What’s the difference between a pension and savings? A basic introduction to the difference between the two.
Most people know that they need to save money, but many of them assume that a pension counts as saving money, or that saving money counts as a pension. Despite being similar, the two are actually quite different.
We’ll give a quick overview of each.
PensionsPensions are special funds that are either managed by the government, or by an independent fund manager. They come in many different varies, but generally share one thing in common. You can’t touch the money in one until you’ve reached retirement age. That means, if you’re planning to buy a house, a car, or even pay for higher education, important as funding your pension is, you may need to delay it a bit, or fund it a little less than you otherwise might.
SavingsSavings accounts are similar only in that they involve saving money for use at a later date. Instead of offering the benefits of a pension fund, with the limitations on withdrawals, most savings accounts have little or no withdrawal penalties, and can be drawn on at any time. However, they also usually have a much lower rate of return than a pension fund. Because of this, they’re best used as emergency accounts, or fund accounts to collect savings for large purchases, like a home, or a new car.
What about you? Do you keep just one type of pension or savings account, or more than one? Maybe you have some savings or pension tips that you'd like to share with our readers. Do feel free to comment below or start a fresh pension or savings thread yourself.
Happy Saving!
