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5 Steps for Boomers, Gen X and Gen Y to Prepare for Retirement

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Fidelity Investments today unveiled research that helps Boomers (born between 1946-1964), Gen X (1965-1978) and Gen Y (1979-1991) to close their estimated retirement income gaps.

The research finds working American households may experience a potential income drop of 28 percent in retirement, and nearly four-in-ten (38 percent) retiree households report not having sufficient income to cover their monthly expenses. These estimated retirement income gaps could force significant sacrifices that could include cuts in discretionary expenses. To help improve Americans’ retirement readiness, Fidelity conducted an analysis that quantifies the potential monetary benefits of five straight-forward steps – such as adjusting asset allocation and annuitizing retirement assets. Within the context of a comprehensive retirement plan, this analysis can help individuals better understand which steps may make the greatest impact.

“While there is evidence that Americans are saving more for retirement, our analysis finds that they need to take additional steps to prepare for the future and take better control of their personal economy,” said Kathleen A. Murphy, president, Personal Investing, Fidelity Investments. “The study underscores the importance of early engagement in the retirement planning process and the potential impact these five actionable steps can have in helping address the retirement income gap that many Americans are facing today.”

Based on the analysis, Fidelity modeled five steps for three generations (Baby Boomers, X and Y) to determine the potential impact on future retirement income. The steps, which are actions often considered when developing and implementing a comprehensive retirement plan, include a mix of strategies that can be taken now, whether an investor is working or in retirement:

  1. Adjusting Asset Allocation – Twenty-one percent of those surveyed are invested too conservatively with limited exposure to stocks, based on their current age and planned retirement date. This highlights how many investors have improperly allocated their assets and are losing the long-term earnings potential of stocks.
  2. Increasing Savings – Respondents indicate they saved an average of $3,500 in 2011, but most are still not fully benefiting from the tax-advantaged/deferred savings potential of their workplace or individual retirement accounts. This is especially important for younger investors, who have a longer timeframe and more potential for their money to grow.
  3. Adjusting Retirement Date – The average planned retirement age is 65, but delaying full retirement by a couple of years or continuing to work part-time can help preserve assets so they have a better chance of lasting through retirement. This tactic can be especially powerful for Boomers, many of whom Fidelity found are facing a potential drop in retirement income.
  4. Annuitizing Retirement Assets – Fewer than one-fifth (17 percent) of retirees are using an annuity to create a guaranteed lifetime income stream to cover essential expenses, but it can be an important tool to help ensure savings last through retirement – particularly if a retiree lives beyond his or her mid-eighties.
  5. Tapping into Home Equity – Seventy-two percent of respondents own a home and one-third (32 percent) of homeowners have no mortgage. Through downsizing and expense reduction, this home equity could be harnessed to generate income in retirement.

“Most Americans have the potential to get significantly closer to achieving their retirement goals, but they have to take action and consider implementing a mix of these five steps,” said Murphy. “Whether you’re a younger investor deciding to save a little more in a 401(k) or an older investor adjusting investment plans, it’s never too early or too late to impact your personal economy and take steps to improve your retirement readiness.”