Five Big Risks to Your Retirement

  • By Fidelity Viewpoints
  • March 05, 2013

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Use these rules of thumb to help protect your savings and income.

If you’re nearing or in retirement, it’s important to think about protecting what you’ve saved and help ensure your income needs are met currently and in the future. Here are five rules of thumb to keep in mind now—and throughout retirement.

1. Plan for rising health care costs.

With longer life spans, medical costs that are rising faster than general inflation, declining retiree medical coverage by private employers, and possible funding shortfalls ahead for Medicare and Medicaid, managing health care costs can be a critical challenge for retirees.

According to Fidelity’s annual retiree health care costs estimate, a 65-year-old couple retiring in 2012 will need an estimated $240,000 to cover health care costs during their retirement.1 And that is just using average life expectancy data. Many people will live longer and have higher costs. Since Fidelity started the annual estimate in 2002, estimated costs have increased by 6% a year.

That cost doesn’t include possible long-term-care (LTC) expenses. According to the U.S. Department of Health and Human Services, about 70% of those age 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. The average private-pay cost of a nursing home is about $90,000 per year according to MetLife, and exceeds $100,000 in some states. Assisted living facilities average $3,477 per month. Hourly home care agency rates average $46 for a Medicare-certified home health aide and $19 for a licensed non-Medicare-certified home health aide.

Consider earmarking a portion of savings for health care and purchasing long-term-care insurance. The cost is based on age, so the earlier you purchase a policy, the lower the annual premiums.

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.

An American man who’s reached age 65 in good health has a 50% chance of living 20 more years to age 85, and a 25% chance of living to 92. For a 65-year-old woman, those odds rise to a 50% chance of living to age 88 and a one-in-four chance of living to 94. The odds that at least one member of a 65-year-old couple will live to 92 are 50%, and there’s a 25% chance at least one of them will reach age 97.2

Without some thoughtful planning, you could easily outlive your savings and have to rely solely on Social Security for your income. Chances are, like many people, you don’t have a company pension to rely on—only 30% of Americans today have one.3 And with the average Social Security benefit of just over $1,230 a month, it likely won’t cover all your needs.4

Consider turning some of your retirement savings into a guaranteed stream of income by purchasing a fixed-income annuity. You can turn a portion of your retirement savings into a simple and efficient stream of income payments that are guaranteed for as long as you (or you and your spouse) live.5

3. Be prepared for inflation.

Inflation can eat away at the purchasing power of your money over time. This affects your retirement income by increasing the future costs of goods and services, thereby reducing the purchasing power of your income. Even a relatively low inflation rate can have a significant impact on a retiree’s purchasing power. Our hypothetical example (below) shows that $50,000 today would be worth only $30,477 in 25 years, even with a relatively low (2%) inflation rate.

Some retirement income sources, such as Social Security, some pensions, and variable annuities can help you keep pace with inflation automatically through annual cost-of-living adjustments or market-related performance. But others, such as fixed pensions and annuities or fixed-income investments, may not.

Consider investments that invest in inflation-fighting securities. Among the choices are: growth-oriented investments (e.g.,individual stocks or stock mutual funds), Treasury Inflation-Protected Securities (TIPS), and commodities. 


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Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

Investing involves risk, including risk of loss.

1. The estimate assumes no employer-provided retiree health care coverage and life expectancies of 17 years for men and 20 years for women.

2. Annuity 2000 Mortality Table; Society of Actuaries. Figures assume a person is in good health.

3. Bureau of Labor Statistics

4. U.S. Social Security Administration, June 2012.

5. Guaranteed lifetime income is subject to the claims-paying ability of the issuing insurance company.

6. Portfolio Review is an educational tool that is not individualized and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions.

7. Fidelity Retirement Income Planner is an educational tool developed and offered for use by Strategic Advisers, Inc., a registered investment adviser and a Fidelity Investments company.

8. Fidelity Income Strategy Evaluator is an educational tool.

9. Fidelity Portfolio Advisory Service® is a service of Strategic Advisers, Inc., a registered investment adviser and a Fidelity Investments company. This service provides discretionary money management for a fee.

Fidelity Brokerage Services, Member NYSE and SIPC, 900 Salem Street, Smithfield, Rhode Island, 02917.