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Dispatches

Five Steps for Increasing Retirement Income

Fidelity Investments modeled five steps that investors of all ages can use to increase their retirement income.

Fidelity Investments modeled five steps that investors of all ages can use to increase their retirement income. The steps have varying impacts individually, but when combined, they have the potential to significantly increase retirement income.

The steps are:

1. Adjust Asset Allocation—A Fidelity survey of 2,800 investors found that most followed a portfolio allocation strategy that was more conservative than their age would dictate is appropriate. Investors born after 1964 (Generation X and Generation Y) stand to reap the biggest benefits from a more aggressive allocation because of their long investing time horizons.

2. Save More—Increasing contributions to a 401(k) retirement plan from 5% of annual income to 10% over the course of four years can increase monthly retirement income by more than $400 for someone currently age 55 (assuming an additional 3% employer match). Saving more to a traditional IRA or a Roth IRA account can boost retirement income even further.

3. Delay Retirement—Postponing retirement by just two years can boost monthly income by more than $500 thanks to larger Social Security benefits and a longer investing time horizon. Even working part-time can help overall retirement income. Delaying retirement has a bigger positive impact on retirement income for Baby Boomers than any other step.

4. Annuitize a Portion of Your Portfolio—Fidelity, which sells annuities, found that surveyed investors underestimated their life expectancy by 8.2 years. The danger of underestimating one’s lifetime is that an investor may also underestimate how long he will need his retirement savings to last. Though Fidelity admits annuities reduce the remaining investment portfolio, the company believes investors living beyond their mid-80s will be better off. Annuitizing 40% of a portfolio can potentially add $150 in retirement income for the typical Baby Boomer.

5. Tap Home Equity—Downsizing one’s house can free up cash every month. Fidelity estimates that moving to a house that is 25% less expensive will provide additional monthly cash flow of $250.

Source: “Don’t Take a Lifestyle Cut in Retirement,” Fidelity Viewpoints, April 18, 2012.

Discussion

Stephen from FL posted over 14 years ago:

Fidelity has a vested interest in telling you to put more money into your 401k, and to buy an annuity. You should provide studies by independent firms that have no conflict of interest. Fidelity sells products.


Stephen from FL posted over 14 years ago:

Fidelity has a vested interest in telling you to put more money into your 401k, and to buy an annuity. You should provide studies by independent firms that have no conflict of interest. Fidelity sells products.


Joseph from NY posted over 14 years ago:

I made a BIG mistake back in '08 when I purchased a variable annuity, and here it is four years later and I'm still down several thousand dollars from my initial investment. At this time my surrender fee is gone and with any hope of a market recovery, I will get rid of this soon.


Sharon from AZ posted over 14 years ago:

Cashed out of a life insurance policy into a variable annuity in '98. Today the value of the variable annuity is barely 1% over the original value. Just a very disappointing investment and probably would have been better to leave invested in a life insurance product.


Daniel Wright from OK posted over 12 years ago:

poor advice as stated above and from independent advisors


Michael Henry from OR posted over 12 years ago:

There is a BIG difference between a variable annuity and a fixed annuity. In retirement, variability is your enemy. In terms of preventing portfolio failure (i.e. the Alpo diet) a variable annuity is a financial oxymoron. Think of a fixed annuity as a substitute for cash as a portfolio component designed to reduce variability.


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