stocks, bonds, and cash that fits your situation; and consider working a few more years beyond your planned retirement age. If you're not on target for a secure retirement yet, don't worry—there are still steps you can take to improve your retirement readiness no matter what zone you are in or how long you have until retirement.

6 habits of successful investors

Planning, consistency, and sound fundamentals can improve results.

Fidelity Viewpoints

The power of investing to build wealth and achieve long-term goals has been proven time and again. But not everyone takes full advantage. What separates the most successful investors from the rest?

Here are the 6 habits of successful investors that we've witnessed over the years—and how to make them work for you.

Develop a long-term plan—and stick with it

Tall tales about the lucky investor who hit it big with a stock idea may be entertaining. But for most people, investing isn't about getting rich quick, or even making as much money as possible. It’s about reaching their goals—be they owning a home, sending a kid to college, or having the retirement they have long imagined.

Successful investors know that this means developing a plan—and sticking with it. Why does planning matter? Because it works.

A Fidelity analysis of 401(k) participants found that engaging in planning, either with a Fidelity representative or using Fidelity's online tools, helped some people identify opportunities to improve their plans, and take action.¹

Roughly 40% of the people who took the time to look at their plan decided to make changes to their saving or investing strategy. The most common change was to increase savings, with an average increase of roughly 2.6% of pay.¹ The next most common action was a change in investments (see illustration below).

A plan doesn't have to be fancy or expensive. You can do it alone, or with the help of a financial professional or an online tool like those in Fidelity's Planning & Guidance Center. Either way, by slowing down, focusing on your goals, and making a plan, you are taking the first and most important step.

Be a supersaver

While lots of attention is paid to how much your investments earn, the most important factors that determine your financial future may be how much and how often you save.

Fidelity's Retirement Savings Assessment analyzed financial information for more than 4,500 families and found that, on average, the single most powerful change that millennials and Gen Xers could make to improve their retirement outlooks was saving more. For workers closer to retirement, a combination of delaying retirement and saving more would have made the biggest difference, on average.²

How much should you save for retirement? As a general rule of thumb, Fidelity suggests putting at least 15% of your income each year, which includes any employer match, into a tax-advantaged retirement account, though your individual situation may be different.

"You can't control the markets, but you can control how much you save," says Fidelity vice president and CFP^® Ann Dowd. "Saving enough, and saving consistently, are important habits to achieve long-term financial goals."

Stick with your plan, despite volatility

When the value of your investments falls significantly, it's only human to want to run for shelter due to our inherent aversion to suffering losses. And it can certainly feel better to stop putting additional money to work in the market. But the best investors understand their time horizon, financial capacity for losses, and emotional tolerance for market ups and downs, and they maintain an allocation of stocks they can live with in good markets and bad.

Remember the financial crisis of late 2008 and early 2009 when stocks dropped nearly 50%? Selling at the top and buying at the bottom would have been ideal, but, unfortunately, that kind of market timing is nearly impossible. In fact, a Fidelity study of 1.5 million workplace savers found that those who stayed invested in the stock market during the downturn far outpaced those who went to the sidelines.³

From June of 2008 through the end of 2017, investors who stayed in the markets saw their account balances—which reflected the impact of their investment choices and contributions—grow 147%. That's twice the average 74% return for those who moved out of stocks and into cash during the fourth quarter of 2008 or first quarter of 2009.³ More than 25% of the investors who sold out of stocks during that downturn never got back into the market—missing out on all of the recovery and gains of the following years. The vast majority of 401(k) participants did not make any asset allocation changes during the market downturn, but, for those who did, it was a fateful decision that had a lasting impact.

If you are tempted to move to cash when the stock market plunges, consider a more balanced, less volatile asset mix that you can stick with. Imagine 2 hypothetical investors: An investor who panicked, slashed his equity allocation from 90% to 20% during the bear markets in 2002 and 2008, and subsequently waited until the market recovered before moving his stock allocation back to a target level of 90%; and an investor who stayed the course during the bear markets with a 60%/40% allocation of stocks and bonds.⁴

As you can see below, the disciplined investor significantly outperformed the more aggressive investor who pulled back his equity exposure radically as the market fell. Assuming a $100,000 starting portfolio 22 years ago, the patient investor with the 60% stock allocation would have had about $540,000 by October 2018, versus $410,000 for the impatient investor. A difference of $130,000.

