About the Numbers

Accounts where future contributions are included:

Optional Account to be included upon your selection, if available to you:

• Defined Benefit Pension Plan Payments (Joint and Survivor, and Periodic)

Accounts excluded from the illustration experience:

For Tax Exempt participants who may have balances with other providers, only the Fidelity record kept portion is included in these calculations. 

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Employer contributions

In some cases the plan sponsor has also provided plan rule information including matching and other employer contributions, and these will be included in the Illustration's calculations. For some plans, the employer contribution rules may be based on attributes like age, tenure, vesting, income, etc. The calculations may not appropriately reflect these more complex employer contribution rules. 

The employer contributions, when available, would be included for estimating the hypothetical balance and hypothetical income. However, employer contribution amounts are not included in the contribution rate or amount displayed in the illustration. That number, as well as the suggested rate or amount shown only represents your estimated contribution.

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Modeling the contributions

The Illustration assumes that your contributions will grow at the same rate as the Illustration assumes that your income will grow, which translates to an inflation-adjusted wage growth rate of 1.5%. The estimated future contributions along with your current account balances are included for estimating the hypothetical balance for the given age and income in retirement. The Illustration does not apply Internal Revenue Code (IRC) limits for employee or employer contributions. It performs the hypothetical calculations for the selected inputs even if the contributions exceed the IRC limits. The Illustration also does not apply any plan specific limits on the contribution amounts. When considering your retirement plan strategy and, more specifically, when deciding how much to contribute to a retirement account, consider plan rules, IRC limits, your individual situation, and any other future sources of income. Please refer to the IRS website for details on IRC limits (https://www.irs.gov/Retirement- Plans/Plan-Participant,-Employee/Retirement-Topics-401k-and-Profit-Sharing-Plan-Contribution-Limits) and please contact your plan sponsor for details on plan limits. 

When expressed as a deferral rate or a percentage of income, the contributions are based upon the salary that you provide or verify. This value would not include any bonus or commissions unless you manually add it to the salary input. The Illustration is unable to confirm for you any matching or other employer contributions based on this additional compensation (bonus and commission). Hence the illustration may overstate or understate the overall contributions to the plan.

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Your Milestones

This view of the Illustration offers some hypothetical milestones and the impact of estimated contributions towards a hypothetical balance at a given age. 

This view may not be available to some users. 

The Balance Today number indicates the sum of overall current balances of the various accounts that are included in the Illustration experience. Please see the Accounts section above for more details on which accounts are included and can be selected to include. The Hypothetical Balance at the given age provides an estimate of your future balance based on your current balances and estimated future contributions. As the name suggests, the Hypothetical Balance is completely hypothetical in nature and does not take into account your actual asset allocation. Instead, it uses a constant 3.5% rate of return in real terms for hypothetically growing the amounts till the given age. This growth rate has no relation to any actual growth rate considerations in your plan (e.g. the interest rate or interest credit in a cash balance pension plan). Please see the Contributions section above for more on estimated future contributions.

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Milestones

Fidelity has developed a series of savings factors and salary multipliers as milestones in order to help customers see how their current retirement savings might be compared with potential income needs in retirement. Fidelity's savings factors consider a user?s current age, retirement age, and expected lifestyle in retirement. They are calculated for an assumed 1.5% constant real wage growth to potentially support a range of income replacement targets (assuming no pension income flows in retirement) through age 93. The milestones are presented as multiples of income that an individual should try to have saved by a given age. For example, you should try to have saved 1x your current income by age 30.

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Milestone ages

In addition to the retirement milestone, milestones appear at ages 30, 35, 40, 45, 50, 55, and 60 years. Based on your age today, you may be presented with the nearest milestone that is at least two years from your current age. For example, if you are 32 years old now, you may see the milestone and Hypothetical Balance at age 35. However, if you are 34, you may see the milestone and corresponding Hypothetical Balance at age 40 instead of 35. To provide the next milestone target, The Illustration applies the 1.5% wage growth rate to your current income and multiplies that salary estimate to the savings factor corresponding to the next milestone age. For example, if you are currently a 32-year-old earning $50,000 per year and planning for the retirement age of 67, your savings factor is 2x your income at age 35. The Illustration will then apply the 1.5% real wage growth to your current income to estimate an approximate income of $52,000 per year at age 35. The next step would be to multiply this income estimate by the 2x savings factor to calculate the suggested milestone of $104,000 in retirement savings.

