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How much do you need to retire?

How much do you need to retire?

A rule of thumb: Save at least 8x your ending salary. But 7 key variables can change that.

How much money do you need to save for retirement? It’s a simple enough question. But the answer is complicated because there are so many variables—some known, others impossible to pin down—that can shape the answer, sometimes dramatically.

Still, planning for any goal as big and far away as retirement requires some working assumptions—and an understanding of how they may impact potential outcomes. When will you start saving, for example? How much can you save every year? When will you retire? And what will your investments return? The answers to these and other key questions will impact the odds of reaching your retirement savings goals.

To simplify matters, we’ve created a rule of thumb: Save at least 8 times (X) your ending salary to help increase the odds that you won’t outlive your savings during 25 years in retirement. If that multiple seems daunting, don’t fret. You don’t need to save 8X from the start. Rather, you can step up to it over your working life.

For example, by age 35, Fidelity suggests that you should have saved 1X your current salary, then 3X by 45, and 5X by 55. “Setting up clear goals linked to your salary can help simplify your planning, and help you determine if you are on track throughout your working life,” says Fidelity Executive Vice President John Sweeney. “Having such guideposts is particularly important in today’s workplace, where layoffs, job switching, longer life expectancy, and escalating health care costs can complicate your efforts to save for retirement.”

Of course, your life might not fit neatly into such a precise formula. Start saving earlier, save more, retire later, spend less in retirement, or generate higher investment returns, and your projected savings factor will go down. Do the opposite, and the savings factor you need will go up. “A rule of thumb can prove valuable,” says Sweeney. “However, it’s important to consider your particular situation, and adjust accordingly.”

To help you get a handle on how key choices can impact your retirement savings, Viewpoints has created the interactive below, which estimates how seven critical variables, considered individually, can impact how much you may need to save for retirement.

How did we get to 8X?

We got to 8X by starting with a hypothetical worker with average income and a willingness to save and invest. From there, we evaluated what salary multiple of her ending salary she would need at retirement to cover her estimated retirement expenses.

Let’s call our hypothetical worker Lily. We assume she starts saving at age 25, retires at 67, and lives until 92. Lily’s salary grows from $40,000 at 25 to $73,640 at retirement (with no breaks in employment). She defers 6% of her salary at 25, escalating to 12% within six years. She receives a 3% company match and takes no loans or withdrawals. We assume her investments grow at 5.5% a year (3.2% after assumed inflation of 2.3%). When she retires at 67, we assume she will spend 85% of her ending salary after taxes (tax rates stay the same), and get $1,918 a month in Social Security income.

Based on these assumptions, Lily would need to save $577,000 by age 67, or almost 8X her ending salary. This is the savings amount needed to cover $51,636 a year in spending, which is her total estimated annual expense, in today’s dollars, assuming an 85% income replacement and subtracting Lily’s estimated tax obligation, over 25 years in retirement.1 In this hypothetical, she would actually have saved $639,236 by age 67, more than her 8X goal, giving her a financial cushion for her retirement.

What’s your savings factor?

So how can the choices you make alter your readiness to retire?

We start with four variables over which most people have considerable control: when you start saving for retirement; your target retirement date; the percentage of your salary you defer into a 401(k), 403(b), governmental 457(b), or other retirement savings plan; and how much of your ending salary you may need in retirement (your replacement goal). Then we look at three variables over which you have less control: your rate of return,2 your salary growth, and how long you will live.

One: Starting age

The earlier you start saving for retirement, the better. Can you wait to save until you’re 30 instead of 25? Probably, but the longer you delay, the harder it will be to reach your retirement savings goal. To catch up, you may have to allocate a bigger portion of your salary to retirement saving, or even delay retirement.

Let’s say Lily starts saving at age 30 instead of 25. Just by delaying when she begins saving by five years, her savings at retirement would fall from $639,236 to $536,920—slightly more than 7X her ending salary. That would put her about $40,000 short of her retirement goal of $577,000, which in turn would reduce the income-generating capacity of her portfolio in retirement.

Of course, the longer you delay saving, the worse the shortfall is likely to get. “If you were to start saving at age 30, the goal of reaching 8 times your salary would still be achievable,” says Steve Feinschreiber, senior vice president of Strategic Advisers, Inc. (a Fidelity Investments company that is also a registered investment adviser). “But if you wait until you’re in your 50s, reaching 8 times your ending salary is going to be extremely difficult. That’s why it’s important to start saving early.”

