Fidelity 401k: Secure Your Retirement Future

Are you sure your 401(k) will give you enough money for retirement? With healthcare costs going up and people living longer, making sure you’re financially ready for the future is key¹. The Fidelity 401(k) can be a great way to help you reach your retirement goals. Let’s look at how this retirement account can help you secure a good future.

Key Takeaways

• Plan for healthcare costs, which can be significant in retirement, with savings of up to $157,500 (single) or $315,000 (couple) needed¹
• Expect to live longer, with potential for 30+ years of retirement income needed, and consider annuities for reliable lifetime income²
• Manage the impact of inflation by seeking cost-of-living adjustments and investing for growth potential
• Contribute the maximum to your 401(k) to take advantage of tax-deferred savings and potential employer matches³
• Work with a Fidelity professional to develop a comprehensive retirement income plan

Plan for Healthcare Costs in Retirement

Planning for retirement means thinking about the big healthcare costs you might face. Fidelity says a single person turning 65 in 2023 might need about $157,500 saved for healthcare⁴. For a couple, that number jumps to around $315,000⁴. Also, 69% of people over 65 will likely need long-term care, costing thousands a year.

Understand Retirement Healthcare Expenses

Healthcare costs keep going up, so knowing what you might pay is key. Fidelity’s 2022 report shows a 5% increase in costs for a 65-year-old couple retiring then⁵. Yet, many Americans guess these costs will be much lower, at just $41,000 for a couple⁶.

Consider Long-Term Care Insurance

Long-term care insurance can cover long-term care costs. The cost depends on your age when you buy it, so early is better. Some policies charge a yearly fee, others accept a single payment or a set number of payments.

Leverage Health Savings Accounts (HSAs)

If your job offers a health savings account (HSA), use it. An HSA lets you save before taxes, grow your savings, and withdraw it tax-free for medical costs now or later⁴. These accounts can help cover healthcare costs in retirement⁴.

“Health care is expected to be one of the largest expenses in retirement for most Americans, after housing and transportation costs.”⁴

Getting ready for healthcare costs in retirement is key. By understanding what you might pay, looking into long-term care insurance, and using health savings accounts, you can protect your future. This way, you’ll be sure your healthcare needs are covered in your retirement years⁴⁶⁵.

Prepare for Longer Life Expectancy

Thanks to medical advancements, people turning 65 today can live into their 80s or even 90s⁷. This means they’ll need retirement income for 30 years or more. If they don’t plan well, they might run out of savings⁷.

Understand Longevity Risk

Longevity risk is the chance retirees might live longer than expected and use up their savings. Without good planning, they might have to depend only on Social Security, which might not be enough⁷. Waiting to take Social Security at age 70 can increase their monthly payments by up to 24%. This can help reduce the risk of running out of money⁷.

Consider Annuities for Lifetime Income

Retirees might use some savings to buy an annuity to cover costs not covered by Social Security or pensions. Annuities offer a steady income stream for life, ensuring retirees have enough money for their needs⁷. This can be a reliable way to manage the risk of living a long life and keep up with expenses.

Fidelity’s Retirement Preparedness Measure shows most American households are doing okay, with 78% on track for retirement costs⁸. But, 34% are in the “Red Zone,” meaning they need to work on getting ready for retirement⁸.

“For every year Social Security filing is delayed past full retirement age (67 for many), there is an 8% increase in benefits, resulting in potentially 24% higher monthly benefits by delaying until age 70.”

Waiting until 70 to start Social Security can really increase a retiree’s monthly income. This helps cover their needs for a long life⁷⁸⁹.

Manage the Impact of Inflation

Inflation can really hurt the value of retirement income over time. Even a small inflation rate can slowly lower a retiree’s standard of living¹⁰. Fidelity uses a 2.5% inflation rate when planning for retirement, but the real inflation rate from 1926 to 2022 was 3%¹⁰. To fight inflation, retirees should look into strategies that keep their investments growing with the cost of living.

Seek Cost of Living Adjustments

One good way to beat inflation in retirement is to find income that goes up every year. Social Security, some pensions, and certain annuities do this, helping retirees keep up with rising prices.

Invest for Growth Potential

Investing too safely can let inflation eat away at your savings and slow down growth¹¹. A mix of stocks, bonds, and short-term investments can help balance risk and growth¹². During the Global Financial Crisis, saving and investing paid off, showing growth after 52 months¹². A Fidelity expert can help pick investments that fight inflation and grow your money over time.

Fidelity’s Strategic Advisers Inc. made smart moves in 2022 by adding more commodities and high-yield bonds to fight inflation¹¹.