Be diversified

An old adage says that there is no free lunch in investing, meaning that if you want to increase potential returns, you have to accept more potential risk. But diversification is often said to be the exception to the rule—a free lunch that lets you improve the potential trade-off between risk and reward.

Successful investors know that diversification can help control risk—and their own emotions. Consider the performance of 3 hypothetical portfolios in the 5 years after the financial crisis 2008–2009 financial crisis: a 100% stock portfolio; a diversified portfolio of 70% stocks, 25% bonds, and 5% short-term investments; and an all-cash portfolio.

By the end of February 2009, both the all-stock and the diversified portfolios would have declined sharply (50% and 35%, respectively), while the all-cash portfolio would have risen 1.6%. 5 years after the bottom, the all-stock portfolio would have been the clear winner: up 162%, versus 100% for the diversified portfolio and just 0.3% for the cash portfolio. But over a longer period—from January 2008 through February 2014—the all-stock and diversified portfolios would have been neck and neck: up 32% and 30%, respectively.

This is what diversification is about. It will not maximize gains in rising stock markets, but it can capture a substantial portion of the gains over the longer term, with less volatility than just investing in stocks. That smoother ride will likely make it easier for you to stay the course when the market shakes, rattles, and rolls.

A good habit is to diversify among stocks, bonds, and cash, but also within those categories and among investment types. Diversification cannot guarantee gains, or that you won’t experience a loss, but does aim to provide a reasonable trade-off of risk and reward for your personal situation. On the stock front, consider diversifying across regions, sectors, investment styles (value, blend, and growth) and size (small-, mid-, and large-cap stocks). On the bond front, consider diversifying across different credit qualities, maturities, and issuers.

Consider low-fee investment products that offer good value

Savvy investors know they can't control the market—or even the success of the fund managers they choose. What they can control is costs. A study by independent research company Morningstar found that expense ratios are the most reliable predictor of future fund performance—in terms of total return, and future risk-adjusted return ratings. (Read details of the study.) Fidelity research has also shown that picking low-cost funds is one way to improve average historical results of large-cap stock funds relative to comparable index funds.

Fidelity has also found great variation among brokers in terms of commission and execution—by comparing the executed price of a security with the best bid or offer at the time of the trade. The cost of trading affects your returns. Learn more about using price improvement for trading savings.

Focus on generating after-tax returns

While investors may spend a lot of time thinking about what parts of the market to invest in, successful investors know that's not the end of the story. They focus not just on what they make, but also on what they keep after taxes. That's why it is important to consider the investment account type and the tax characteristics of the investments that you have.

Accounts that offer tax benefits, like 401(k)s, IRAs, and certain annuities, can change to have the potential to help generate higher after-tax returns. This is what is known as "account location"—how much of your money to put into different types of accounts, based on each account’s respective tax treatment. Then consider "asset location"—which type of investments you keep in each account, based on the tax efficiency of the investment and the tax treatment of the account type.

Consider putting the least tax-efficient investments (for example, taxable bonds whose interest payments are taxed at relatively high ordinary income tax rates) in tax-deferred accounts like 401(k)s and IRAs. Put more tax-efficient investments (low-turnover funds, like index funds or ETFs, and municipal bonds, where interest is typically free from federal income tax) in taxable accounts.

Read Viewpoints on Fidelity.com: Why asset location matters

Consider the example in the chart. A hypothetical $250,000 portfolio is invested and returns 6% annually for 20 years. The different tax treatments of a brokerage, annuity, and tax-deferred IRA, along with fees for those accounts, could create a significant difference in the final value of the investment.

The bottom line

There is a lot of complexity in the financial world, but some of the most important habits of successful investors are pretty simple. If you build a smart plan and stick with it, save enough, make reasonable investment choices, and beware of taxes, you will have adopted some of the key traits that may lead to investing success.

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 2018 traditional or Roth IRA contribution is the same as the 2018 tax-filing deadline—April 15, 2019. Residents of Massachusetts and Maine have until April 17, 2019 because of local holidays. Time is running out to contribute for the 2018 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 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. For 2019 the limits increase to $6,000 and $7,000 for those age 50 and over.

Consider this: If you're age 35 and invest $5,500, the maximum annual contribution in 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.

7 things you may not know about IRAs

Make sure you aren't overlooking some strategies and potential tax benefits.

Fidelity Viewpoints

Key takeaways

• IRAs are available to nonworking spouses.
• IRAs allow a "catch-up" contribution of $1,000 for those 50 and up.
• IRAs can be established on behalf of minors with earned income.