Two: Retirement age

Your retirement age can have an even bigger impact on your retirement savings. The longer you can postpone retirement, the lower your projected savings factor needs to be. For example, retiring at age 67 instead of age 63 would have given Lily four more years of income and savings, and four fewer years of retirement spending to worry about. Plus, she would be eligible to receive higher monthly Social Security. In our example, delaying retirement from age 63 to age 67 increased Social Security benefits to $1,918 a month throughout retirement, from $1,362 a month.

Bottom line: If Lily retires at 67, she would need to save $577,000, or about 8X her ending salary, versus $745,500, or more than 10X, if she retired at 63 and had the same spending goal. Wait to retire until age 70, and, in this example, she would need only $442,500, or slightly more than 6X her ending salary.

Of course, you can’t always control when you retire; health and job availability may alter your plans. But one thing is clear: Working longer will make it easier to reach your savings goals.

Three: Deferral rate

Even though Americans are saving more, most are still not taking full advantage of their workplace savings plans, and Health Savings Accounts (HSAs), if available to them. This problem is magnified by the fact that the vast majority of workplace savings plans set their deferral rates for auto-enrollment at 3%, well below Fidelity’s suggested savings goal of 10%–15%.3 That can be a lost opportunity, given the potential power of tax-advantaged compounding offered by a 401(k) and other workplace savings plans, HSAs, and the additional boost offered by employers who match employee contributions.

Consider the powerful impact of simply increasing the amount of your salary that you defer into a 401(k) or other workplace savings plan. Let’s say Lily started saving 8% of her salary at age 25 (instead of 6%), increasing her deferral rate to 15% at age 32. By 67, based on the assumptions above, she would have saved $763,332, or more than 10X her ending salary for retirement, an increase in retirement assets of $187,132.

Another consideration to help you improve the amount of your “paycheck” in retirement is to save additional money in an IRA. If you have maxed out your workplace savings plan, or do not have access to or choose not to invest in a workplace savings plan, IRAs can also be attractive savings vehicles. (Please note: IRAs have different yearly limits than workplace savings plans. Plus, there are catch-up provisions that let people age 50 and older save more in IRAs and workplace savings plans.)

Four: Replacement goal

It’s hard to decide how much you will need in retirement. We believe a good rule of thumb, based on investor surveys and research, is 85%4 of your ending salary, though individual needs vary greatly. Do you plan to travel extensively? Personal choices loom large here. And health care costs in retirement are an important consideration. So, you will want to make your replacement rate reflect your individual expectations and circumstances.

For example, if Lily wants to replace 80% of her salary in retirement5 instead of 85%, we estimate she would need to save about 7X her ending salary, or $504,000. However, if she aims to replace 90% of her income, she’ll need to save $671,250, or about 9X her ending salary.

Clearly, this kind of decision is tough to make decades before retirement. So, unless you have strong convictions about your specific spending needs in retirement, it may be prudent to use a replacement goal of 85% to calculate your savings factor.

Five: Rate of return

It’s impossible to predict the markets, but the performance of your portfolio will affect your retirement savings needs. Assume a modest 4.3% hypothetical long-term rate of return instead of Lily’s 5.5%, and your savings factor rises to about 9X your ending salary, based on the assumptions above. But if your portfolio returns 8.6% a year, you will only need slightly less than 6X your ending salary.

Of course, you cannot pick your return. In practice, rate of return is driven largely by asset allocation and market performance. It’s smart to make modest long-term return assumptions. If the markets perform well, you may have some extra money and could have more to spend, which is a lot better than relying on good returns and running out of money if they don’t materialize.

Six: Salary growth

Perhaps ironically, the faster your salary grows and the more you earn, the more you need to have saved in order to replace a given proportion of your final salary in retirement. Conversely, the slower your salary grows, the less you may need to have saved at retirement to maintain your lifestyle.

For example, if Lily were to get no real salary growth (keeping up with inflation only), she would need only $279,000 (in today’s dollars), or 7X her ending salary of $40,000. If that salary grows at a modest 1.5% annual rate after inflation, she will need $577,000, or 8X her higher ending salary.

