Whether or not we want to think about it, planning for retirement is necessary. I think it’s safe to believe most of us would, at a minimum, desire a lifestyle similar to our current one once retired. However, you may see yourself living the retired life, contributing towards more than one retirement savings account is necessary.
Saving for retirement is important for many reasons. Here are just a few:
1. Financial security
Retirement savings provide a source of income when you’re no longer working. It ensures you can maintain your standard of living and cover expenses during your retirement years.
2. Longevity
People are living longer, which means retirement periods are longer too. Saving ensures you have enough funds to support yourself throughout your retirement.
3. Ever-increasing healthcare costs
As you age, your healthcare expenses may likely increase. Savings can help cover medical bills and long-term care costs.
4. Social Security may not be enough
While Social Security provides some income during retirement, it’s often not sufficient to cover all expenses. Personal savings supplement Social Security benefits.
5. Economic uncertainties
Economic conditions can change, affecting retirement benefits.
6. Enjoyment and flexibility
Retirement savings provide the opportunity to thoroughly enjoy your non-working years. From hobbies and traveling to spending time with your family and friends, enjoying it without financial stress.
If you’re still “invested” (no pun intended) and would like to read further, here are some additional thoughts:
If you’re contributing towards a defined contribution plan (401k, 457b), that’s great! Not only are you planning ahead for retirement, but you’re reducing your taxable income which is a win-win. If you’d like to see how your current contributions will benefit your retirement, Fidelity Investments has a retirement income calculator and I encourage you to give it a spin! The disappointing factor is that this type of plan does not promise a specific amount at retirement. (U.S. Department of Labor, n.d.)
Social Security benefits only replace some of your earnings when you retire, develop a qualifying disability, or die. We base your benefit payment on how much you earned during your working career. Higher lifetime earnings result in higher benefits. If there were some years when you didn’t work, or had low earnings, your benefit amount may be lower than if you worked steadily. If you’d like to calculate your social security benefit estimate, here’s a link to use the Social Security Administration’s retirement calculator. Not only are you able to see your estimated monthly benefit but you’re also provided with disability and survivor benefit estimates! (Social Security Administration, 2024, 7)
What is a pension? A pension is a defined benefit plan where an employer contributes funds on behalf of an employee during their working years and the employee receives regular, guaranteed payments from the pension after retiring. Did you know that the latest statistics show that only around 13% of private industry workers have access to a traditional pension plan? That means that approximately 87% of workers are relying on their defined contribution plan (401k, 457, etc.) and/or Social Security to keep them afloat during their retirement years. (U.S. Department of Labor, n.d.)
Putting a portion of your earnings aside now for later may not be the most exciting activity but most importantly, peace of mind!
References
Social Security Administration. (2024). Understanding The Benefits. Securing Today and Tomorrow, Publication No. 05-10024 (Publication No. 05-10024), 32. https://www.ssa.gov/pubs/EN-05-10024.pdf
U.S. Department of Labor. (n.d.). Types of Retirement Plans. U.S. Department of Labor. Retrieved March 14, 2024, from https://www.dol.gov/general/topic/retirement/typesofplans