PLANADVISER - September/October 2017 - 17

from earlier this year, we know that good
savings behaviors and investment performance
can impact retirement outcomes.
Assuming a typical return environment,
a participant saving 7% over their lifetime
can replace a minimum of 35% of
their income in retirement, while someone
saving 15% can replace a minimum
of 75%. That's a big difference, and the
gap widens if the investment manager
delivers added value through investment
performance. As a common default
investment for many participants, target
date strategies are critical to DC plans.
And advisors working with plan sponsors
have an opportunity to help them
evaluate and select the right strategy for
their plans. Selecting a target date provider
who focuses on replacing income in
retirement and who has deep investment
capabilities, robust risk management
tools, and a flexible investment process
is critical in helping participants achieve
their retirement savings goal.
PA: How does Fidelity design its target
date strategies to help address the challenges
that participants face in savings
and investing?
Dierdorf: Fidelity's goal is to help participants
maintain their standard of living
in retirement by balancing risk and
reward throughout their lifetimes. We
take a lifetime approach when designing
our target date strategies, meaning
that we continue to adjust the asset
allocation up to and after the expected
retirement date (known as a 'Through'
glide path).
Fidelity's glide path is
informed by our research on capital
markets, strategic asset allocation, and
For investment professional use only.
Unless otherwise disclosed to you, in providing this information,
Fidelity is not undertaking to provide impartial investment advice, or
to give advice in a fiduciary capacity, in connection with any investment
or transaction described herein. Fiduciaries are solely responsible for
exercising independent judgment in evaluating any transaction(s) and
are assumed to be capable of evaluating investment risks independently,
both in general and with regard to particular transactions and investment
strategies. Fidelity has a financial interest in any transaction(s) that
fiduciaries, and if applicable, their clients, may enter into involving
Fidelity's products or services.
IMPORTANT: All data and information are from the following sources
unless otherwise specified:
Survey
summary: The eRewards panel from Research Now, an
independent market research company, conducted an online survey of
1,106 plan sponsors on behalf of Fidelity during February and March
2017. Respondents were identified as the primary person responsible for
managing their organization's 401(k) plan (with at least 25 participants
and $10 million in plan assets), and the survey focused on those plan
sponsors (890, or approximately 80%) using the services of a financial
advisor or plan consultant. Fidelity Investments was not identified as the
survey sponsor. The experiences of the plan sponsors who responded to
the survey may not be representative of those other plan sponsors who use
the services of an advisor.
Target date funds are designed for investors expecting to retire around the
year indicated in each fund's name. The funds are managed to gradually
become more conservative over time as they approach the target date. The
investment risk of each target date fund changes over time as the fund's
asset allocation changes. They are subject to the volatility of the financial
markets, including that of equity and fixed income investments in the
U.S. and abroad, and may be subject to risks associated with investing
in high-yield, small-cap, and foreign securities. Principal invested is not
guaranteed at any time, including at or after the funds' target dates.
Target date portfolios are designed to help achieve the retirement
objectives of a large percentage of individuals, but the stated objectives
may not be entirely applicable to all investors due to varying individual
circumstances, including retirement savings plan contribution limitations.
1
Retirement
Income Methodology: We simulated 100,000 different
performance paths that a target date strategy could take over an investor's
lifetime (ages 25 through 93). using stochastic, or randomly generated,
simulations. Using Fidelity's strategic glide path as a proxy for a target
date fund's glide path (i.e., time-varying strategic asset allocation), we
simulated the returns for U.S. stocks, foreign stocks, U.S. investmentgrade
bonds, and short-term investments, based upon historical index
performance for each asset class, to evaluate the potential range of
outcomes for our three saver profiles. Saver profiles: 3% saver assumes
auto-enrollment at 3% and no increase thereafter, 7% saver assumes
enrollment at 7% with no increase thereafter, 15% saver assumes enrolled
at 6% with a 1% auto-increase thereafter up to 18%. To measure the
influence of investment performance on our three retirement saver profiles,
we evaluated the potential outcomes in three different hypothetical return
environments over the approximately 70-year planning horizon (ages
25 to 93). We divided 100,000 different market simulations into three
distinct categories based on their average annual inflation-adjusted return
and labeled them as follows: " Poor " return environment: 3% inflationadjusted
return (the median return of the bottom third of all simulated
returns); " Typical " return environment: 5% inflation-adjusted return (the
median return of the middle third of all simulated returns); " Favorable "
return environment: 7% inflation-adjusted return (the median return of
the top third of all simulated returns). For the purposes of this research,
the strategic asset allocation (i.e., Fidelity's glide path) was held constant
throughout the life cycle; no deviations were made to the glide path
during the approximately 70-year horizon. Each bar represents the
minimum level of attainable real income replacement given an investor's
hypothetical return experience, with 90% confidence. For example, in
90% of the simulated scenarios, the " 6%-18% Saver " investing through
a " Typical " return environment would realize an income replacement rate
of 75% or greater of their final pre-retirement salary. While indexes can
provide insight on how asset classes have performed during historical
market cycles, they do not take into account key factors such as fund
expenses or portfolio manager investment decisions, and should not
be considered representative of how a fund has, or will perform. Index
performance included the reinvestment of dividends and interest income.
Indexes are unmanaged. It is not possible to invest directly in an index.
IMPORTANT: The projections regarding the likelihood of various
outcomes are hypothetical in nature, do not reflect actual investment
results, and are in no way guarantees of future results.
Not FDIC insured. May lose value. No bank guarantee.
Not NCUA or NCUSIF insured. May lose value. No credit union
guarantee.
Third-party trademarks and service marks are the property of their
respective owners. All other trademarks and service marks are the
property of FMR LLC or an affiliated company.
The information provided herein is general and informational in nature
and should not be construed as legal advice or opinion.
Before investing, have your client consider the funds' investment
objectives, risks, charges, and expenses. Contact Fidelity for a
prospectus or, if available, a summary prospectus containing this
information. Have your client read it carefully.
FIDELITY
INVESTMENTS
INSTITUTIONAL
SERVICES
COMPANY, INC., 500 SALEM STREET, SMITHFIELD, RI 02917
© 2017 FMR LLC. All rights reserved. 817391.1.0
SPONSORED SECTION
investor needs, balancing long-term
outcomes with short-term portfolio
volatility. We emphasize diversification,
flexibility, and risk management, giving
our target date strategies the ability to
adapt to market volatility and investors'
changing needs over long time horizons.
Helping participants achieve successful
outcomes in retirement involves both
good savings behaviors and utilizing
a disciplined investment strategy.
By
understanding the different approaches
providers take, advisors can help plan
sponsors select the target date strategy
best suited to help participants reach
their goals. l
PLANADVISER - September/October 2017

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