Seven: Longevity

How long will you live? This is an impossible question to answer. Nevertheless, the number of years you assume you need to fund in retirement has a big impact on how much you may need to have saved. For example, if Lily assumes she will live to 96, instead of 92, her savings factor jumps from about 8X her ending salary to 8.6X.

In general, we recommend assuming a lifetime of 92 years for men and 94 for women.6 However, healthy men and women at age 65 have a 25% chance of living beyond these ages. If you’re a man and live to 85 (88 for women), you have a 50% chance of living beyond 85 (88 for women), and a higher chance of outliving your assets.

As you age, your health becomes more of a factor for your life expectancy. So, you may want to look at this assumption again, or at least understand the sensitivity of savings targets to longevity assumptions.

So what else should investors consider?

Many Americans are not adequately prepared financially for retirement, but they can change their savings behaviors. The steps are straightforward:

  • Enroll in your workplace plan—the earlier, the better
  • Save at the highest levels possible
  • Increase your deferral rate periodically as your salary grows
  • Invest in a diversified asset mix
  • Do not overestimate your salary growth or your portfolio returns
  • As you approach retirement, envision the lifestyle you want, and estimate what it will cost
  • Own your plan—stick with it, stay engaged, and avoid taking out loans or cashing out when you change jobs.

There is no magic number for the amount you should have in retirement savings. Every individual’s priorities and needs are unique. But determining how much income you’ll need in retirement is a critical step in meeting your goals.

How to pick the right funds in your 401(k)

This is excellent advice for the DIY type investor. However, you’ll find it much easier if Woodlands Portfolio Management rebalanced your 401k for you.

Published: Sept 12, 2014 5:00 a.m. ET



Dan Moisand, a Principal atMoisand Fitzgerald Tamayo, LLC in Melbourne and Maitland, Fla., is one of the financial planning profession’s most respected practitioners advising retirees and near retirees. Dan’s thoughts can be found in bylined articles in most major publications for financial planners and a slew of financial planning related publications have featured him as one of America’s top advisors and was recently named one of “15 transformational advisers” by InvestmentNews. A past national President of the Financial Planning Association (FPA), his service to the profession includes three years on the CFP Board of Practice Standards crafting the standards to which all US CFP’s must adhere and serving as Chairman of the CFP Board’s Discipline and Ethics commission, the body that judges complaints against CFP licensees. A frequent presenter at such events in the U.S., Dan has spoken to planner groups on five continents and in recent years has led delegations of U.S. planners to Russia and China on behalf of the FPA.



Eugenio Marongiu?

So many funds, so little time …

The good news is you have a lot of funds to choose from in your 401(k). The bad news is you have a lot of funds to choose from in your 401(k). How to make good choices is the subject of this week’s featured question.

Q. Mr. Moisand, I have a 401(k) plan with my employer. How does one decide how to split the money and where to invest? It is really overwhelming and it seems like there are hundreds of funds to choose from. Knowing I will retire in about 10 years I just added more to the amount that will be taken out of my teacher paycheck. Do you have some suggestions? — M.R.

A. Sure. Keep saving regularly and increase the amount as you can. Basic educational tools should be available to you through your employer that will likely provide information on two big decisions you have to make.

The first decision: Stocks versus bonds. There’s a fundamental trade-off between risk and reward.

The investment selections that are considered most likely to do a good job of staying ahead of inflation over long periods are the funds that invest in stocks. However, stocks have a lousy record of maintaining a steady value and are subject to frequent, sudden, and sometimes huge declines.

Short- to intermediate-term bonds, CDs stable value funds and money-market funds have been steadier in the short term, but haven’t been good at staying ahead of inflation over lengthy periods.

So one of your first tasks will be finding a balance between stability and growth potential that you believe you can stick to even when — and it is a matter of “when,” not “if” — the markets drop substantially.

From there, you decide what types of stocks and bonds you want to own. Then look for the best funds available to you that invest in those types of stocks and bonds. What is “best” is far beyond my space limitations here but when in doubt, defaulting to index funds that track the types of stocks and bonds you want is a good choice.

If your employer’s educational material isn’t doing it for you, you should consider getting some professional assistance. Ask people whose opinions you respect for suggestions and look at the listings of the Financial Planning Association and theNational Association of Personal Financial Advisors for possibilities.