It's the time of year when IRA contributions are on many people's minds—especially those doing their tax returns and looking for a deduction. The deadline for making IRA contributions for the 2018 tax year is April 15, 2019. Residents of Massachusetts and Maine have until April 17, 2019 to make 2018 IRA contributions.

Chances are, there may be a few things you don't know about IRAs. Here are 7 commonly overlooked facts about IRAs.

1. A nonworking spouse can open and contribute to an IRA

A non-wage-earning spouse can save for retirement too. Provided the other spouse is working and the couple files a joint federal income tax return, the nonworking spouse can open and contribute to their own traditional or Roth IRA. A nonworking spouse can contribute as much to a spousal IRA as the wage earner in the family. For 2018 the IRA contribution limit is $5,500, or $6,500 for those over age 50. For 2019, the limit is $6,000, or $7,000 if you're over 50. The amount of your combined contributions can't be more than the taxable compensation reported on your joint return.

2. Even if you don't qualify for tax-deductible contributions, you can still have an IRA

If you're covered by a retirement savings plan at work—like a 401(k) or 403(b)—and your 2018 or 2019 modified adjusted gross income (MAGI) exceeds applicable income limits, your contribution to a traditional IRA might not be tax-deductible.¹ But getting a current-year tax deduction isn't the only benefit of having an IRA. Nondeductible IRA contributions still offer the potential for your money and earnings to grow tax-free until the time of withdrawal. You also have the option of converting those nondeductible contributions to a Roth IRA (see No. 7, below).

3. After 2018, alimony will not count as earned income to the recipient

Unless the new tax rule changes, you will likely not be able to use money received as alimony to fund an IRA after tax year 2018.

That's due to changes in the law introduced by the Tax Cuts and Jobs Act of 2017: After 2018, alimony payments will no longer be considered taxable income to the recipient—and the source of IRA contributions must be taxable earned income.

4. Self-employed, freelancer, side-gigger? Save even more with a 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. The SEP IRA is similar to a traditional IRA where contributions may be tax-deductible—but the SEP IRA has a much higher contribution limit. The amount you, as the employer, can put in varies based on your earned income. For SEP IRAs, you can contribute up to 25% of any employee's eligible compensation up to a $55,000 limit for 2018 contributions and $56,000 for 2019. Self-employed people can contribute up to 20%² of eligible compensation to their own account. The deadline to set up the account is the tax deadline—so for 2018 it will be April 15, 2018 (for a calendar-year filer). But, if you get an extension for filing your tax return, you have until the end of the extension period to set up the account or deposit contributions.

5. "Catch-up" contributions can help those age 50 or older save more

If you're age 50 or older, you can save an additional $1,000 in a traditional or Roth IRA each year. This is a great way to make up for any lost savings periods and make sure that you are saving the maximum amount allowable for retirement. 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 $44,000 more in your account than someone who didn't take advantage of the catch-up contribution.³

6. You can open a Roth IRA for a child who has taxable earned income⁴

Helping a young person fund an IRA—especially a Roth IRA—can be a great way to give them a head start on saving for retirement. That's because the longer the timeline, the greater the benefit of tax-free earnings. Although it might be nearly impossible to persuade a teenager with income from mowing lawns or babysitting to put part of it in a retirement account, gifting money to cover the contribution to a child or grandchild can be the answer—that way they can keep all of their earnings and still have something to save. The contribution can't exceed the amount the child actually earns, and even if you hit the maximum annual contribution amount of $6,000 (for 2019), that's still well below the annual gift tax exemption ($15,000 per person in 2018 and 2019).

The Fidelity Roth IRA for Kids, specifically for minors, is a custodial IRA. This type of account is managed by an adult until the child reaches the appropriate age for the account to be transferred into a regular Roth IRA in their name. This age varies by state. Bear in mind that once the account has been transferred, the account's new owner would be able to withdraw assets from it whenever they wished, so be sure to educate your child about the benefits of allowing it to grow over time and about the rules that govern Roth IRAs.

7. Even if you exceed the income limits, you might still be able to have a Roth IRA

Roth IRAs can be a great way to achieve tax diversification in retirement. Distributions of contributions are available any time without tax or penalty, all qualified withdrawals are tax-free, and you don't have to start taking required minimum distributions at age 70½.⁵ But some taxpayers make the mistake of thinking that a Roth IRA isn't available to them if they exceed the income limits.⁶ In reality, you can still establish a Roth IRA by converting a traditional IRA, regardless of your income level.

