Estimate Time7 min

How to take control of your retirement

Key takeaways

  • Estimate how much money you'll need in retirement and how much you'll need to save to get there.
  • Investing for growth—keeping your time frame, risk tolerance, and financial situation in mind.
  • Consider using Fidelity's Planning & Guidance Center to help build your plan and monitor it.

If you haven't started planning for retirement, thinking about it can be overwhelming. If you have started, it can be hard to know if you're doing enough.

You don't have to do it all at once. Starting with a single step can be enough—and that includes saving what you can in a retirement account. Here are some factors to consider.

Think about how much money you'll need in retirement

Depending where you are in life, retirement could be very far away or it could be just around the corner. To make your plan a reality, start with an estimate of the amount of money you'll need in retirement. Fidelity has some rules to help you hone in on the amount that will help you maintain the lifestyle you want in retirement. These rules are just a starting point. Be sure to factor in your personal circumstances in order to fit the guidelines to your life. Some factors that could influence the numbers include your age, financial situation, and risk tolerance for investing.

One way to roughly estimate the amount you may need to save is with the 10x rule. Fidelity's rule suggests aiming to save 10 times the salary you will be making by age 67.1 The salary people earn often goes up as they get older, so your retirement savings target would go up too. Having a ballpark figure to aim for can help you decide if your savings are on track or if you need to save a little bit more or less.

Your savings rate, the amount you save from each paycheck, can be another important piece of the puzzle. Try to save 15% of your pre-tax income, which includes any match you may get from your employer. If you cannot save that amount, try to save as much as you can to receive the full employer match.

Read about all 4 of Fidelity’s retirement saving guidelines: Retirement roadmap

It’s important to save for the expenses that you know you’ll need to pay in retirement. But it’s also important to be prepared for the unexpected. Here are 3 important variables that could affect your retirement if you’re not ready for them.

Sign up for Fidelity Viewpoints weekly email for our latest insights.


1. Health care expenses

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2022 may need approximately $315,000 saved (after tax) to cover health care expenses in retirement.

The estimate doesn't include the potential cost of long-term care (LTC).2 The majority of people may require some type of LTC services at some point in their lives, according to the US Department of Health and Human Services.

It sounds a little scary but you can do something about it now.

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.

Consider saving in an HSA if it's available: If your employer offers a health savings account (HSA), you may want to take advantage of it. An HSA offers a triple tax advantage:3 You can save pre-tax dollars, which can grow and be withdrawn state and federal tax-free if used for qualified medical expenses—currently or in retirement. It's a pretty powerful tax benefit and if you can save even a part of the money you contribute to the account for your retirement, the money will be able to potentially grow and compound for years.

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

2. 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. Including investments that have the potential to help keep pace with inflation as part of a diversified portfolio that also reflects your time horizon, risk tolerance, and financial circumstances may make sense.

3. Longevity

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 to fund 30 or more years of retirement. People are living longer because they're healthy, active, and taking better care of themselves.

Annuities are an option: When it's time to turn your retirement savings into income, an annuity may be an option worth considering. Annuities provide regular income payments that are guaranteed for as long as you (or you and your spouse) live.4

Saving money is vital but it can only take you partway to your retirement goals. Earning a return on your money above the rate of inflation can help supercharge your retirement plan.

Investing for growth could help you get there

An investment strategy, or asset mix, that balances growth potential while managing risk may help you hit your retirement goals. (Risk in this context refers to volatility of returns.) Your mix of investments should reflect your time frame for investing (for instance, the number of years until you retire), your tolerance for risk (how upsetting would temporary market fluctuations be?), and your financial situation—or your ability to invest this money and leave it in the account for decades.

The sample investment mixes below show illustrative blends of stocks, bonds, and short-term investments with different levels of risk and growth potential. If you have a very long time until retirement, that gives investments time to recover from potential downturns, which means you may be able to take more risk.

Risk and return are generally linked: Lower risk investments tend to have relatively lower returns while higher risk investments have the potential for relatively higher returns. That's to compensate investors for the added risk. An investment mix including a combination of relatively higher risk investments, like stocks, and relatively lower risk investments, like bonds, is one way investors aim for higher returns while helping to manage risk.

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. That may provide 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.

You don't have to do it yourself—if you don't want to. If you're looking for simplicity, a single-fund option may help you get invested right away with professional management. There are typically 2 types: target date funds (based on an anticipated retirement date) and target allocation funds (asset allocation remains aligned with your risk tolerance). Investors or savers who want more personalized attention, or who are navigating a complex financial situation, may benefit from a managed account service.

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

You're not alone It sounds like a lot to tackle but you don't have to do it all at once. Saving what you can in a retirement account with an eye toward increasing that amount over time is a great start.

What's more, you're not on your own through the process. The Fidelity Planning & Guidance Center can help you every step of the way, from building your plan to maintaining it over time. It factors in variables like inflation, Social Security, unpredictable markets, and tax considerations to help you develop a strategy for saving and investing.

You'll also get ideas for the next steps you can take to strengthen your financial foundation. After you have a plan, you can monitor it on your own or with the help of a financial advisor. It can be an ongoing process, but taking the first steps toward planning can give you one less thing to worry about.

Are you on track for retirement?

Review your retirement savings plan using the tools in our Planning & Guidance Center.

More to explore

Consider an IRA

Take advantage of potential tax-deferred or tax-free growth.

Past performance is no guarantee of future results.