Q. Hi Dan, I enjoy your articles on MarketWatch very much. The nearly universal advice given is to wait at least to Full Retirement Age and ideally to age 70, in order to maximize the Social Security payments, if possible. The advice for those already retired is often to tap into savings for money to live on in order to be able to delay Soc. Sec. and thus obtain the higher payments as well as providing a higher spousal benefit in the event of pre death.

I am 62 and retired now. My wife is 60. I made a spreadsheet. If the money that I did not have to spend was invested, the crossover date was pushed past age 100. To me, claiming early seems like the way to go but this is contrary to the most often given advice. What am I missing?

Another thing to consider is the solvency of Soc.Sec. According to the actuaries, So. Sec. will have depleted the trust fund in 2033. What do you think? Thank you — Drue

A. Drue, you have the basic trade-off correct. If you delay and one of you lives long enough, delaying pays off but you may have to tap your nest egg to fund the delay. It looks to me like you are getting crossover points at much later ages because you not assuming the same spending patterns in both of your spreadsheet scenarios.

To save you some time figuring on your own, I will refer you to Dr. Wade Pfau’s blog in which he calculates the real return on delaying Social Security. (Real return means after-inflation). If you live into your 80s, the real return is far better than what we expect from any other low risk investment. For instance, if one lives to age 84, the implied real return for delaying is 3.2% according to Dr. Pfau. That’s far better than what you can get from U.S. Government TIPS (Treasury inflation-protected securities) and comes without subjecting yourself to market risks. The main risk is longevity. You or your spouse has to live long enough to get the payoff.

Even if benefits are cut by the roughly 25% that is estimated should nothing be done about the Social Security system, the real rate of return still compares favorably to other low risk investment choices. Don’t get me wrong, solvency is a huge issue but it is not likely to go completely unaddressed. Andy Landis had a nice write up about it recently.

Q. Hello Dan. I just turned 62 last week, I have a 6-year-old boy and am a single dad. I am employed full time, in reasonably good health and have other assets. Should I apply for SS benefits now, is there an optimum age for this type of situation? I am well aware that at age 62 the benefit is reduced by some 25%, however the child benefit is 50% of my unreduced benefit. My PIA is $2,130. Thank you so much — Boris, Los Angeles

A. Young children are entitled to benefits once a parent files for retirement benefits, typically until the child reaches 18. Generally, if the child benefits are paid for a long enough period, it more than makes up for the reduction in the parent’s benefit for starting before Full Retirement Age. Don’t forget however, that before FRA, your benefits may be withheld depending on how much you earn from employment. Another thing to consider is suspending benefits at your FRA. The child’s benefit won’t be affected but your retirement benefit will earn delayed credits as long as they are suspended up to age 70.

Q. Hi! Now there are 403-B Roth accounts available at my workplace. Are RMDs (required minimal distributions) applicable to these accounts? Thanks, Dan, NYC

A. Yes, starting at age 70 ½ unless the plan allows you to wait until you retire from your current work. Also, you may be able to transfer your Roth 403(b) to a Roth IRA in your name which isn’t subject to RMDs.

Q. I will be 66 in August (my FRA ) and intend to apply for widower benefits on my deceased wife income. My understanding is that I should file a restricted application as a widower and then file on my own benefits (which are maximum) at age 70. My ex-wife ( divorced in 1997 after 23 years of marriage) is collecting disability but intends to file on my earning record when I reach FRA. Can she do this when I have a restricted application? My understanding is that I should not file and suspend (and then apply for widower benefits) as this won’t result in accrual of benefits (8% year) from age 66 to 70. Is this correct? Thanking you in advance. — R.L.

A. You can restrict your application to only survivor benefits and still earn delayed credits on your record until age 70. Neither you nor your ex needs to coordinate anything with each other. She can get benefits off your record regardless of what you do and vice versa. However, you wouldn’t be able to collect both a survivor benefit off your deceased spouse’s record and a divorce benefit off your ex at the same time. It is one or the other.

Q. My sister’s husband received SSI. He passed away in 2007 from traffic accident. My sister is incarcerated at Pennsylvania state prison. She was there at time of his death. Would she be eligible for any benefits when she is released. They were married for 22 years. Thank you — Sue

A. If she is at least age 60 or 50 and disabled, she should be eligible for a survivor benefit.

Dan Moisand’s comments are for informational purposes only and aren’t a substitute for personalized advice. Consult your adviser about what is best for you.

