The reality is that except for one factor, retirement is barely different than the previous sixty years of living.
While working there was the potential for loss of income, for financial emergencies of varies kinds, for health care bills, for debt, even stress, stock market ups and downs and boredom. So it is during retirement.
During working years you strive to build investments for retirement and during retirement you strive to use those investments for income – but unlike while working, you have help in the form of Social Security.
That one risk factor in retirement is the source of income, but even that risk that can be moderated or eliminated. The key is a steady income stream not dependent on the whims of the stock market – that means an annuity of some type, including for a few a pension. In reality, an immediate annuity is a form of pension.
For most people Social Security will provide about 40% income replacement adjusted for inflation. Figure out how much of the remaining 60% you need to cover all your ongoing non-discretionary spending and purchase an annuity to cover that amount.
Here’s an idea. If you have a 401k with employer match designate an amount equal to that match and earnings for your annuity purchase – you have created an employer funded pension. It doesn’t have to be the 401k money used, just the equivalent amount.
You can also add to your income stream with dividends and interest on your investments. Needless to say, a pool of funds for other spending is highly desirable and it is all relative to your income and lifestyle-but you already knew that.
Understand the Real Risks to Your Future Security (and Plan for Them)
Research from Transamerica found that fear of running out of money, concerns about the viability of Social Security, and not being able to afford healthcare are the three biggest retirement fears.
Other factors that might put your financial security in jeopardy include inflation, unstable economic markets, unforeseen emergencies, forced retirement, falling home values, an environmental disaster, a catastrophic health event or perhaps even an unpredictable pandemic.
Excerpt from New Retirement Blog 9 Ways to Overcome the Terror of Spending Your Retirement Savings
It’s a good article with valuable ideas.
See, just the same as when you were working
QUINNSCOMMENTARY 
Surprisingly enough I agree with most of your post. There is however one big difference. As a retiree I no longer what day of the week it is!
I usually have to open my iPhone to the calendar app to see the day of the week and the date!🤣🤣
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Know
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Of course the immediate annuity violates the first rule of retirement– EVERY YEAR EVERYTHING I BUY COSTS MORE. Those seven famous words! Inflation is the enemy and the annuity offers little or no protection–you can, I suspect, purchase an annuity that will adjust for inflation but you start out at a lower return.
Of course for many years you are taking out your own money–a return of your principal.
I believe there are studies showing a withdrawal of 5% from a money market over 20- years could be an alternative especially if the MM earns a reasonable rate of return which we now see, but did not 3-4 years ago. The annuity though will outlast you–you could run out of money with the MM.
My parents had invested in an old blue chip dividend-paying fund when they were living. Updating that through 12/31/23 and beginning on on 01/01/2000 the first year’s dividend was a smidge more than $4,000 while last year it was almost $13,000–total for 23-years almost $170,000–ending value of $785,000. This despite three major bear markets–markets that saw the dividend cash payout drop slightly after the 2008 debacle when firms slashed their payouts.
S&P 500 shows initial payout in 2000 of $2,215–last year $9,570–$117,000 total dividend payout in cash for 23-years–closing value 12/31/23 was $649,300.
The annuity can work–but my father was a blue collar worker with a pension of over $1,2000 a month from start to finish–no more–no less–sort of like an annuity with health insurance to accompany A&B of Medicare.
One could do better than our fund–one could buy equities that have long histories of paying dividends and raising them–the key is a rising dividend.–ETF’s are easy to find and inexpensive to operate.
To slew the enemy you need to grow income–bonds don’t do it–nor do annuities–equities do but volatility scares most of us thus we add bonds and cash and maybe that annuity.
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My pension was calculated in 2008 and has not changed and will not. Few pensions except government have COLAs. I would not exchange it for investments.
You can buy immediate annuities with inflation adjustments.
The idea is to have steady income you can count on and also other investments as a back up and to deal with inflation as needed.
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Actually, almost everything is different when you are employed full time in a career pursuit – in terms of what must be prioritized.
But, you all know that.
Yes, of course, all of the financial risks, remain. And, yes, creating sufficient “guaranteed” income to cover everyday expenses, plus a margin should be a priority.
However, ask yourself – just how secure is employment in America, just how “guaranteed” is that wage income?
Keep in mind that the median tenure of American workers has been less than 5 years for the past 7 decades. Yes, more than half of American workers leave their employer before they complete five years of service.
One study by the Department of Labor showed that, for individuals who were age 50 in 2016, they had, on average (and averages can be deceiving), 11 different employers by age 50. Assuming an average start at age 20, that’s an average tenure of less than 3 years … 11 different times!
Again, how secure is employment in America, how secure is that “wage income”, anyway?
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I know someone who changes companies every 5 years or so–every time she moves she has a higher salary and stock options–of course the beauty of the 401k is her “pension” goes with her–the last thing she thinks of is the “pension”–as we heard from brother Quinn she would be the ideal candidate for a portion of that 401-k to be converted to an immediate annuity once she does retire.
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Yes indeed, for most workers the 401k creates more value then a pension
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