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Savings factor methodology

The savings factor target for the base case is estimated to be around 10x annual preretirement income. For the base case assumption of retirement at age 67 and the objective to maintain a lifestyle similar to before retirement, the income replacement target is 45% of annual preretirement income in pretax terms. The income replacement target is based on the Consumer Expenditure Survey 2011 (BLS), the Statistics of Income 2011 Tax Stat, IRS 2014 tax brackets, and Social Security Benefit Calculators. The 45% income replacement target assumes no pension income flows in retirement, and a retirement and Social Security claiming age of 67, which is the full Social Security benefit age for those born in 1960 or later. For an earlier retirement and Social Security claiming age, this target goes up due to lower Social Security retirement benefits. Similarly, the target goes down for a later retirement age. For a retirement age of 65, this target is defined as 50% of preretirement annual income and for a retirement age of 70, this target is defined as 40% of preretirement income. The 45% income replacement target (excluding Social Security and assuming no pension income) from retirement savings was found to be fairly consistent across a salary range of $50,000 to $300,000. The target may have limited applicability if your income is outside that range. As stated above, the final income multiplier is calculated to be 10x your preretirement income and assumes a retirement age of 67. However, for an earlier retirement age, this target goes up due to lower Social Security retirement benefits and a longer retirement horizon. Similarly, the target goes down for a later retirement age. For a retirement age of 65, this target is defined as 12x and for a retirement age of 70, this target is defined as 8x. The savings factor targets are developed from simulations based on historical market data. These simulations take into account the volatility that a variety of asset allocations might experience under different market conditions. Given the above assumptions for retirement age, planning age, wage growth, and income replacement targets, the results were successful in 9 out of 10 hypothetical market conditions where the average equity allocation over the investment horizon was more than 50% for the hypothetical portfolio.

If a defined benefit pension plan is available and selected to be included in the Illustration, the income replacement target then required adjustment, as it excluded pension incomes. The replacement target is adjusted based on pension income replacement rate. This rate is calculated with estimated annual pre-tax pension income and your pre-retirement income. If you choose to include your defined benefit pension plan, the income replacement target will be reduced proportionately by your estimated pension income replacement targets and are similarly adjusted. For example, if the income replacement from a pension is estimated 22.5%, the original 45% target would be reduced in half to 22.5% and the 10x savings factor milestone would be adjusted to 5x your pre-retirement income. 

Pension estimation process is described in the INCOME section below.

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Hypothetical Retirement Income

This view of the Illustration offers some hypothetical scenarios to evaluate the retirement income impact of some important factors like contributions, retirement age and social security.

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Income sources in retirement or "INCOME"

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Income from retirement savings

The Illustration uses a Monte Carlo simulation-based approach (see below for a description of Monte Carlo simulations) to estimate potential growth of account balances through retirement and then converts those balances into potential monthly withdrawal amounts over the timeframe specified. The projection of your actual current balance disregards your actual current asset allocation for all your accounts and instead assumes a balanced asset allocation for all your accounts. A balanced asset allocation is defined as 50% stock, 40% bonds and 10% short term allocations. This Income estimate depends on number of assumptions including current balances, estimated future contributions, work and retirement horizons, portfolio growth and market scenarios. For each scenario, a monthly income estimate is calculated such that the retirement savings are fully depleted by the end of retirement horizon at the Planning Age of 93. The Illustration assumes a "conservative" market condition which implies that the estimate will be achieved in 9 out 10 hypothetical market conditions. Please see the below section on "Monte Carlo simulations" and "Asset allocation" for more details on the simulation methodology.

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Social Security

The Social Security retirement benefit estimated by the Illustration is based on your date of birth, your salary information and the retirement age you enter. The estimate is not affected by account balances, contribution rates, or asset mix; market conditions do not affect the calculation of potential Social Security income. The Illustration assumes that you claim your Social Security retirement benefits as soon as you retire. It currently does not allow the user to model a Social Security income that begins before or after retirement. For this reason, the Illustration only allows the user to model a retirement age between 62 and 70 as the old age, survivor, and disability insurance (OASDI) program retirement benefits' commencement age may be no earlier than age 62 and no later than age 70.