How high will the stock market go?

Dow, S&P close at new records; payrolls in focus

By Angela Moon

NEW YORK (Reuters) – The Dow and the S&P 500 ended at a new record on Thursday after the European Central Bank cut rates to record lows and pledged to do more if needed to fight off the risk of deflation.

Investors are now focused on Friday’s U.S. payrolls report for May. It is expected to show job growth slowed last month and the unemployment rate ticked up, but not by enough to upset the view that the economy is bouncing back. [ID:nL1N0OK1NR]

The number of Americans filing new claims for unemployment benefits rose last week, but the underlying trend continued to point to a firming labor market.

“The number of data we got this week so far on the labor market have not provided a clear direction for tomorrow’s numbers,” said Randy Frederick, managing director of trading and derivatives with the Schwab Center for Financial Research in Austin.

“So I wouldn’t be surprised if the market sold on the (payrolls) news tomorrow, but it’s likely to just be a knee-jerk reaction.”

The day’s gains were broad, with all ten S&P 500 sectors ending higher. Industrials rose 1.1 percent and financials 0.9 percent. The day’s weakest sector was telecom , considered a defensive group, which rose less than 0.1 percent.

The Dow Jones industrial average rose 98.58 points or 0.59 percent, to 16,836.11, the S&P 500 gained 12.58 points or 0.65 percent, to 1,940.46 and the Nasdaq Composite added 44.59 points or 1.05 percent, to 4,296.23.

With Thursday’s advance, the S&P has risen in nine of the past 11 sessions, up 3.6 percent over that period, and ended at a record high five times in the past six sessions.

The ECB cut the deposit rate to -0.10 percent and launched a series of measures to pump money into the sluggish euro zone economy. It stopped short of full-fledged quantitative easing (QE) – printing money to buy assets – but ECB President Mario Draghi said more action would come if necessary.

Also supporting the day’s gains, hedge fund manager David Tepper was reported by CNBC as saying the ECB partly “alleviated” his concerns about the market, after having said last month he was worried stock prices were stretched. Inc revived speculation about its next major product on Wednesday, using a mysterious YouTube video and website post to tease a June 18 “launch event” in Seattle to be hosted by CEO Jeff Bezos. The stock jumped 5.5 percent to $323.57.

Sprint has agreed to pay about $40 per share to buy T-Mobile US , marking further progress in the attempt to merge the third and fourth-biggest U.S. mobile network operators, a person familiar with the matter told Reuters on Wednesday.

Sprint shares fell 4 percent to $9.02 while T-Mobile US dropped 2.3 percent to $33.49.

Rite Aid shares slid 7.4 percent to $7.87 after it estimated first-quarter profit much below expectations.

Ciena Corp shares jumped 18.4 percent to $22.48 after the company posted earnings that beat expectations and gave a revenue outlook above forecasts.

Trading volume was around 5.91 billion shares on U.S. exchanges, slightly above last month’s average of 5.75 billion, according to data from BATS Global Markets.

(Reporting by Angela Moon; Editing by Nick Zieminski)

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What it costs you to use cash in America

Laurie Cipriano

KUSA – Cash is king in many ways. You can spend it almost anywhere.

Credit is also widely accepted. However, carrying a balance on your card can get some people into financial trouble.

But you might be surprised to find out that paying cash can also cost you in the end.

“The obvious problem with credit cards is overspending,” said Paul Golden with the National Endowment for Financial Education. “We’ve seen studies that actually show that people will spend 20 percent more if they’re using credit cards over cash.

“They [credit card companies] aggressively market their products,” said Bhaskar Chakravorti, an economist and senior associate dean of International Business and Finance at the Fletcher School at Tufts University. “It’s relatively easy for a consumer to sign up for a credit card. Because you get all these offers in the mail.”

With cash, there are no missed payments to worry about, no fees and no finance charges.

But if you use credit, and have a card that offers cash back, you can essentially lower the price of whatever you are buying from 1 to 5 percent.

“It could make sense to pay for all of your day-to-day spending through your credit card account,” Golden said.

It could make sense – only if the you spend what you know you can pay.

But most people don’t do that. Then the finance charges you get hit with eventually wipe out that cash back.

