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How Fidelity’s Planning & Guidance Tools Simplify Retirement Preparation to Help Americans Reach Financial Independence

Fidelity Planning And Guidance Tools Simplify Retirement Preparation

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Brittney Mayer
By: Brittney Mayer
Posted: June 1, 2017

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In a Nutshell: Although most Americans know the importance of planning for retirement, the nuances of how — and how much — to properly save can be challenging. To help make the planning process simpler, Fidelity Investments offers a suite of calculators and tools, including the easy-to-use Fidelity Retirement Score. By answering six basic questions, users can get a sense of where they stand on the path to reaching their retirement goals. They can also modify the four key aspects of their score to determine how their savings, time horizon, replacement rate, and asset allocation impact their bottom line. For a more comprehensive view, the Planning & Guidance Center breaks down your retirement plan, looking at the details of your accounts and providing a tailored investment strategy.

In the defined-benefit pension plan heyday, retirement planning could be quite simple for the middle-class worker: you paid into Social Security, your employer paid into your pension — and you retired in comfort.

Over the last few decades, however, many companies have switched to the more affordable defined-contribution plans, and Social Security has, well, seen better days. In reality, retirement planning for most people these days is in their own hands, and that can be a lot to handle.

“Retirement planning and financial planning can feel overwhelming. There’s so much to deal with, and many consumers become perplexed by the complexity of it all,” described Ken Hevert, Senior Vice President of Retirement at Fidelity Investments. “What we’re trying to do is help Americans prepare themselves for what’s become a big DIY project: building up enough of a nest egg that you can live a desirable lifestyle.”

To help people get a better grasp on their retirement planning, the team at Fidelity Investments developed a suite of easy-to-use calculators and tools. Their focus was on simplifying the retirement planning process while inspiring and motivating people to become better prepared for retirement.

Of course, you can’t decide on how to change your retirement habits — or if you even need to change them — unless you know how your current methods are faring. So Fidelity built the Fidelity Retirement Score, a six-question tool that provides a look at the state of your retirement savings.

“Most people would say saving for retirement is among their top financial goals, if not their number one financial goal,” said Ken. “But it’s very difficult for people to figure out how they’re doing against that goal. The Fidelity Retirement Score is primarily designed to quickly and simply answer the number one question we get from customers, which is, ‘Where do I stand?'”

Use the Fidelity Retirement Score℠ to See Where You Stand

Despite the articles commonly spouting one-size-fits-all financial goals for a happy retirement, the actual dollar amount you’ll need will depend on a variety of personal factors (and a good deal of math), which are taken into account by Fidelity’s tool.

“The Fidelity Retirement Score really is a personalized score. It is very much focused on the individual and their answers to some basic questions,” Ken explained. “It’s also based on Fidelity’s own R&D around simple things like, how much of my current income should I plan to be able to replace in the future.”

Screenshot of Retirement Score Question 1

Users can get their personalized Retirement Score by answering six simple questions.

By answering six simple questions, users can get their Retirement Score, which is calculated by dividing the monthly income they are expected to generate at retirement by the amount Fidelity has determined they are likely to actually need. The tool also takes into account basic Social Security income benefits.

Retirement Scores range up to 150, with those whose score is 95 or above considered to be “On Track.” Anyone with a score of 81 to 95 is “Good,” scores 65 to 80 are “Fair,” and those whose scores are 65 or below fall into the “Needs Attention” category.

“Whatever indicator you use for your retirement readiness — whether it’s a number or a color or a smiley face — it all comes down to the ratio of your savings and your future needs,” said Ken. Once scores are produced, the tool allows users to adjust the four primary metrics — which Fidelity calls “accelerators” — used to determine their future savings and needs. This is designed to show consumers that simple changes in a few key areas can have big impacts.

Screenshot of Fidelity Retirement Score

The Fidelity Retirement Score shows the ratio of the retirement income you’re likely to have with the income you’re likely to need.

“Really, the most important part is to demonstrate that there are a handful of levers, or accelerators, that you can use to improve your situation,” said Ken. “It’s all based on how much you’re saving, your time horizon — when you’re going to retire — how you’re investing, and the kind of lifestyle you anticipate having.”

Optimize Your Savings Rate

Modern Americans are big fans of instant gratification; we like fast food, one-day delivery, and instant downloads. What we don’t like, what instant-gratification-itis can make difficult, is saving, especially for long-term goals like retirement. Unfortunately, many of us will be dependent upon our own retirement savings to achieve the quality of life we want in retirement.

“You can’t expect to go from fair to good or in great shape by not saving at the right rate,” Ken said. “Ultimately, it comes down to that ratio of what you’ll have, versus what you’ll need. Someone who has done a great job saving, and plans to continue saving 10% to 15% of their earnings, will generally score well.”

Screenshot of Fidelity Retirement Score with Savings Adjusted

Changing how much you save every month can have a big impact in your retirement bottom line.

For example, consider a hypothetical 45-year-old man, named Bob, who wants to retire at 65. Bob makes $35,000 a year, saves $400 a month, and currently has $35,000 in retirement savings. He would receive a Retirement Score of 59, firmly in the red “Needs Attention” category. Without changing any of his other behaviors, Bob can reach “Good” status by increasing his monthly savings to $900 a month.

