DR 005: 6 Accelerators to Improve Retirement Preparedness with Fidelity’s John Sweeney

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Preparing for retirement requires us to make a number of critical judgments. From how much we should be saving to how to invest our savings, these decisions will have a major impact on our ability to retire and the lifestyle we’ll enjoy during retirement. To that end, Fidelity has just released a new study on Retirement Preparedness.

When I heard about this study, I reached out to Fidelity to see if a representative would be willing to come on the show to discuss this study. John Sweeney who is the executive vice president, Retirement and Investing Strategies for Personal and Workplace Investments (PWI), a unit of Fidelity Investments, agreed to the interview.

John and I discuss what Fidelity calls Retirement Accelerators. These six accelerators can help better prepare you for retirement. Below you’ll see a brief summary of the accelerators that John discuss in depth during the interview, followed by links to calculators and resources mentioned on this podcast.

Fidelity Retirement Preparedness Study

Pre-retirement accelerators to consider now:

  • Raise savings now. While there are many competing demands on a family’s budget, even small increases in contributions to savings can make a big difference. Some relatively painless ways to do so include investing whatever raises you receive into savings or increasing contributions to a workplace savings plan by just one percent every year. Make the most of tax‐advantaged savings vehicles like 401(k)s, IRAs, Health Savings Accounts and tax‐deferred annuities. Also consider a Roth IRA or 401(k), where contributions are after‐tax but withdrawals are income tax free. As a rule of thumb, Fidelity suggests aiming to save at least 10-15 percent of your income each year. Saving at this level pays off: by adjusting the savings rate to at least 15 percent, the median RPM score of 74 increases by 11 percent to 82.
  • Review your asset mix. Although you can’t control market behavior, you can build long-term growth into your portfolio with an age-appropriate allocation to stocks. Investing too conservatively may fail to help you secure the growth needed to reach your retirement goals. For those who don’t want to manage their accounts themselves, consider target date funds or managed accounts, which can help take the guesswork out of the equation and may help achieve better outcomes. By making improvements to the overall investment mix, the median RPM score of 74 increases by 4 percent to 77.
  • Retire later. The longer you can wait, the more time you will have to build savings. Also, waiting until age 70 to take Social Security may help maximize your monthly benefit. For example, if you can afford to wait until age 70, your Social Security income will increase by 30 percent. By adjusting the reported expected retirement age to secure the full Social Security Retirement Benefit (between 65-67), the median RPM score of 74 increases by 12 percent to 83.

Once you’ve reached retirement, consider the following accelerators:

  • Return to work part-time. This can boost income and help you stay active and involved. According to the Retirement Savings Assessment survey, 40 percent of households indicated they planned to work at least part time in retirement. By adjusting the median RPM to project income earned if respondents worked from one to five years in retirement, the median RPM score of 74 increases by 7 percent to 79.
  • Realize home equity. Downsizing and reinvesting some of the proceeds from a home can provide you equity you might not have considered. By factoring in the possibility that all respondents will downsize by 25 percent, the median RPM score of 74 increases by 4 percent to 77.
  • Reallocate part of your savings into an annuity. To add another guaranteed income source to the mix, along with sources such as Social Security or pensions, consider an annuity at or before retirement. This steady stream of additional income can help ensure at least essential expenses are covered throughout retirement with lifetime income sources. By annuitizing 40 percent of retirement savings, the median RPM score of 74 increases by 5 percent to 78.
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    According to Fidelity–

    “Our analysis shows that using these six ‘accelerators’—either individually or in combination—can have a substantial impact on retirement preparedness,” said Sweeney. “In fact, when we apply all six, the Retirement Preparedness Measure jumps an impressive 42 percent, putting many more individuals in a better financial position to truly enjoy their golden years.”

    Tools & Resources Mentioned in this Podcast

    Published or Updated: December 7, 2013
    About Rob Berger

    Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

    Comments

    1. thegooch says:

      In my professional opinion, you should spend less than you earn, save more, save now, and diversify you investments.

      Genius.

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