Then that $50 Christmas gift ends up costing a lot more than $50.

But if you control your spending and pay on-time, in full, every month – the card company is actually paying you to use their card.

“As long as you can do that you should come out on top every time,” Golden said.

Yes, we do realize that retailers must pay credit card companies a percentage of each transaction. But this story is about how you can make your credit cards put more money in your pocket.

Gas, groceries and other spending can add up quickly. In a few years, one credit card paid 9NEWS producer Laurie Cipriano more than $1,000.

That kind of cash back can make some believe credit is the new king.

But sometimes it’s just easy to go up to an ATM, slide in your card and get the cash you need. Then it’s impossible to go over budget.

Cipriano has never used an ATM because she refuses to pay any amount of money – to get access to her own money.

“You’ve got to be careful with ATM usage, particularly when you go to do a withdrawal,” Golden said. “You’ve got to be very mindful of fees.”

“If you go through an out of network ATM, you’re going to be paying a fee to take out your money. Your bank is going to be assessing a charge for that. And then the owner of the ATM that you do the transaction at is going to be assessing a charge to take out that money,” Golden said. “So a lot of people get very frustrated by having to pay fees to get access to their money.”

Of course, there is no ATM fee if you use your bank’s ATM.

But if you’re not near your bank’s ATM, how much will you spend on gas driving around to find an ATM that won’t charge you a fee? You might want to try to calculate that sometime.

Cash from a bank teller is free. Although relying on getting cash from a teller, does require a some planning.

The benefit is that these days, many banks don’t have long lines as more of us bank online. But some may want to use a debit card to access petty cash.

Then there are those who use check-cashing services to convert their paychecks into cash.

“That actually can be very costly. Some places will charge 10 percent of the check amount to actually cash that check and so that can be very expensive,” Golden said.”These are people who can least afford to actually pay those fees. But they are paying them because they don’t have access to traditional banking services, for whatever reason. So there’s a lot of frees that get involved to actually have access to cash.”

Giving up 10 percent of your hard-earned money is like getting a pay cut.

“American households on average pay about 40 billion dollars annually to access cash and use cash,” Chakravorti said. “The biggest source of that cost is the time spent to access cash. And on average an American consumer spends 28 minutes a month in getting cash from an ATM or waiting in line to get a check cashed. The other sources of the cost of cash to the American consumer are ATM fees and account fees.”

It may come as a surprise to some that it costs Americans billions to use cash. But, on the other hand, it comes as no surprise that not retiring your credit card balance every month can add up when those high interest payments accumulate month after month.

So, whether you choose to use cash or credit this holiday season, make sure you start with a good, solid budget.

Then there is the whole security risk associated with using cash.

“By just carrying cash around [is] where it becomes very dangerous,” Golden said. “Credit cards offer security.”

If you lose a wallet full of cash, or if it’s stolen – odds are that you will never see that cash again. It’s gone.

But if you lost a wallet full of credit cards, of if it’s stolen – all you have to do is call your credit card company and tell them your cards have been stolen. The credit card company can handle these types of situations, including canceling your credit cards. Some thieves have can even be caught if they try to use a credit card that has been canceled.

In addition, if you are not satisfied with a product or service, you cannot get your cash back. But if you used a credit card, you can dispute the charge with the card company. The credit card company will open an investigation to determine whether or not you deserve to get your money back. You don’t have that option with cash.



401k Rebalancing and Management

You’ll want to check up on your 401(k) to make sure that it’s performing according to your expectations. That means keeping an eye on your investments’ performances and potentially reassessing your asset allocation.

As market performance alters the values of your asset classes, you may find that your asset allocation no longer provides the balance of growth and return that you want. In that case, you may want to consider adjusting your holdings and rebalancing your portfolio.

Assets grow at different rates—which means that your portfolio might end up out of line with the allocation you have chosen. For example, some assets might recently have grown at a much faster rate. To compensate, you might reallocate some of the value of fast-growing assets into assets with slower recent growth, which may now be poised to pick up steam while recent high-performers slow down. Otherwise, you might end up with a portfolio that carries more risk and provides a smaller long-term return than you intended.

Although there’s no official timeline that determines when you should rebalance your portfolio, you may want to consider whether you need to rebalance once a year as part of an annual review of your 401(k) plan.

