For the last few decades, retirement income has been described as a three-legged stool: company retirement pension, Social Security and personal savings. Now, that perception is rapidly changing. If you want to make retirement, and be able to live in a style that is close to how you live now, you are going to need to break out of the three-legged stool mentality. Why? Because the sad truth is that two of the three legs are becoming shorter. Those two legs do not involve what you can do for yourself. And that means your personal savings leg is going to need to make up the difference. And, depending on your retirement goals, it may need to make a very big difference indeed.
So long to company pensions
It used to be that you stayed with a company for 30 years, and when you retired you got a nice pension. Most companies do not offer retirement pensions anymore. And the companies that do are in the process of eliminating them. Even reitred workers are no longer safe from pension cuts. The good news is that most companies still offer retirement plans. These, however, put more of the risk back onto the employee. The good news is that you can make a lot more money than a traditional company pension would give you. Plus, rollover rules make it possible to take your retirement plan with you when you change careers, as most people do now. If your company offers a matching contribution program, you should take advantage of it. That can help you maximize your retirement earnings with a company plan.
Don’t count on Social Security
You’ve probably heard all sorts of scary stories about how Social Security is going to fall to pieces any day now. While those stories are overblown, the fact of the matter is that as the decades progress and the working population decreases (with the declining birth rate), Social Security payouts are going to dwindle. And, honestly, they are not that high now. Social Security was never meant to be your entire retirement income. It was meant as an “attaboy” from the government for contributing to the gross national product for all those years. Begin planning now to give yourself more than an income based on Social Security can provide.
There’s no substitute for good financial planning
Planning carefully for retirement is a vital part of your financial planning process. Take into account what you will likely need, and plan as though you won’t be getting help from the government or from a company pension plan. Investing in stocks and mutual funds with help from a retirement account through your company or opened on your own can help you reach your retirement goals. Take advantage of the best retirement account for your situation, and develop a habit of saving that can serve you well in the future. And remember: savings vehicles like money market accounts, CDs and bonds can be good ways to shore up your investments with some of the safer choices.