Dealing with inflation means knowing how your investments are doing in different areas¹¹. With an inflation rate of 2% a year, you need a portfolio that can earn at least 2% to keep up¹¹. By choosing the right investments, retirees can keep their buying power and reach their financial goals¹⁰¹²¹¹.

Build a Diversified Portfolio

Building a diversified portfolio is key for retirement planning¹³. In the 2008–2009 bear market, a mix of 70% stocks, 25% bonds, and 5% short-term investments did better than an all-stock portfolio¹³. This mix showed how diversification can reduce risk.

The Fidelity recommended portfolio had 49% US stocks, 21% international stocks, 25% bonds, and 5% short-term investments¹³. It included a variety of stocks, sectors, and regions. This spread out investments across the stock market.

Understand Asset Allocation

Asset allocation means spreading your investments across stocks, bonds, and short-term investments based on your risk level and goals¹³. Within bonds, diversify by maturity, credit quality, and duration to handle interest-rate changes¹³. A 2000 to 2020 example showed that not rebalancing can lead to uneven risk levels.

Maintain a Balanced Investment Mix

¹³ Rebalancing is key to keep your investments at the right risk level. You can do this by choosing safer options or adding more risk to meet your target¹³. It’s advised to rebalance if an asset moves more than 10 percentage points from the target¹⁴.

Fidelity offers news and insights on investing and personal finance to help you make informed decisions¹⁵. Aim to save at least 15% of your income for retirement, including employer matches.

¹⁵ Target date funds and asset allocation funds make diversifying easy. Managed accounts offer tailored professional management for your financial goals¹⁴. Fidelity provides resources and tools to help you manage your diversified portfolio.

“With retirement likely to span 30 years or more, finding the right balance between risk and growth potential is crucial.”

Implement a Sustainable Withdrawal Strategy

Finding the right withdrawal rate for your retirement savings is key to making your money last¹⁶. Fidelity suggests taking out 4%-5% of your savings in the first year, then adjusting for inflation later¹⁶. This method is based on past studies to help your savings last 20-30 years¹⁶.

Spending too fast can risk your retirement income plan¹⁶. For a safe plan, aim to take out 4% to 5% of your savings in the first year, and adjust for inflation each year¹⁶. Past studies show that safe withdrawal rates varied a lot, from almost 10% in 1982 to over 4% in 1937¹⁶.

For a 30-year retirement, a 4.6% withdrawal rate was safe 90% of the time¹⁶. For 25 years, a 5.0% rate was safe 90% of the time¹⁶. And for 35 years, a 4.4% rate was the safest¹⁶.

Thinking about how long you and your partner might live is important for retirement planning¹⁶. The mix of your investments, like stocks and bonds, also affects how long your money will last¹⁶. More stocks don’t always mean you can take out more money safely¹⁶.

Changing how much you take out when the market changes can help your retirement savings last¹⁶. Remember, spreading out your investments doesn’t guarantee you won’t lose money¹⁶.

Tax-Efficient Withdrawal Strategies

Your way of taking money out can affect your taxes in retirement¹⁷. The type of account you use can change how much tax you pay¹⁷. A smart plan could lower your taxes: take money from each account based on how much you have there¹⁷.

If you’re eligible for a 0% tax on capital gains, taking money from taxable accounts first might be smart¹⁷. Fidelity suggests starting with 4% to 5% of your savings in the first year¹⁷. Taking money from taxable accounts first, then tax-deferred, and lastly Roth accounts can help keep your taxes stable¹⁷.

Spreading out IRA withdrawals can be good if you expect big capital gains later¹⁷. Taking capital gains when you’re in a low tax bracket can also lower your taxes¹⁷.

By managing your retirement income plan and how you take money out, you can make sure your savings last¹⁸¹⁶¹⁷.

Fidelity 401k: A Retirement Income Solution

The Fidelity 401(k) plan is a great way to secure your financial future. It offers many features and investment options. These help retirees create a diverse portfolio and plan for a steady income in retirement¹⁹.

One key feature is the “period certain annuity.” It lets participants get income for a chosen number of years¹⁹. Fidelity also has Managed Retirement Funds. These funds help turn your savings into regular income, making retirement more secure¹⁹.

But, remember, there’s no guarantee that any fund will give you enough money for retirement. The money you put in might not be safe¹⁹. The funds can also be risky, especially with investments in the stock market and foreign securities¹⁹.

The Managed Cash Flow option changes how much you can withdraw each year and might even return your initial investment¹⁹. Even with risks, Fidelity’s experts are there to help with retirement planning and finding steady income sources¹⁹.

