As we approach our mid-career years, many of us begin to think about retirement and the financial resources we'll need to support ourselves in our golden years. While pensions, 401(k)s, and other employer-sponsored retirement plans are certainly important tools for building our nest eggs, it's important to remember that these plans alone may not be enough to provide for all your needs.
One of the main reasons why personal savings is so important is that it provides us with a level of financial security and independence that we may not have with just a pension or 401(k). These employer-sponsored plans can be subject to changes in company policies, market fluctuations, and other factors that may negatively impact our retirement savings.
Social Security may not provide enough income to cover all of your expenses during retirement. According to the Social Security Administration, the average monthly benefit for a retiree in 2022 was $1,657. This may be insufficient, especially if you have a significant amount of debt or plan to travel during your retirement. Personal savings can help supplement your income from social security.
Personal savings, on the other hand, are under our own control and can be used to supplement your pension, 401(k) or social security income in the event of unexpected expenses or changes in our financial situation. Additionally, as you build your nest egg along the way, personal savings can be used to fund shorter-term goals, such as a down payment on a house or a child's college education, without having to withdraw funds from our retirement accounts and incur penalties or taxes.
Another important factor to consider is that, as we age, our expenses may increase. While we may have certain fixed costs when we're younger, such as mortgage payments, student loans, or college tuition for children, as we get older we may then have increased medical expenses, travel costs, or even long-term care costs. Personal savings can help us to meet these additional expenses without having to rely solely on our pension or 401(k) funds.
So, how can we start building our personal savings?
One of the best ways is to develop a budget and stick to it. By tracking our expenses and creating a plan for how we want to allocate our income, we can identify areas where we can cut back on spending and redirect those funds into
savings. Reducing your debt and setting up automatic savings transfers can also help to make savings a habit, rather than something we think about occasionally.
Another important step is to make sure our savings are working for us by investing in a diversified savings asset. This can include savings accounts, CDs and other investments like cash value life insurance that may offer higher long-term returns and better tax benefits than traditional savings accounts. It's also essential to consult with a financial advisor to ensure our savings are aligned with our risk tolerance and long-term financial goals.
In conclusion, personal savings are a crucial component of your retirement planning. By supplementing your pensions and 401(k)s with personal savings, you can increase your financial security and flexibility, and have peace of mind knowing that you have a cushion to fall back on in case of unexpected expenses or changes in your financial situation. By budgeting, automating savings, diversifying where you place your savings and consulting with a financial advisor, you can build a solid foundation for your future.
Troy Barrow, LUTCF has been a financial professional for over 15 years. He has been successfully helping clients like you to achieve your financial goals.
Arlington Insurance Planning Services LLC (AIPS) was founded by Troy as an independent agency to provide tailored insurance and financial solutions to build, protect, and transfer the wealth of our Individual and Business clientele and community, as well as to provide access to a variety of well positioned companies to service their needs.