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Identify financial detours

Keep your retirement on course

Being aware of the major risks that affect retirement income will make you less likely to get knocked off course and find yourself financially unprepared to live the retirement you wanted.

Living longer

Americans are living longer than ever before, but many are still underestimating their life expectancies and overestimating financial resources.

It’s key to account for those years in your retirement income strategy – so your retirement assets last as long as you do.

Rising health care costs

If unaccounted for, these costs can quickly become a major burden on your retirement savings. Medicare will only cover a portion of your medical bills and prescriptions, so you need to have a strategy to deal with any out-of-pocket costs.

How much can those costs run? According to one study1, for a 65-year old couple, estimated health care costs in retirement rise to $245,000 over their life expectancies.

Major provisions of health care reform are constantly evolving, making the job of accounting for these costs even more difficult. With that in mind, one of the best long-term investments you can make is getting serious about maintaining your good health.

The effects of inflation

Inflation can erode the value of your retirement assets – if those assets earn less than the rate of inflation.

A retirement income portfolio tilting predominantly toward fixed income investments may allow you to “play it safe,” but without some growth-oriented investments – like stocks and bonds – incorporated into your mix, your portfolio may come up short over 25-30 years in retirement.

Although past performance is no guarantee of future results, equity investments have historically outperformed inflation over the long term.

Carrying debt into retirement

Ideally, you should aim to be debt-free (or nearly so) by the time you retire, so you won’t limit the lifestyle you hope to enjoy.

Bringing significant debt into retirement severely restricts your financial flexibility, reduces retirement income and affects your ability to have a comfortable retirement.

Finding the right amount to withdraw

How much, and how frequently you make your withdrawals once you’re retired?

Your withdrawal strategy should take into account all of the challenges described earlier. You’ll also need to consider how the fluctuating markets and economy are performing as you make withdrawals so you can make adjustments along the way.

In the past, experts who study the long-term sustainability of withdrawals rates had recommended a “safe” withdrawal rate of 4 percent. However, with lower interest rates, market volatility and increasing life expectancies, that number has decreased to 3 percent or less.2

It’s important to get it right – especially in the first few years of your retirement. Your long-term financial security depends on it.

What’s a “SAFE” withdrawal rate?

3 percent

With lower interest rates, market volatility and longer life spans, 3% or less may be a more sustainable withdrawal rate over the long term.

1 The Fidelity Retiree Health Care Costs Estimate. Fidelity Benefits Consulting Services, 2015.

2 Reshma Kapadia, "Retirement Rules: Rethinking a 4 Percent Withdrawal Rate.", April 11, 2015.

Diversification is a method used to manage risk and does not guarantee against loss.

Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

Define your destination

Explore your vision of retirement by pondering a few simple questions. It will help you define your unique destination for retirement.

  • How will you spend your time?
  • Will your retirement include work?
  • Who will depend on you for personal and financial support?
  • Where is home base during retirement?

Once you have answers to these questions, start a conversation with a financial advisor, who can help you plan a retirement income strategy that aligns with your goals.