Chapter Six: Where Will Your Retirement Money Come From?

By members of the Consumer Education Committee of the Actuarial Foundation, Morton

M. Dickstein, FCA, MAAA; Stanley Freilich, FCA, FSA, MAAA; Anna Rappaport, FSA,

MAAA; Vinaya K. Sharma, FSA, MAAA; and C. Eugene Steuerle, Ph.D.

www.actuarialfoundation.org and www.annarappaport.com.

Your retirement may be a lot different than it was for earlier generations of women. For one thing, you’re likely to live longer, given increases in life expectancies. Half of all women who are now 65 will live beyond age 85. A longer life often means a longer retirement—and a more costly one.

Some fortunate women who are now retired spent their careers working for employers who offered a traditional pension plan—monthly income for life in retirement—or were married to men who were covered by this type of plan.

You are more likely to participate in a retirement savings plan, such as a 401(k). With savings plans, you must decide how much to save and how to invest the money. Your decisions have a direct effect on how financially secure you will be in retirement. It’s a big responsibility.

Typically, your 401(k) retirement money will come to you as one lump sum when you retire, rather than as a steady stream of monthly payments for life the way a traditional pension would. You are responsible for managing the lump sum. Like it or not, your retirement income security is up to you.

Unfortunately, many workers do not understand the wide range of financial choices now available to them. If you’re like most people, you may not know enough about how to get ready for retirement. It is important that you have a good understanding of how to plan, budget, save, and invest for retirement. It is also a good idea to seek information and guidance from your employer and/or outside experts about when you could afford to retire, how much income you will have, what your expected monthly Social Security benefit will be, where the money will come from, and how to make it last.

Many financial planning professionals say a good target is to try to have enough money to replace 80 percent of your pre-retirement income. Because many of us have not saved enough for retirement, we may have to retire at a later age, accept a more modest lifestyle, or both. 

The first step to creating a retirement plan that will work for you is understanding what you’ll have from pension benefits, personal savings and other assets, and Social Security. This chapter will help you figure this out.