Income in Retirement – Drawing on Savings

Written by: Scott Sery

Most people know the need to save for retirement.  In fact, nearly all the personal finance literature, articles, and topics online are designed around various forms of retirement savings.  The reason is that personal savings are a very important part of a person’s financial health.  Most employers do not offer a pension anymore, and many people know that Social Security is not going to provide for all of their needs.  So rather than take the chance, personal savings are needed in order to fully enjoy retirement.

 

The vehicles a person can use for retirement are common topics.  Ideally, an employer will offer a 401k with matching contributions.  If that is not available, or maxed out, the individual can start putting money into an IRA, or set it aside in an annuity.  Regardless of which ones are used, it is important to be saving.

 

The concept of saving for retirement is simple.  Choose a vehicle and which investments.  Then start to contribute.  Throughout the working years a person should save as much as he or she can.  In order to get there, they start with the age they want to retire, estimate a rate of return, and calculate out how much needs to go in each month in order to meet their goals.  After that, they contribute and watch their savings grow.

 

There is no telling what Social Security will do.  Often relatives live far away from each other.  So to compensate, people must provide for themselves.  Rather than take the chance of not having enough in retirement, take the chance of having too much.  Social Security will only provide so much, but savings are essentially unlimited.  You can put aside as much or as little as you want.  You get to choose what you invest in, and who gets to manage your money.  If your goals change, you can increase or decrease your contributions accordingly.  Basically, you have all the flexibility you want with your personal savings.

 

Unfortunately, to get enough money accumulated for retirement it is necessary to invest.  That means taking some risk.  As we saw during the recent recession, funds can lose a lot of value very quickly.  For those who have a long time until they retire, it is not a big deal.  Continuing to save is the best thing.  For those who are closer to retiring it presents a big problem.  Retirement may have to be delayed because they simply do not have enough to retire on the lifestyle they want.  While personal savings and investing is necessary, it does contain uncontrollable risks.

 

Savings will most likely provide the majority of a person’s retirement income.  They can take systematic withdrawals when they get to retirement, or they can annuitize their money (or part of it), to provide a guaranteed income.  When used in conjunction with other programs and options, a person can develop an airtight plan so when they do retire they will be able to live comfortably.  Plan now, save as much as possible, and don’t worry in your golden years.


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Income in Retirement – Drawing on Savings

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