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Institute's First Insights Report Outlines Asset Withdrawal Strategies,
Highlights Non-Conventional Approaches That Extend Spending Power
BOSTON, Sept. 20, 2006 -- Fidelity Investments today announced the creation of the Fidelity Research InstituteSM and reported on results of its first project focused on tax-wise retirement timing and asset withdrawal strategies which counter conventional wisdom and could extend the funding of a person's retirement by several years.
In its Insights Report titled, "Beyond Conventional Wisdom: New Strategies for Lifetime Income," the Institute suggested that many Americans may be limiting total lifetime income by drawing on Social Security at too early an age and could benefit from considering "bridge" strategies that would help assure higher incomes late in retirement. The report also outlined three unconventional withdrawal strategies for retirees that could help minimize the impact of taxes as income is drawn from a "mix" of taxable, tax-deferred and tax-exempt sources.
"Given the growing complexity of personal finance issues facing Americans every day, the single most important goal of our new Institute must be to provide information, education and offer practical solutions that empower individuals to make the right choices in trying to secure their financial futures," said Robert L. Reynolds, Fidelity vice chairman and chief operating officer.
Fidelity also announced it appointed Guy L. Patton executive director and W. Van Harlow, Ph.D., managing director of research for the Fidelity Research Institute. Patton, a 21-year Fidelity veteran, was president of Fidelity Human Resources Services Company, the firm's Human Resources/Benefits Outsourcing business. Harlow, who also is a Chartered Financial Analyst, joined the firm as a portfolio manager in 1991 and most recently served as president and chief investment officer of Fidelity Asset Management Services.
"The average American will need to weigh how to withdraw from nine different income sources in retirement, each having a unique tax implication," Harlow said. "Understanding when, and to what extent, to tap each income stream could determine whether a person has substantially more money to live on in retirement or whether they outlive their savings.
"This report - which counters some conventional wisdoms - shows that when individuals make smart decisions about timing Social Security and implement tax-wise withdrawal strategies from tax-deferred and tax-exempt accounts, they can add five or more years of income power to their total retirement assets," Harlow said.
Tax-Wise Withdrawal Strategies
The Institute's report outlines three common scenarios and offers information to enhance retirement income power.
One scenario describes how a middle class couple, who retired at 65, used an unconventional strategy to withdraw assets from retirement accounts to minimize taxation on Social Security income.
"Using a 'mix' strategy of withdrawing the right amount of assets from tax-deferred and tax-exempt accounts, our hypothetical couple could save more than $5,000 in annual taxes by keeping them below the exclusion ceiling," Harlow said.
In another example, the Institute's report detailed a strategy for an affluent couple who retired in their mid-50s to limit their tax bill as they "bridged" their income in retirement until Social Security and employer-provided pension income began at age 65.
Additionally, the Institute's report demonstrates the financial implications of taking Social Security too early.
"We know many people time their retirement to the date when Social Security payments become available," Harlow said. "Without a plan, this can be a costly mistake in the amount of benefits paid over time."
In an extreme example detailed in the report, if a person who lives to be 100 years old begins collecting Social Security at 70 years old versus at 62, the retiree would collect up to $280,000 more by waiting those eight years to take the first payment.
The Institute in Action
Patton said the Institute's new Insights Report reflects the kinds of issues it will take on.
"Our goal is to serve as a source of information, innovative thinking and solutions about issues facing Americans as they seek financial security," Patton said. "We will draw on intellectual resources within Fidelity, across the academic and policy-making communities and in partnership with other financial service providers."
The Institute's activities will include research, communications and intellectual outreach to academic experts, other research groups and policy think-tanks. It will issue research reports on emerging topical issues, host seminars within Fidelity and externally, meet regularly with other opinion-shaping institutions, and host an annual conference designed to showcase emerging ideas and solutions to pressing financial challenges.
Patton said the Institute will be governed by a nine-member Board of Directors comprising senior Fidelity executives, as well as an Advisory Board of 15-20 outside experts from various disciplines.
About Fidelity Research Institute
The Fidelity Research Institute is designed to advance knowledge of how proven investment theory and public policy can be put into practice to help Americans invest wisely to meet their financial needs. The Institute works with resources across Fidelity Investments as well as within the financial services industry and academia to accomplish its mission. Its reports are available at www.fidelityresearchinstitute.com.
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