Income Diversification
Creating a plan to support your
lifestyle in retirement
Retirement is different today.
Just about everything we thought we knew about retirement has been turned upside down.
The uncertainty of retiring at a time when there are fewer guaranteed income sources, low
interest rates, and increased market fluctuations has many people worried. That is why it’s
more important than ever to have a plan that includes diverse1 sources of income.
Today’s retirement lifestyle is more active, more expensive,
and will likely last longer.
Your life has likely been nothing like your parents’, and your retirement probably won’t be
either. You will probably be more active, live and work longer, and need to rely more on what
you’ve saved for income. That’s why you should create an income plan now that will support
your unique lifestyle in retirement.
People are retiring earlier and living longer.
77
70
1930
79
80
82
84
84
68
1950
63
62
62
62
1970
1990
2007
2010
Life Expectancy of 65-Year-Old
Life Expectancy of 65 year old
Average Retirement Age
Avg Retirement Age
Source: U.S. Department of Health and Human Services 2012, Bureau of Labor Statistics 2008.
See Health, United States, 2012, published by the U.S. Department of Health & Human Services.
Q: How do you envision your lifestyle in retirement?
Q: W
hat are some of the things that could get in the way of that picture?
Diversification and asset allocation do not ensure a profit or guarantee against loss.
1
It’s up to you now.
Today, fewer workers can count on a pension, and the future of Social Security is uncertain.
The challenge now falls on you to create income from your personal savings by having a plan that
removes some of the uncertainty and allows you to move into the next phase of your life knowing
you will have the income you need, for as long as you need it.
Percentage of Fortune 100 employers providing defined benefit plans
89%
67%
49%
30%
17%
11%
7%
1985
1998
2002
2006
2010
2012 2013
Source: Towers Watson, Insider, November 2013.
A different retirement means different retirement planning.
While you were saving, you diversified your portfolio by spreading your investments across a mix
of stocks, bonds, and cash in order to help manage market fluctuation over time.
When it comes to income in retirement, diversification is just as crucial and goes beyond investing
in different asset classes. Sources of income that offer flexibility, growth potential, and guarantees
should all be included in your income plan.
By having various sources of retirement income, your portfolio can help you maintain confidence
through economic ups and downs and better prepare you to face the uncertainties that lie ahead.
Q: How much income will it take to support your lifestyle?
Q: How much of that income will you be generating from your own assets?
Some things to think about
Creating an effective and diversified retirement income plan requires addressing some key risks.
Outliving your money
Since we don’t know when we’re going to die, it’s difficult to plan how long our money will have
to last. The result is that some people will plan too conservatively, and some too aggressively.
Additionally, many people don‘t realize that they may end up living in retirement as long as or
longer than they worked. Without some thoughtful planning, you could easily outlive your savings,
a concept also referred to as longevity risk.
Lifespans can be longer than expected.
65-Year-Old Man
65-Year-Old Woman
65-Year-Old Couple*
50% Chance
85 yrs.
88 yrs.
92 yrs.
25% Chance
92 yrs.
94 yrs.
97 yrs.
*At least one surviving individual.
Source: Annuity 2000 Mortality Table, American Society of Actuaries. Figures assume you are in good health.
For illustrative purposes only.
Q: Who is/was the longest-living person you know?
Q: What planning have you done to prepare yourself for a long retirement?
Impact of inflation
Have you experienced sticker shock lately? Then you know firsthand the effects of inflation. And
that’s over the short term. Imagine how inflation might affect the buying power of your money
over the long term. As you build your income plan, it’s important to include some investments
with income growth potential that may help keep up with inflation through the years.
Examples of purchasing power erosion caused by inflation
$1.16
Gasoline*
Unleaded, regular
per gallon
Bread*
$3.56
$0.69
White, 1 lb. loaf
$1.41
Ice Cream*
$2.60
Prepackaged, ½ gallon
$5.00
Movie Ticket†
$4.22
Average U.S. ticket price
$8.13
1990
2013
*Source: U.S. Department of Labor, Bureau of Labor Statistics, www.bls.gov, December 2013. Historical prices were calculated
by averaging the monthly price data for the years noted.
†
Source: National Association of Theatre Owners, www.natoonline.org, December 2013.
Q: What do you think the impact of inflation will be on your lifestyle over the next 20 years?
Q: How does your current plan address inflation?
A declining market
Market declines are one thing when you’re still saving and investing during your working years.
They can be devastating when you’re relying on what you have saved to last the rest of your
life. While many investors approaching retirement today may be more comfortable investing
conservatively as a result of market volatility, they could be missing growth opportunities. A wellrounded retirement income plan balances guaranteed income sources with investments that
provide growth potential.