The Cost of Shifting

If you can access your account online, you may be able to shift your assets as often as you like. Keep in mind that constant shifting means potential sales charges, exchange fees, exit fees and back-end loads. The more often you trade, the more often you’ll owe. And, aside from the costs this might incur, switching out of equities when the market is doing poorly means locking in your loss—and unlike a taxable account, you can’t take a tax deduction on capital losses in a 401(k).

How to Rebalance

You can rebalance your portfolio in different ways to bring the way it is allocated back in line with the balance you intend it to have.

One rebalancing strategy is to redirect money to the lagging asset class until it returns to the percentage of your total portfolio that is held in your original allocation. Or, you could add new investments, and concentrate your contributions on that class.

Another strategy is to sell off a portion of your holdings within the asset class that is outperforming others. You may then reinvest the profits in the lagging asset class.

All three approaches work well, but some people are more comfortable with the first two alternatives than the third. They find it hard to sell off investments that are doing well in order to put money into those that aren’t. Remember, though, that if you invest in the lagging classes, you’ll be positioned to benefit if they turn around and begin to prosper again.

Let Woodlands Portfolio Management rebalance your 401k on a regular basis to keep you on track for retirement.

What Are Annuities?

Annuities can be used to help you increase your savings, protect what you’ve saved, or generate a stream of income.

Annuities generally fall into two categories: deferred and income. Each works differently and offers unique advantages.

Tax-deferred annuities: for retirement savings

Deferred annuities can be a good way to boost your retirement savings once you’ve made the maximum allowable contributions to your 401(k) or IRA. Like any tax-deferred investment, earnings compound over time, providing growth opportunities that taxable accounts lack.

Deferred annuities have no IRS contribution limits, so you can invest as much as you want for retirement. You can also use your savings to create a guaranteed stream of income for retirement. Depending on how annuities are funded, they may not have minimum required distributions (MRDs).

Bear in mind that withdrawals of taxable amounts from an annuity are subject to ordinary income tax, and, if taken before age 59½, may be subject to a 10% IRS penalty. Annuities also come with annual charges not found in mutual funds, which will affect your returns.

Deferred variable annuities have funds that may have the potential for investment growth. However, this involves some market risk and could result in losses if the value of the underlying investments falls. Variable annuities are usually appropriate for those with longer time horizons or those who are better able to handle market fluctuations.

Deferred fixed annuities offer a guaranteed rate of return for a number of years. Fixed deferred annuities may be more suitable for conservative investors or for those interested in protecting assets from market volatility. In this way, they’re similar to certificates of deposit (CDs).

However, deferred fixed annuities differ from CDs in that:

  • Annuities are not FDIC-insured.
  • Withdrawals from annuities prior to age 59½ may be subject to a 10% IRS penalty.
  • Deferred fixed annuities may offer more access to assets than a CD.
  • Annuity earnings compound on a tax-deferred basis.

Income annuities: for income in retirement

Income annuities may be appropriate for investors in or near retirement because they offer guaranteed income for life or a set period of time. They may allow you to be more aggressive with other investments in your portfolio, since they provide a lifetime income stream.

Keep in mind that you may have limited or no access to the assets used to purchase income annuities.

Immediate variable income annuities offer an immediate income stream with growth potential, which may help keep pace with inflation. This income is guaranteed3 for life, but the amount of each income payment is not guaranteed—the payment amount will vary based on the performance of the annuity’s underlying investments.

Fixed income annuities offer a guaranteed, predictable payment for life, or for a certain period of time. Your guaranteed income payment cannot be affected by market volatility, helping shield your retirement income from market risk.

A cost-of-living increase is available at an additional cost to help your buying power keep pace with inflation.

Deferred fixed income annuities are fixed income annuities that have a deferral period before income payments start. Because of the deferral period, you get a higher income payment amount than you would from a comparable immediate fixed income annuity with the same initial investment. The cost-of-living increase is also available at an additional cost for deferred fixed income annuities.

Living benefit annuities: for income generation and growth potential 

Many people nearing or in retirement are looking to establish an income stream for the long term but still want to participate in the market. Deferred variable annuities with guaranteed living benefits provide both guaranteed lifetime income and growth potential, and may offer access to assets as well.

These “hybrid” annuities can provide a lifetime guaranteed income stream for you (or you and your spouse). The income payments will not be reduced by poor market performance, even if the contract value declines as a result.