Analyze Your Time Horizon

The amount of time you have before retirement is called your time horizon. For the average American, that time horizon ends at 63, just one year past the age at which a portion of your Social Security benefits become available. But just because you can doesn’t always mean you should — like when waiting a few years could mean a drastic increase in quality of life.

“Time is one of the most important elements to wealth building,” said Ken. “If you’re not on track to meet your retirement objectives, a great approach is to think about extending your time horizon.”

Screenshot of Fidelity Retirement Score with Retirement Age Adjusted

Extending your time horizon by retiring later can make the difference between a comfortable retirement and falling short.

For hypothetical Bob, adding just two years onto his time horizon puts his new Retirement Score into the “Fair” category. Furthermore, if Bob were to extend his time horizon such that he retired at 70, he would net a “Good” score of 81 — all without having to change how much he saves every month.

Consider Your Replacement Rate

Half of the ratio used to determine your Retirement Score is how much you’re saving, but the other half is how much you’re going to need. The simplest way to think about your future income needs is to establish your replacement rate. This means determining how much of your current job earnings you’ll need to replace with retirement income.

“It’s a matter of asking, do I want to replace 100% of what I’m making now? Or, do I think I’m ready for a simpler lifestyle, so I only need 75% of my current earnings?” explained Ken. “That target is really important for people, but it’s a tough one for them to really get into. That’s also where we help individuals get on the right track.”

Screenshot of Fidelity Retirement Score with Spending Adjusted

By scaling back future expenses, you can get more out of your potential retirement savings.

The tool posess the question based on whether the user will spend the same, less, or more than their current income. For Bob, changing nothing but his expected standard of living would increase his Retirement Score by a full 10 points.

Explore Your Asset Allocation

The final aspect taken into consideration when determining your Retirement Score is your general asset allocation. The tool allows users to select from a range of broad investing style choices, from one representing 100% allocation in Short-Term savings, through the spectrum to the Most Aggressive choice of 100% stock allocation.

“How you are invested and what types of accounts you are using also have an impact,” said Ken. “Strategies like being able to grow your money on a compound basis and not paying taxes on your investments while they build have proven to work well.”

Screenshot of Fidelity Retirement Score with Investing Adjusted

How you invest, be it conservatively, highly aggressive, or somewhere in between, will have an impact on your overall retirement savings.

In Bob’s case, his Balanced investing style isn’t doing him much harm. Adopting a Moderate with Income style would provide a mild boost in income, but no improvement to his Score. If Bob were to cash out his investments and have everything in Short Term, however, he would lose four points on his Retirement Score.

Build a Comprehensive Plan to Maximize Your Nest Egg

Of course, while the Fidelity Retirement Score is a wonderful tool to get an idea of how your current savings strategies are performing, it’s only the start of getting your retirement planning in hand. While the Score can give you an idea of how you’re doing, it doesn’t represent the whole story.

“The score’s just an indicator,” Ken described. “Once you know where you stand, the next best step is to go through a much more comprehensive retirement planning exercise.”

Screenshot of Fidelity Planning & Guidance Center

The Fidelity Planning & Guidance Center allows users to look at their retirement plan in detail, as well as plan for other major events.

To help with that, Fidelity’s Planning and Guidance Center, has a more comprehensive tool that breaks down your specific accounts and goals to deliver an in-depth look at your investment strategy. Those who aren’t Fidelity account holders can still take advantage of the tool by signing up as a guest.

“In the Planning and Guidance Center tool, we examine much more carefully how much you’ve saved. We look at what kind of accounts you’re saving in,” said Ken. “We analyze your asset allocation, what your savings rate is, and so on.”

In the more detailed analysis, Fidelity’s tool will make distinctions between accounts, such as 401K saving versus a Roth IRA, as well as being able to take into consideration additional accounts that may pay out at varying times. The tool also allows users to add a partner to the calculations.

Screenshot of Planning & Guidance Score

Users can see a more detailed version of their Retirement Score in the Planning & Guidance Center.

Users can edit each factor of their portfolio to model how changes will impact their retirement goals. They can even add additional goals, such as purchasing a home, and see how it impacts their overall plans, as well as get a tailored investment strategy based on their preferences.

“Ultimately we help work out a savings plan that may allow an individual to accelerate their savings to provide them with the progress they need for the future,” Ken explained. “For example, an individual may have done a good job of saving, and they plan on saving more, but all their money is sitting in cash,” said Ken. “So one of the next steps would be to take a look at their asset allocation.”

Retire Comfortably with Help from Fidelity

Regardless of whether you are self-funding your own IRA, still rocking a defined-benefit pension plan, or simply socking away singles in the sofa, properly planning for retirement is a must for most Americans. Those who need a hand determining how to most effectively reach their retirement goals can start by finding out their Fidelity Retirement Score to see where they stand.

Fidelity Investments Logo

According to Ken, most people feel a sense of relief once they’ve used the tools to get a view of not just how their current strategies are likely to pay off, but how they may be able to make easy adjustments to maximize them.

“A lot of people kind of hold their breath and think, ‘Do I really want to know this?’ Then, people can exhale once they have a sense of where they stand, whether it’s red or green,” said Ken. “Part of that is knowing that they don’t actually have to change everything they’ve been doing; it’s just a matter of modifying or adjusting one or two of those accelerators to make additional progress on the goals they’ve set.”