Market volatility in the S&P 500® Index
2,000
(December 31, 1993, to December 31, 2013)
12/31/13
1,800
10/9/07
1,200
1,000
800
ine
decl
57%
e
clin
de
49%
1%
10
e
as
re
c
n
i
inc
re
as
e
1,400
17
3%
3/24/00
1,600
10/9/02
3/9/09
600
400
200
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
0
Source: Fidelity Investments, December 31, 2013.
Past performance is no guarantee of future results.
The S&P 500® Index is a market capitalization–weighted index of 500 common stocks chosen for market size, liquidity,
and industry group representation. The S&P 500® Index is a registered service mark of The McGraw-Hill Companies, Inc.,
and has been licensed for use by Fidelity Distributors Corporation and its affiliates. S&P is a registered service mark of
Standard & Poor’s Financial Services LLC.
Q: What investment decisions have you made in reaction to market volatility?
Q: How could volatile markets potentially impact your income in retirement?
Making your money last
It’s important to remember that retirement can last a long time, and that you are actually planning
for different stages and needs along the way. How much you withdraw, especially early in
retirement, can have a dramatic impact on how long your money may last.
Withdrawing too much too soon
Withdrawals are inflation adjusted*
$2,000,000
Value of Portfolio
$1,500,000
$1,000,000
$500,000
$0
65
70
Withdrawal Rate
75
4%
80
5%
Age
6%
85
7%
90
8%
95
9%
100
10%
*Hypothetical value of assets held in a tax-deferred account after adjusting for monthly withdrawals and performance. Initial
investment of $500,000 invested in a portfolio of 50% stocks, 40% bonds, and 10% short-term investments. Hypothetical
illustration uses historical monthly performance, from Ibbotson Associates, for the 35-year period beginning January 1972:
stocks, bonds, and short-term investments are represented by the S&P 500® Index, U.S. intermediate-term government
bond, and U.S. 30-day T-Bills, respectively. Initial withdrawal amount based on 1/12th of applicable withdrawal rate multiplied
by $500,000. Subsequent withdrawal amounts based on prior month’s amount adjusted by the actual monthly change in the
Consumer Price Index for that month. This chart is for illustrative purposes only and is not indicative of any investment. Past
performance is no guarantee of future results.
Q: H
ow would the possibility of withdrawing too much income too soon impact
your plan?
Negative portfolio returns in retirement
Negative returns early in retirement can have a greater impact on your portfolio than negative
returns later in retirement. That’s because your portfolio’s value is reduced by both the market
downturn and the withdrawals you take. Together, they result in a smaller amount left to
experience potential future growth.
If your account balance drops, the amount of income you can withdraw should go down as well.
However, many retirees find it difficult to modify their spending after becoming accustomed to a
certain lifestyle. They don’t feel they should have to give up things they want to do simply because
the market isn’t cooperating.
Hypothetical example: The impact of retiring into a volatile market
Portfolio A
Portfolio B
Year
Return
Balance
Return
Balance
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
–15%
–4%
–10%
8%
12%
10%
–7%
4%
–12%
13%
7%
–10%
19%
17%
–6%
16%
–9%
14%
28%
9%
18%
7%
30%
8%
22%
$100,000
$80,750
$72,720
$60,948
$60,424
$62,075
$62,782
$53,737
$50,687
$40,204
$39,781
$37,216
$28,994
$28,553
$27,557
$21,204
$18,796
$12,555
$8,612
$4,624
$0
$0
$0
$0
$0
$0
22%
8%
30%
7%
18%
9%
28%
14%
–9%
16%
–6%
17%
19%
–10%
7%
13%
–12%
4%
–7%
10%
12%
8%
–10%
–4%
–15%
$100,000
$115,900
$119,772
$149,204
$154,298
$176,171
$186,577
$232,418
$259,257
$231,374
$262,594
$242,138
$277,452
$324,217
$287,296
$302,056
$335,674
$290,993
$297,433
$271,962
$293,658
$323,297
$343,761
$304,885
$287,890
$240,456
Arithmetic Mean
Standard Deviation
Compound Growth Rate
6.8%
12.8%
6.0%
6.8%
12.8%
6.0%
Sequence of returns risk revolves around the timing or sequence of a series of adverse investment returns. In this example,
two portfolios, A and B, each begin with $100,000. Each aims to withdraw $5,000 per year. Each experiences exactly the same
returns over a 25-year period — only in inverse order — or “sequence.” Portfolio A has the bad luck of having a sequence of
negative returns in its early years and is completely depleted by year 20. Portfolio B, in stark contrast, scores a few positive
returns in its early years and ends up two decades later with more than double the assets with which it began.
Q: W
hat actions would you take if you experienced market declines early
in retirement?
Income diversification: aligning income
sources with objectives
We believe it is important to combine income from multiple sources to create a diversified
income stream in retirement. This is because complementary income sources work together
to help reduce the effects of some important key risks, such as inflation, longevity, and market
volatility. For example, taking withdrawals from your investment portfolio doesn’t guarantee
income for life, but gives you the flexibility to change the amount you withdraw each month. The
risk is your money could run out if you live a long life, or if the market unexpectedly declines.