Social Security retirement benefits are adjusted by the application of a Cost of Living Adjustment (COLA) increase defined in a federal legislative enactment. The Illustration assumes increasing future Social Security retirement benefits using the Illustration's default inflation rate, which is periodically updated. When the retirement age you choose is the same as the Full Retirement Age, as defined by the Social Security Administration (SSA), a default benefit amount is retrieved from a table provided annually by Fidelity Actuarial Services. If the defined retirement age you enter is younger than the Full Retirement Age as defined by the SSA, the Full Retirement Benefit is adjusted down to acknowledge an early benefit start date. Benefits can start as early as age 62 for individuals with Full Retirement Ages of 65, 66, or 67. The further a benefit start date is from the Full Retirement Age, the greater the reduction will be; the reduction currently can reach a maximum of approximately 30%.

If the retirement age you select is older than the Full Retirement Age as defined by the SSA, the Full Retirement Benefit is adjusted upward to acknowledge a delayed benefit start date. Benefits can be deferred up to age 70 for individuals with Full Retirement Ages of 65, 66, or 67. The later a benefit start date is from the Full Retirement Age, the greater the premium is; the deferral can result in a premium currently increasing a maximum of approximately 32%. Deferring benefits beyond age 70, however, will not increase the benefit any more.

For more information, visit the Social Security Administration website at http://ssa.gov. Please consult your tax advisor if you have any questions regarding the taxability of Social Security income. See also "Tax calculations and assumptions" for additional details on material tax assumptions related to Social Security income and how the Illustration calculates estimated income taxes on Social Security income.

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Defined Benefit Pension Income

The defined benefit pension income is not included as an income source by default. If you have a defined benefit pension and would like to include this in the Illustration, you have the option to do so. Defined benefit pension income estimated by the Illustration is based on your pension benefits and the retirement age you enter. The estimate is not affected by asset mix; and market conditions do not affect the estimated pension income. There are two types of pension plan the Illustration includes - traditional plan and cash balance plan. Traditional pension plan is shown as the accrued benefit (AB), which is the payable amount at the plan defined normal retirement age. It assumes that you do not continue to work and accrue more benefits. Therefore, no future growth is included and this the the amount you will be able to claim at the normal retirement age defined by your employer. As the AB amount is what you claim at retirement age defined by your employer, a future date, it requires conversation to current value, which represents value of the benefit amount at today's term. The Illustration assumes a hypothetical 2.5% constant inflation rate for the amount conversion. If you have an accrued benefit that is payable of $500 a month starting at age 65, your specified retirement age, and you are currently 30, the $500 will be discounted by 2.5% for 35 years. If you have multiple traditional defined benefit pensions, the Illustration discounts each individually according to each plan retirement age and aggregated the current value of each plan. The cash balance plans are generally shown as a balance as of today. Therefore, it does not require present value conversions. Defined benefit pension income is subject to income taxes. See "Tax calculations and assumptions" for details on material tax assumptions related to defined benefit pension income and how the Illustration calculates estimated income taxes on this pension income.

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Other

The Illustration does not model the IRC or plan rules for qualified retirement accounts including any penalties or minimum required distribution (MRD).  The Illustration does not include any annuity incomes or any part-time work or other incomes in retirement. The only three sources of income in retirement are assumed to be Social Security income, Defined Benefits Pension Income when applicable and the income from retirement savings, excluding any annuities. These income sources are cumulatively presented as the "INCOME" number.

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Retirement income goal or "EXPENSES"

Your expenses in retirement play an important role in the analysis of the Illustration. The Illustration's analysis is based primarily on your ability to cover your hypothetical expense amount throughout your plan's time horizon. The illustration estimates the expenses in the first year of retirement and also assumes that these expenses change only for cost-of-living adjustments until the planning age. The estimation of expenses is essentially a two-step process: Step 1: Determine an expense amount which replaces 85% of the user's estimated pre-retirement compensation. We take your current income and grow it at a rate of 1.5% over inflation from now until retirement. The value at retirement is multiplied by 85% and taxes are subtracted. This value is reverted to today's dollars and divided by 12 to get the monthly value of estimated expenses at retirement. 

