Retirement Is Becoming Privately Funded

By: James Flippin · May 01, 2023 · Reading Time: 3 minutes

Retirement Revolution

When it comes to retirement, previous generations largely enjoyed corporate pensions to help fund their retirement years. This provided them with set monthly paychecks to help establish a budget and pay their bills.

However, the generation currently gearing up to leave the workforce is entering uncharted waters. They’ll be the first generation to rely primarily on private savings over pensions.

Pensions vs. Savings

401(k) plans and Individual Retirement Accounts, or IRAs, are great options when it comes to saving for the future. With their focus on investing a lump sum of money in a tax-advantaged account and allowing it to grow over time, these plans are a great way to accumulate a significant nest egg.

On the other hand, they don’t amount to the security and consistency of a monthly income source. This makes it more difficult for retirees to navigate their golden years, because they run the risk of spending too much money too quickly and running out of cash.

At the same time, IRA balances are linked with the stock market. A market downturn, like the one seen in 2020, can instantly wipe out 20% or more of a nest egg, reducing spending power and throwing long-term budgets and plans out of balance.

Retiree Uncertainty

Retirees find themselves in an unstable situation. While they may have impressive savings today, it’s trickier to say for certain what their retirement income will be.

According to a study conducted by Goldman Sachs (GS), many now prefer to err on the side of caution when it comes to budgeting and spending. More than half of retirees today live on less than half of their pre-retirement income.

One way to avoid this dilemma is to invest your retirement savings into assets that will produce income, such as real estate or dividend-paying stocks. This can help bring more stability to your retirement nest egg. But, keep in mind that retirement is highly unique and personal, and the best option may be to speak with a professional to create the perfect plan for you.

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