In fact, if the account’s investments perform well, the income payments may increase. Those increases are also protected from any later market declines.

Small Business Retirement Plans

Small-Business Retirement Plans

Get the advantages of retirement savings accounts with simplified plan management for small-business owners and self-employed individuals.


Your retirement savings made easier




This plan features tax deferral and tax-deductible employer contributions for self-employed individuals and small businesses.


This plan offers tax deferral plus pretax contributions for self-employed individuals and participants in small businesses with fewer than 100 employees.

401(k) for Small Businesses

Offer your employees a retirement plan with employee contributions, employer contributions, and an array of features.

Self-Employed 401(k)

Designed for self-employed

individuals or business owners

without employees.


Traditional IRA

With a Traditional IRA, you make contributions with money you may be able to deduct on your tax return. Any earnings potentially grow tax-deferred until you withdraw them in retirement.


Tax advantages

Contributions Tax-deductible contributions
Earnings Any earnings grow federal income tax-deferred.
Withdrawals 10% early withdrawal penalty may apply for other withdrawals taken prior to age 59½ if no exceptions apply.

Penalty-free withdrawals for first home purchase and certain college expenses

Minimum required distributions (MRDs) starting at age 70½

Account features

Eligibility Individuals less than 70½ years of age

Must have employment compensation

Maximum contribution 2012: $5,000 ($6,000 if age 50 or older)

2013: $5,500 ($6,500 if age 50 or older)

Investment options A wide range of mutual funds, stocks, bonds, ETFs


College 529 Plan

What Is a 529 Plan?



A 529 plan is a college savings plan sponsored by a state or state agency.

Savings can be used for tuition, books, and other education-related expenses at most accredited two- and four-year colleges and universities, U.S. vocational-technical schools, and eligible foreign institutions.

U.S. residents of any state, who are 18 years of age or older (or the age of majority in some states), may invest in most state plans.

Tax advantages

Any earnings grow federal income tax deferred and may also be eligible for state tax deductions.

Distributions for qualified higher education expenses are federal income tax free.

Investment options

The 529 plans managed by Fidelity offer a choice of investment options.

  • The Age-Based Strategy invests in portfolios that automatically become more conservative as the beneficiary nears college age. Fidelity offers three types: Fidelity Funds, Fidelity Index, or Multi-Firm.
  • The Custom Strategy allows you to allocate your assets among Static, Individual Fund, Age-Based, and Bank Deposit portfolios.

Learn more about investment options.

Who can open a 529 plan?

People of all income levels; there are no income restrictions.

Any U.S. resident who is 18 years or older, has a U.S. mailing and legal address, and a Social Security number or Tax ID

Who can be a beneficiary?

Anyone who has a Social Security number or Tax ID

A future college student of any age—the beneficiary can even be the same person who sets up the account.

Investing by grandparents and others

Grandparents or others who wish to contribute to a child’s college savings plan may want to open a 529 plan account.

The owner of the account, also known as the participant, controls the account, including investment decisions and the distribution of assets.

The account owner can take advantage of possible gift and estate tax benefits.

Grandparents, other relatives, or nonrelatives can contribute to an existing account as long as they have the account number.

Gift and estate planning benefits

Contribute up to $70,000 ($140,000 per married couple) per beneficiary in a single year without the money being subject to the federal gift tax.*

Once assets are in the account, they are generally considered to be no longer part of the account owner’s estate.

Professional money management

Investors in Fidelity-managed 529 plans may benefit from Fidelity’s professional money management.

Depending on your investment choice, 529 portfolio assets may be invested entirely in Fidelity mutual funds, an interest-bearing bank deposit portfolio, or in funds managed by several different companies, including Fidelity.

Control of assets and distributions

The account owner maintains ownership of the account until the money is withdrawn.

Withdrawals from a 529 account can be taken at any time for any reason. However, if the money is not used for qualified higher education expenses, any earnings are subject to federal income taxes at the recipient’s rate. A 10% federal penalty tax and possibly state or local tax are also added.

If the beneficiary receives a scholarship or attends a U.S. military academy, the scholarship amount or cost of attendance can be withdrawn from the 529 plan account and the 10% federal penalty tax does not apply. However, the earnings are subject to any other applicable taxes, including federal income tax.