1. Fidelity analyzed the household consumption data for working individuals age 50 to 65 from Consumer Expenditure Survey, US Bureau of Labor Statistics. The average income replacement target of 45% is based on the objective of maintaining a similar lifestyle to before retirement. This target is defined at 35% for "below average" lifestyle and 55% of preretirement income for "above average" lifestyle. Therefore, the final income multiplier target of 10x final (preretirement) income associated with the default "average lifestyle" (maintaining preretirement lifestyle in retirement) and a default retirement age of 67, goes down to 8x for "below average" lifestyle and increases to 12x for "above average" lifestyle. Fidelity has developed a series of income multiplier targets corresponding to different ages, assuming a retirement age of 67, a 15% savings rate, a 1.5% constant real wage growth, a planning age through 93, and an income replacement target of 45% of preretirement income (assumes no pension income). The final income multiplier is calculated to be 10x your preretirement income and assumes a retirement age of 67. The income replacement target is based on Consumer Expenditure Survey (BLS), Statistics of Income Tax Stat, IRS tax brackets and Social Security Benefit Calculators. The 45% income replacement target (excluding Social Security and assuming no pension income) from retirement savings was found to be fairly consistent across a salary range of $50,000-$300,000, therefore this factor may have limited applicability if your income is outside that range. The 45% income replacement target assumes a retirement and Social Security claiming age of 67, which is the full Social Security benefit age for those born in 1960 or later. For an earlier retirement and claiming age, this target goes up due to lower Social Security retirement benefits. Similarly, the target goes down for a later retirement age. For a retirement age of 65, this target is defined as 50% of preretirement annual income, and for a retirement age of 70, this target is defined as 40% of preretirement income. As the income multiplier target is based on income replacement target and retirement age, for an earlier retirement age, this target goes up due to lower social security retirement benefits and a longer retirement horizon. Similarly, the target goes down for a later retirement age. For a retirement age of 65, this target is defined as 12x and for a retirement age of 70, this target is defined as 8x. These simulations take into account the volatility that a typical target date asset allocation might experience under different market conditions. Volatility of the stocks, bonds and short-term asset classes is based on the historical annual data from 1926 through the most recent year-end data available from Ibbotson Associates, Inc. Stocks (domestic and foreign) are represented by Ibbotson Associates SBBI S&P 500 Total Return Index, bonds are represented by Ibbotson Associates SBBI U.S. Intermediate Term Government Bonds Total Return Index, and short term are represented by Ibbotson Associates SBBI 30-day U.S. Treasury Bills Total Return Index, respectively. It is not possible to invest directly in an index. All indices include reinvestment of dividends and interest income. All calculations are purely hypothetical and a suggested salary multiplier is not a guarantee of future results; it does not reflect the return of any particular investment or take into consideration the composition of a participant’s particular account. The salary multiplier is intended only to be one source of information that may help you assess your retirement income needs. Remember, past performance is no guarantee of future results. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in these hypothetical calculations. Returns also will generally be reduced by taxes. 2.

Estimate based on a hypothetical opposite-sex couple retiring in 2022, 65-years-old, with life expectancies that align with Society of Actuaries' RP-2014 Healthy Annuitant rates projected with Mortality Improvements Scale MP-2020 as of 2022. Actual assets needed may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Cost Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.

3. With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation. The triple tax advantages are only applicable if the money is used to pay for Qualified Medical Expenses as described in IRS Publication 969. 4. Guaranteed lifetime income is subject to the claims-paying ability of the issuing insurance company. 5. Data Source: Fidelity Investments and Morningstar Inc. Hypothetical value of assets held in untaxed portfolios invested in US stocks, foreign stocks, bonds, or short-term investments. Historical returns and volatility of the stock, bond, and short-term asset classes are based on the historical performance data of various unmanaged indexes from 1926 through the latest year-end data available from Morningstar. Domestic stocks represented by IA SBBI US Large Stock TR USD Ext Jan 1926-Jan 1987, then by Dow Jones US Total Market data starting Feb 1987 to Present. Foreign stocks represented by IA SBBI US Large Stock TR USD Ext Jan 1926–Dec 1969, MSCI EAFE Jan 1970-Nov 2000, then MSCI ACWI Ex USA GR USD Dec 2000 to Present. Bonds represented by US Intermediate-Term Government Bond Index Jan 1926–Dec 1975, then Barclays Aggregate Bond Jan 1976 - Present. Short-term/cash represented by 30-day US Treasury bills beginning in Jan 1926 to Present. Past performance is no guarantee of future results. The purpose of the target asset mixes is to show how target asset mixes may be created with different risk and return characteristics to help meet an investor's goals. You should choose your own investments based on your particular objectives and situation. Be sure to review your decisions periodically to make sure they are still consistent with your goals.

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

Investing involves risk, including risk of loss.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities). Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Lower-quality fixed income securities involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Foreign investments involve greater risks than U.S. investments, and can decline significantly in response to adverse issuer, political, regulatory, market, and economic risks. Any fixed-income security sold or redeemed prior to maturity may be subject to loss.

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Unless otherwise noted, the opinions provided are those of the speaker or author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.

IMPORTANT: The projections or other information generated by the Planning & Guidance Center's Retirement Analysis regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Your results may vary with each use and over time.

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

883030.4.1

Estimate based on a hypothetical opposite-sex couple retiring in 2022, 65-years-old, with life expectancies that align with Society of Actuaries' RP-2014 Healthy Annuitant rates projected with Mortality Improvements Scale MP-2020 as of 2022. Actual assets needed may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Cost Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government’s insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.