Step 2: Apply an adjustment factor to the value calculated in Step 1. Adjustment factors are based on income, and use an assumption that spending patterns in retirement vary by pre-retirement income. For example, users with significantly higher pre-retirement income may not need to replace 85% of their income, and in this case the adjustment factor would reduce their target to a rate below 85%. These adjustments are based on the Consumer Expenditure Survey 2011 (BLS), the Statistics of Income 2011 Tax Stat, IRS 2014 tax brackets, and Social Security Benefit Calculators. This estimate is then presented to the user in monthly terms as "EXPENSES". This retirement income goal estimate is based on income replacement approach which does not provide estimates for individual expense categories. The income replacement estimates are based on overall consumption data from the Consumer Expenditure Survey which includes health care spending along with other important expenses such as food, housing, and transportation.

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"INCOME GAP" or "INCOME SURPLUS"

As discussed above, the retirement income estimate is based on the estimates for social security income, withdrawals from retirement savings and defined benefits plan, if available and selected. Separately, the retirement income goal amount is estimated based on pre-retirement income as discussed above. The difference between these retirement income and the goal amount estimates is presented as an income gap or surplus. If the goal amount exceeds the income estimate, you will see the difference as "INCOME GAP" and if the income estimate exceeds the goal amount, you will see the difference as "INCOME SURPLUS".

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Suggested Contribution

You may be presented with a Suggested Contribution amount. Selecting this suggested contribution as the Contribution would closely match your hypothetical retirement income to the goal estimate. However, please remember that this estimate is completely hypothetical and does not include any employer contributions. At Fidelity, we believe that a suggested minimum contribution amount is 10-15% (including company contributions). Additionally, it may not consider all your contribution and retirement savings information amongst other factors. The Income estimate disregards your actual asset allocation and assumes a balanced asset allocation and a conservative market condition. Please see the below section on "Monte Carlo simulations" and "Asset allocation" for more details on the simulation methodology.

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Other Important Information

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Monte Carlo simulations

The Illustration uses a constant 3.5% real rate of return for the Hypothetical Balance calculation at the given age (if displayed on screen). For Hypothetical Income and Ideal Suggested Contribution calculations, the Illustration uses Monte Carlo simulation-based approach to estimate potential growth of your account balances assuming a balanced asset allocation through retirement and then converts those balances into potential monthly withdrawal amounts over the time frame specified, relying on certain market performance assumptions. The analysis is based on historical market data to estimate a range of potential outcomes for various hypothetical retirement income portfolios under different market conditions. Monte Carlo simulations are mathematical methods used to estimate the likelihood of a particular outcome based on market performance historical analysis. The Illustration uses information derived from the Monte Carlo approach, in which markets are assumed to change. While over very long periods of time, markets have averages, it is often the case that the market performs both above and below these averages. The Monte Carlo simulations are designed to reflect this historical market volatility. The Monte Carlo simulations are based on a selected asset allocation for a hypothetical retirement portfolio. The Illustration disregards your actual asset allocation and uses a balanced asset allocation as a default. Then, using the expected returns for each asset class (i.e., stocks, bonds, and short-term investments) and their historical correlations and volatilities derived from running 250 hypothetical financial market return scenarios or simulations, the Illustration estimates the performance of that asset mix to create a range of potential returns. The expected returns for the asset classes are based on historical returns. Finally, the Illustration presents results of the analysis based on how that asset mix may have performed in a certain percentage of the simulated market scenarios. These percentages are called "confidence levels." For example, the default confidence level used is 90%, which we consider "conservative" market performance. This means that in 90% of the historical market scenarios run, the selected asset mix performed at least as well as the results shown. Conversely, in only 10% of the historical market scenarios run, a target asset mix similar to the current asset mix of your selected account or of another target asset mix that you select, as appropriate, failed to reach the results shown. 

The Illustration uses this 90% figure so as to err on the side of a more conservative estimation of future market performance. We recommend evaluating retirement income estimates for multiple market scenarios.