Many workers worry they won’t have enough money for retirement, and most think employers should help more²⁰. Fidelity’s services aim to help at every stage of retirement planning and income generation²⁰.

With Fidelity’s help, you can make sure you have a steady income in retirement. Using the Fidelity 401(k), retirees can feel secure and at ease in their later years²¹.

Annuity payments are taxed as ordinary income and may have a 10% penalty if taken before age 59½¹⁹. Also, annuities from Guaranteed Income Direct come from insurance companies, not Fidelity. The safety of these annuities depends on the company paying claims¹⁹.

Fidelity’s retirement solutions, like the Fidelity 401(k), offer many options for a steady retirement income. By using these options, retirees can feel financially secure and at peace in their golden years¹⁹²⁰²¹.

Understand Sequence of Returns Risk

Sequence of returns risk is a big deal in planning for retirement income. It’s about how early market performance in retirement affects your savings. This risk can make or break your retirement savings²².

Good early returns can help your savings grow, even when you’re taking money out. But, bad early returns and withdrawals can quickly use up your savings²². That’s why it’s key to plan for this risk to keep your retirement income steady.

Let’s look at two examples to understand this better. In one scenario, the portfolio grew by 7.64% a year, ending with almost $159,000 after five years²². In another, it grew by 10.65%, ending with over $182,000²².

Now, let’s see how taking money out affects things. In the first scenario, with a $10,000 yearly withdrawal, the portfolio was worth over $70,000 after five years²². In the second, it was worth just under $47,000, with a -12.21% growth rate²². These examples show how early market performance can change your savings’ future.

Rules like the “4% rule” aim to lessen sequence of returns risk²³. This rule suggests taking out 4% of your portfolio each year and adjusting for inflation. But, research shows outcomes vary a lot based on early retirement market conditions²³.

To tackle this risk, experts suggest diversifying your investments, adding more bonds before retirement, and using spending rules that change with the market²⁴²³. Knowing and planning for this risk can make your retirement income more secure.

“Sequence of returns risk is a critical factor in retirement income planning that can significantly impact the longevity of your retirement portfolio.”

²²²⁴²³

Manage Emotional Investment Behavior

Investing in the financial markets can be like riding a rollercoaster, especially for retirees. Emotional behaviors like overconfidence, loss aversion, and herding tendencies can affect how well an investor sticks to their plan. Studies in behavioral finance reveal that people often make choices based on feelings rather than facts, which can lead to poor investment decisions²⁵.

Retirees need to watch out for these emotional biases to keep their investments on track. Fear and anxiety might make people sell too soon, while being too confident can lead to taking too many risks²⁶. To keep a steady hand, it’s key to have a diverse portfolio and manage your investments with a long-term view, not just reacting to short-term changes²⁷.

By understanding and controlling these emotional behaviors, retirees can keep their eyes on the prize and make better investment choices. Tools like regular portfolio checks, automating investments, and getting advice from experts can help investors stay on track. In the end, managing emotional investment behavior is key for retirees to reach their financial dreams²⁵.

“Emotions such as sadness and financial stress can lead to impulse buying, contributing to a cycle of poor financial decisions and mental health challenges.”
– Scott Rick, associate professor of marketing at the University of Michigan

Mitigate Longevity Risk with Annuities

As Americans live longer, the risk of outliving their savings is growing. Annuities can help by offering a steady income for life²⁸.

Lifetime Income Stream

Annuities with Guaranteed Lifetime Withdrawal Benefits (GLWBs) give retirees a steady income for life. This ensures a stable income, and they can also gain from market increases²⁸²⁹.

Guaranteed Income

Annuities with GLWBs keep their income steady, even if the market drops. They also let retirees gain from market rises. These benefits protect against market falls, giving retirees a steady income and more growth potential²⁸.

Upside Growth Potential

Variable annuities with GLWB let retirees grow their money while ensuring a steady income. This mix of growth and stability is great for those wanting balance in retirement²⁹.

Adding annuities to retirement plans makes retirees more confident about their future. They can keep their lifestyle, even with longer lives²⁸²⁹³⁰.

https://www.youtube.com/watch?v=XezlpQTrwdM

“Annuities can provide a reliable income stream that can help retirees worry less about outliving their savings and focus more on enjoying their retirement years.”

Evaluate a Secured Income Strategy

Planning for retirement? Consider a secured income strategy. It uses part of your savings for a deferred variable annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB)³¹. This can protect your savings from risks like market ups and downs and ensure you have money in the future.

