Women in the workplaceCredit: Image: Ambro / FreeDigitalPhotos.net

Do you think all your financial woes will disappear when you retire because you have a pension?  If so, you need to pay better attention to your annual pension reports.  This is because your anticipated pension is only a fraction of your current income.  If you are having a hard time making ends meet on your current salary, imagine how much more difficult it may be on a fixed salary that may be significantly smaller than today’s paycheck.


Don’t assume that social security will make it all better.  While it is nice to get a guaranteed pension from the government, the amount rarely spells the difference between starvation and chicken for dinner.  Social security payments should be considered as a supplement to your pension, not as the backbone of your retirement income.  While the government payout increases the longer you’ve been in the workforce, typically the incremental differences don’t make a vast difference in cash flow. 


Another reason why you can’t necessarily count on your pension to provide all of your retirement needs is that your anticipated pension assumes you’ll stay at your current job from now until retirement.  That’s a long time, and who can predict your boss’ mood or the economy’s health?  If you lose your job and you have an extended job search, your payments to your pension fund will stop, and your future pension payments will be lowered, due to less money coming into the fund.  Also consider what would happen if your health forces you to retire earlier than expected and disability payments aren’t forthcoming?  This, too, might affect your pension’s size at retirement.


While planning is important, one of the basic assumptions of a long-term plan is that it must be flexible enough to allow for the unexpected.  A good plan takes into account the possibility that things won’t follow your expectations.  Having an emergency fund that has three to six months’ worth of living expenses is prudent because it limits the negative impact emergency bills have on your budget and financial plan as a whole.  A quality financial plan helps you meet your goals and deal with any bumps along the way with a steady hand and full wallet. 


Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.