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Assumptions in Monte Carlo

Random variables, representing asset class returns, are drawn from a specific statistical distribution. The time increment used in the Monte Carlo simulations is one year. Annual randomly generated returns are required to simulate the mean, standard deviation, distribution, and correlated behavior of the observed historical asset class. Annual returns assume the reinvestment of interest income and dividends, no transaction costs, no management or servicing fees (except for a variable annuity fee), and the rebalancing of the portfolio every year. The calculation does not include annual returns of individual securities you hold. Instead, the analysis is performed on asset classes, not individual securities. All investments within an asset class are treated the same for historical performance purposes subject to the limitations described above. It is not possible to invest directly in an index. All indexes include reinvestment of dividends and interest income.

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Limitations of historical performance analysis

Historical performance analysis figures do not represent the actual or hypothetical performance of your holdings. They are based on the mix of asset classes which may be similar to those currently in your accounts. This assumes broad diversification within each asset class as represented by certain indexes. It makes no attempt to model one's actual holdings. Thus, results may be quite skewed if someone has a considerable amount of idiosyncratic security-specific risk

Although past performance does not guarantee future results, it may be useful in comparing alternate investment strategies over the long term. Performance returns for actual investments will generally be reduced by fees and expenses not reflected in these hypothetical illustrations. Indexes are unmanaged, and it is not possible to invest directly in an index.

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Asset allocation

While we use a constant real return of 3.5% for the Hypothetical (if displayed on screen) and we use an assumed balanced asset allocation for the hypothetical Income numbers we calculate, it is important to know that different asset classes tend to offer different balances of risk and reward. Generally, the greater the potential for long-term returns, the greater the risk of volatility, especially over the short term. In order to minimize the risk you assume in seeking high returns, it is critical that your portfolio provides an appropriate mix of investments. A more aggressive portfolio (one with a higher stock allocation) could represent higher risk, especially in the short term, but higher potential long-term returns. Conversely, a less aggressive portfolio (with a lower allocation to stock and higher allocation to bonds or short-term investments) could represent less short-term risk, but potentially lower long-term returns. Except the Hypothetical Balance projection which uses the constant 3.5% rate of return, the Illustration assumes a balanced asset allocation for all asset growth projections which is defined as 50% stock, 40% bonds, and 10% short-term allocations.

You should take into consideration any unique circumstances or need for funds that might apply to your situation when deciding on an appropriate investment strategy.

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Tax calculations and assumptions

The Illustration makes certain tax assumptions based on the type of account or other information entered. Specifically, the Illustration assumes a 25% combined federal, state, and local Effective Tax Rate. The Effective Tax Rate is the average rate at which earned income is taxed. The Illustration does not separately consider deductions, exemptions, AMT, Medicare surtax, payroll taxes, and estate taxes. The Effective Tax Rate is used for determining the after-tax value of account balances and income as all projections are done on a pre-tax basis. All income and account values will be displayed to the user on an after-tax basis. This tax rate is also used to calculate the after-tax value of the Social Security income estimates presented. Social Security retirement benefits could be completely tax-free for some people, while for others up to 85% of this income could be taxable, depending on their other income sources. The Illustration assumes that 70% of your Social Security income is taxable. Defined benefit pension benefits are assumed to be 100% taxable. 

The Illustration assumes that assets are held on a tax-deferred basis and that the entire amount, including Roth amounts, will be subject to ordinary income taxation upon distribution. As a result, the Illustration may understate, or in some cases, overstate estimated retirement income.

The Illustration does not calculate actual tax liabilities or benefits and, therefore, should not be used for tax-planning or tax-reporting purposes. For tax reporting, you should rely on the official tax forms mailed to you each year and your tax advisor's calculations for tax-reporting purposes. Consult your tax advisor regarding questions specific to your tax situation.

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Dollar values: future vs. current

Future dollars and current dollars (also known as "today's dollars") are different ways of viewing values over time. Future dollar values illustrate how a current expense would grow over time taking into account the effects of projected inflation. For example, if something costs $1,000 today, in 10 years the future dollar value is $1,280 ($1,000 plus 10 years of assumed inflation growth at 2.50%). This method is used to estimate the effects of inflation. While both ways are correct means of presenting values, the Illustration uses current dollars or "today?s dollars" for presenting all balances and cash flows. Using current dollars may sometimes provide a better understanding of estimated expenses and income needs in the distant future.

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