If you don't have a traditional IRA you're still not out of luck. It's possible to open a traditional IRA and make nondeductible contributions, which aren't restricted by income, then convert those assets to a Roth IRA. If you have no other traditional IRA assets, the only tax you'll owe is on the account earnings—if any—between the time of the contribution and the conversion.

However, if you do have any other IRAs, you'll need to pay close attention to the tax consequences. That's because of an IRS rule that calculates your tax liability based on all your traditional IRA assets, not just the after-tax contributions in a nondeductible IRA that you set up specifically to convert to a Roth. For simplicity, just think of all IRAs in your name (other than inherited IRAs) as being a single account.

Read Viewpoints on Fidelity.com: Answers to Roth conversion questions

How and why to build a bond ladder

Ladders may offer predictable income and rate risk management.

Fidelity Viewpoints

Key takeaways

• Staggering bond maturities can help to create a predictable stream of bond income.
• The rungs help to manage interest rate and reinvestment risk.
• Build with diverse, high-quality, noncallable bonds.
• Fidelity's Bond Ladder Tool can help.

Investors looking for steady income have plenty of options, from a simple CD to different flavors of annuities, individual bonds, separately managed accounts, or professionally managed mutual funds. One other option is the bond ladder.

Like all these options, bond ladders have their advantages and disadvantages, but many investors decide to build a bond ladder because it can help to customize a stream of income and manage some of the risks of changing interest rates.

Interest rate risk is the potential for rising rates to cause the prices of bonds to fall. While many investors can live with rate risk in exchange for the benefits bonds can provide a diversified portfolio, uncertainty about rates can be unnerving, especially for investors who look to bonds to create a stream of income. Bond ladders may help to manage these concerns by creating a predictable stream of income.

"Laddering bonds may be appealing because it may help you to manage interest rate risk, and to make ongoing reinvestment decisions over time, giving you the flexibility to invest in different credit and interest rate environments," says Richard Carter, Fidelity vice president of fixed income products and services.

It's worth noting however, that bond ladders don't completely eliminate rate risk, the price of bonds in the ladder continues to fluctuate as rates change, and an investor will still face periodic reinvestment risk for some portion of the portfolio.

Managing reinvestment risk

Interest payments from the bonds in a ladder can provide scheduled cash flows. In addition, the ladder can help you manage reinvestment risk. What is reinvestment risk? Say you invest in an individual bond. That bond eventually would mature, the issuer would return your principal, and you'd have to purchase a new bond if you wanted to continue generating income or maintain your portfolio's asset allocation mix. But if interest rates and bond yields had decreased in the meantime, you wouldn’t be able to generate as much income as before with the same amount invested in a similar quality bond. That’s a predicament some investors who rely on investment income won't want to find themselves in.

Building a bond ladder has the potential to diversify this reinvestment risk across a number of bonds that mature at different intervals. Imagine that yields fall as one rung in your ladder approaches maturity. If you choose to reinvest, you will have to invest only a fraction of your bond portfolio at the lower rate. Meanwhile, the other bonds in the portfolio will continue generating income at the relatively higher older rates. So the impact of falling rates may be smaller with a ladder than with a bullet strategy that targets a single maturity date or than with an investment in a small number of bonds.

What if yields and interest rates increase? A bond ladder regularly frees up a slice of your portfolio, so you can take advantage of the new, higher rates. If you have all your money invested in a "bullet" strategy, with a single maturity date, you might be able to reinvest at higher yields. But what if your bonds didn't reach maturity while rates are higher? If none of your holdings mature during the time of higher rates—you might miss out.

"A bond ladder gives you a framework in which to balance the reinvestment opportunities of short-term bonds with the potentially higher yields that longer-term bonds typically offer," says Carter.

Having a well-diversified bond ladder does not guarantee that you will avoid a loss, but it can help protect you the way that any diversified portfolio does, by helping to manage the risk of any single investment.

Bond ladder considerations

While building a bond ladder may help you manage interest rate and reinvestment risk to some extent, there are 6 important guidelines to consider to make sure you are diversified and to attempt to protect yourself from undue credit risk.

