(1 of 6)

There are many good reasons to take out from your retirement savings - e.g., emergency healthcare, education. But there are also many bad ones.

You need to be aware of what you are giving up when you reduce your savings today.

(2 of 6)

Let me give you a stylised simulation.

Suppose you have 30 years to retirement and you have 100k in savings today.

Assume a real return (i.e., adjusted for inflation) of 4% per year.

In 30 years, that 100k would have turned into 324k in today's money.

(3 of 6)

Now assume you take 10k out today and spend it. Real return remains the same at 4%.

In 30 years, the remaining 90k would be 292k.

That's a 32k difference, for the initial 10k you took out. In today's money.

But this is likely a best case scenario.

(4 of 6)

Given the shock to the global environment, and the acceleration of long-term decline in interest rates, the real returns will likely decline too.

If you take out 10k, and return is say, 3% rather than 4%, in 30 years it will be 218k compared to 324k initially.

(5 of 6)

That's more than 100k difference. In today's money.

In fact, with the expected decline in returns, to maintain the initial 324k, you need to top up your savings by an extra 34k today.

I know this is a simple and stylised simulation.

But my general point is this:

(6 of 6)

The shock we faced in 2020 will likely have significant ramifications far beyond 2020.

Including something as personal as our retirement savings.

So before we make the decision to take money out from our retirement savings, just be wary of what we are giving up.