On the other hand, income annuities provide guaranteed income for life, but may not offer
as much flexibility or income growth potential. As part of your overall financial plan, you may
wish to preserve some principal for use in an emergency or to leave a legacy for heirs. You can
accomplish this separately from, or in conjunction with, a diversified income plan.
Consider how various income sources align with your objectives.
Potential for income
growth to keep up
with inflation
Lifetime income that
will not run out due
to longevity
Predictable income
to provide protection
from market
volatility
Flexibility to meet
changing needs and
uncertainties
Investment Portfolio
with Distributions and
Systematic Withdrawals:
• Professionally Managed
Income Sources
• Self-Managed
Immediate Variable
Income Annuity
Deferred Variable
Annuity with
Living Benefits1
Fixed Income Annuities
with Annual Increases 2
Combined Income
Sources
Strong Alignment
Moderate Alignment
Note: The check marks above are intended to represent which product categories generally align
with a desired objective. The check marks do not, however, precisely represent the features
and benefits of specific products. Certain features and benefits are subject to product terms,
exclusions, and limitations.
Excess withdrawals and any withdrawal prior to age 59½ may significantly impact the product guarantees and may affect the
viability of the overall income strategy. For certain products, a surrender fee may also apply.
2
Optional cost-of-living adjustments.
1
Guarantees are subject to the claims-paying ability of the issuing insurance company.
Personalize your income plan
After taking into account your investing priorities and overall financial situation, the combination of
income sources you choose becomes your diversified income plan.
An example of a diversified income plan
Seeks to cover essential expenses with guaranteed income sources, and use
withdrawals from an investment portfolio to help cover discretionary expenses.
Professionally Managed
Investment Portfolio
Self-Managed
Investment Portfolio
• Income-generating
funds
• Multi-asset income
funds
• Income replacement
funds
Fixed Income Annuities
• Immediate
• Deferred
Variable Annuities
• Immediate Variable
Income Annuity
• Deferred Variable
Annuity with Living
Benefits
• Stocks, bonds, etc.
• Treasuries and
FDIC-insured CDs
Each component of your plan serves a purpose. Together, they can help provide income for
life, some protection from inflation and market volatility, and potential for growth. Your Fidelity
Representative can help you find the appropriate income mix for you.
Guarantees are subject to the claims-paying ability of the issuing insurance company.
Q: Do you have a diversified income plan?
Q: Does your plan address all the risks you might face in retirement?
Fidelity is here to help
We understand that what you want for your retirement is personal. Let Fidelity help you with
what’s next.
Our team of Workplace Planning and Guidance Consultants
can assist with your most important workplace and
personal investing decisions for every stage of your life.
Each member is specially trained, possesses detailed
knowledge of your workplace savings plan, and can
assist with a range of needs to help ensure that you’re
making appropriate choices today, and moving steadily
toward your goals.
We will work one on one with you to provide:
• Assistance
with planning for multiple goals,
retirement income planning, charitable giving
strategies, and investment management
• Information
about your plan’s features and
benefits
• Guidance
on next steps to help you maximize your
workplace savings plan and other retirement savings
opportunities
Fidelity has the tools to help
you create your retirement
income strategy.
Evaluate your anticipated income and
expenses to see if you’ve saved enough,
and how long your assets may last.
Visit the netBenefits® home page,
and select the planning tab to get
started.
Create a retirement income strategy
and identify a target income mix with
our Income Strategy Evaluator at
netbenefits.com/incomestrategy.
Contact our Workplace Planning and Guidance Consultants for a
complimentary consultation today! Call 800.603.4015.
IMPORTANT: The projections or other information generated by Fidelity’s Income Strategy Evaluator Tool regarding the
likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not
guarantees of future results.
Guidance provided by Fidelity through its tools is educational in nature, is not individualized, and is not intended to serve as the
primary basis for your investment or tax-planning decisions.
Investing in a variable annuity involves risk of loss — investment returns, contract value, and, for variable income annuities,
payment amount are not guaranteed and will fluctuate.
Fidelity insurance products are issued by Fidelity Investments Life Insurance Company (FILI), 100 Salem Street, Smithfield, RI 02917,
and, in New York, by Empire Fidelity Investments Life Insurance Company,® New York, N.Y. FILI is licensed in all states except New
York. Other insurance products available at Fidelity are issued by third-party insurance companies, which are not affiliated with
any Fidelity Investments company. A contract’s financial guarantees are subject to the claims-paying ability of the issuing insurance
company.
The retirement income planning and tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal
or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws
that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations
are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Fidelity makes no
warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such
information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Before investing in any mutual fund or annuity, please carefully consider the investment objectives, risks, charges, and
expenses. For this and other information, contact Fidelity for a free prospectus or, if available, a summary prospectus.
Read it carefully before you invest.
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