1. Hold bonds until they reach maturity

It's important that you have enough money set aside to meet your short-term needs and deal with emergencies. You should also have a temperament that will allow you to ride out the ups and downs of the market. That’s because many of the benefits of bond ladders—such as an income plan and managing interest rate and credit risk—are based on the idea that you keep your bonds in your portfolio until they mature. If you sell early—either because you need cash or you change your investment plans—you will be exposed to additional risks, including the risks of loss or decreased yield from your ladder. In fact, if you don't hold bonds to maturity, you may experience similar interest-rate risk as a comparable-duration bond fund. So, if you don't know how long you can hold the bonds, you may want to consider a shorter ladder, or a bond mutual fund.

2. Make sure you have enough money invested to diversify^*

Because bonds are often sold in minimum denominations of $1,000 or $5,000, it can take a substantial investment to achieve diversification. It may make sense to have at least $500,000 in bond investments in your long-term investment mix.

If you are investing in corporate bonds, particularly lower-quality corporate bonds, the number of  issuers needed to diversify a ladder across sectors and issuers becomes even greater.

The table to the right offers some illustration of how many different issuers may be required to help achieve diversification at different credit ratings.

3. Build your ladder with high-credit-quality bonds

Because the purpose of a bond ladder is to provide predictable income over a long period of time, taking excessive amounts of credit risk probably doesn't make sense. So you may want to consider only higher-quality bonds. You can use ratings as a starting point to find those bonds. For instance, select only bonds rated "A" or better. But even ratings have limits; they could change or be outdated, so you should do additional research to ensure you are comfortable investing in a security you are intending to hold for potentially many years.

How do bond ratings work?

Two of the major independent credit rating services are Moody's and Standard & Poor's. They research the financial health of each bond issuer (including issuers of municipal bonds) and assign ratings to the bonds being offered. A bond's rating helps you assess that bond's credit quality compared with other bonds.

The bonds in a ladder are intended to be held until maturity, so price declines caused by rating downgrades generally won't affect the income stream, though it will impact the underlying value of the ladder. Higher-quality bonds offer another advantage as well: These investments typically come with lower transaction costs, which can help manage the expenses associated with this strategy.

4. Avoid the highest-yielding bonds at any given credit rating

You may feel tempted to choose the highest-yielding bonds for whatever credit rating or maturity you have chosen, figuring they represent a bargain—more yield for the same amount of risk.

Resist that temptation. You need to understand why a bond is offering a higher yield. An unusually high yield relative to similar bonds is often an indication that the market is anticipating a downgrade or perceives that bond to have more risk than the others and therefore has traded the bond’s price down (thereby increasing its yield). That can happen in advance of an official downgrade and may be too risky for your ladder. One potential exception is that in the municipal bond market, buyers often pay a premium for the most familiar issuers, meaning that higher yields may be available from smaller issuers.

5. Keep callable bonds out of your ladder

Part of the beauty of a bond ladder is the scheduled cash flow; you know when the bonds will mature and you know how much you will need to reinvest. But when a bond is called prior to maturity, its interest payments cease and the principal is returned as of the call date—altering both your cash flow schedule and the schedule of principal coming due. You may want to select bonds that can’t be called away early.

6. Think about time and frequency

Another important feature of a bond ladder is the total length of time the ladder will cover and the number of rungs, or how often the bonds in the ladder are scheduled to mature, returning your principal. A ladder with more rungs will require a larger investment but will provide a greater range of maturities, and if you choose to reinvest, this means you will have more opportunities to gain exposure to future interest rate environments.

A case study: building a bond ladder

To see how you can build a ladder using Fidelity's Bond Ladder Tool, let's take a hypothetical case in which Matt wants to invest $100,000 to produce a stream of income for about 10 years. Matt decides to start with his investment amount—though the tool would have let him target a level of income as well. He sets his timeline and asks for a ladder with 9 rungs of about $11,000 each. Then he chooses bond types. In order to be broadly diversified, the rungs each contain a range of bonds and FDIC-insured CDs at different credit rating levels, but all of them are at least investment grade.

Matt elects the option to have the tool suggest bonds for each rung. So on the next screen, the tool suggests a bond for each rung of the ladder and shows a summary of the ladder, including the expected yield and annual interest payments. (Note: The screenshot below is incomplete and only shows 2 of the rungs.)

Another view lets Matt review the schedule of when to expect interest payments and the return of principal—providing a view into the cash flow he could expect if he chooses to purchase the suggested bond ladder.

Matt's expected cash flows appear to decrease over time, as successive rungs of bonds mature, but he may be able to extend that income by reinvesting the returned principal each time one of the bonds matures.