Potential Benefits

This strategy can give you a steady income for life³¹. It also keeps your savings safe during market lows. The GLWB feature ensures your income stays steady, even when the market is down.

Plus, you could see your money grow over time. Putting some savings into a deferred variable annuity means you could gain from market increases. The GLWB feature keeps your income safe, so you don’t lose out if the market drops³¹.

Important Considerations

A secured income strategy isn’t right for everyone³¹. Think about your current income, how you handle uncertainty, and the strength of the insurance company³¹. Taking more money out than allowed or before age 59 1/2 can reduce your benefits and lead to extra fees³¹.

Deciding if this strategy fits your retirement plans requires expert advice³¹. A financial advisor can guide you, considering your specific situation. They’ll help you see the good and bad sides of this approach.

Mind the Retirement Gender Gap

Women face a big financial challenge as they plan for retirement – the retirement gender gap. This gap shows that women usually need more money for retirement but often have less saved than men³².

Factors Contributing to the Gap

Several factors lead to this gap. The main one is the gender pay gap, which means women earn less than men in similar jobs³³. This leads to smaller retirement savings over time.

Women often take time off work for family care, like for children or elderly parents³³. This break affects their retirement savings and Social Security benefits.

Women also live longer, on average, by five years than men³³. So, their retirement savings must stretch longer, making it harder financially.

Women spend more on healthcare in retirement, especially for long-term care, which can quickly use up their savings³³. With lower Social Security benefits due to the pay gap and caregiving, women face a big financial challenge in retirement.

To fix the retirement gender gap, we need to tackle several issues. We should work on closing the pay gap, help women invest more, and support caregiving. By understanding these issues, women can better plan for a secure retirement³²³³.

Maximize Retirement Savings Vehicles

To secure a comfortable retirement, women should make the most of tax-advantaged savings accounts³⁴. This means taking part in employer-sponsored plans like 401(k)s and using employer matches. These can really boost their retirement savings³⁵.

Contribute to Employer Plans

Women should aim to put in the maximum allowed to their 401(k) plans. For 2024, that’s $23,000, with an extra $7,500 for those 50 and older³⁶. By doing this, they get the benefit of tax-deferred growth and possible employer matches. This can really help prepare them for retirement³⁵.

Leverage Health Savings Accounts (HSAs)

Women should also look into Health Savings Accounts (HSAs). These offer a triple tax advantage and can cover healthcare costs in retirement³⁴. For 2024, the limits are $4,150 for single coverage and $8,300 for family coverage, with a $1,000 catch-up for those 55 or older³⁶. Putting extra money into HSAs can prepare for future healthcare costs in retirement³⁶.

Contribute to IRAs

Adding to Individual Retirement Accounts (IRAs), like Roth IRAs, traditional IRAs, and rollover IRAs, can give more tax benefits beyond employer plans³⁴. For 2024, the IRA limit is $7,000, with an extra $1,000 for those 50 and older³⁶. Mixing different types of retirement accounts can help women plan better for taxes and growth³⁵.

Consider After-Tax 401(k) Contributions

If their employer allows it, women can add after-tax money to their 401(k) over the limit. This is called the “mega backdoor Roth” and can help them save more for retirement³⁴. It also lets them enjoy tax-deferred growth and tax-free withdrawals later³⁵.

Invest in Brokerage Accounts

After using all tax-advantaged accounts, women can keep saving and investing in regular brokerage accounts³⁴. These accounts offer flexibility and can grow over time. They work well with the tax benefits from employer plans and IRAs³⁵.

Using employer plans, HSAs, IRAs, and brokerage accounts together can make a strong retirement savings plan³⁵. This approach can help women overcome the retirement gender gap and reach their financial goals³⁴.

³⁴³⁵³⁶

Conclusion

Fidelity 401(k) plans are a great way for women and others to secure their financial future. They offer many features and investment options. These help create a diverse portfolio and plan for a steady income in retirement³⁷. Also, adding to employer plans, HSAs, IRAs, and brokerage accounts can help women bridge the retirement gap and reach their financial goals³⁷³⁸³⁹.,,

Dealing with 401(k) distributions and retirement planning can seem tough. But getting advice from a financial advisor can make it easier. They can guide you on the best choices for your situation³⁷. Experts can explain how vesting, distribution rules, and cash withdrawals work. This can help you make the most of your Fidelity 401(k) plan³⁷³⁸³⁹.,,

A Fidelity 401(k) can be a strong tool for reaching retirement goals. By being proactive and using the available resources, you can set yourself up for a secure retirement. Making smart choices with your Fidelity 401(k) can lead to a financially stable future³⁷³⁸³⁹.,,

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