National Save for Retirement Week
October 17-21, 2011, was National Save for Retirement Week. This congressionally-sponsored event encourages employees to think about their retirement savings goals and take advantage of their employer-sponsored retirement plan. In recognition of this occasion and in an effort to raise awareness of the many benefits the Plan offers, the State of Missouri Deferred Compensation Plan spent the week exploring some of the common explanations employees have for not saving and how certain features of the Plan might help out.
Saving some extra money for your retirement can be an overwhelming thought. Knowing how and how much to contribute, choosing an investment strategy and tracking your progress along the way are some of the common hurdles that might discourage employees from getting started. The State of Missouri Deferred Compensation Plan offers an easy way to contribute to your retirement savings and provides unique tools for employees at all experience levels.
Before you begin contributing, RetirementTrack, the Plan’s comprehensive retirement calculator, can help identify how much you might need to save for retirement. It even includes a paycheck tool that helps determine how much you can afford to contribute each paycheck. After you calculate how much to save and sign up with the Plan, your contributions are automatically deducted from your paycheck.
Once you become a participant in the Plan, you can choose to invest your money in a variety of ways. For employees who are new to investing or prefer a “set it and forget it” approach, the Plan’s Missouri Target Date Funds offer a simple way for you to invest for retirement. The target date is the approximate year when you expect to retire and begin withdrawing from your account. When you invest in one of the Missouri Target Date Funds, an experienced portfolio team guides your investments by automatically diversifying your assets depending on that target date. Quarterly statements and the Plan website help you stay on top of your investment performance throughout your career and retirement. Additionally, you can use the Plan’s website to change your contribution amount or investment elections at any time.
Online retirement calculators, easy payroll deductions, no-hassle investment options and online account access make the State of Missouri Deferred Compensation Plan an excellent savings choice for savers at all age, experience and income levels.
Because retirement seems so many years away, young employees often think it is okay to put off saving for it. But when it comes to a secure financial future, the sooner you can start saving, the more financial freedom you will enjoy in retirement. That’s because money in a tax-deferred account like the State of Missouri’s Deferred Compensation Plan earns interest on interest tax-free, and when there is more time for contributions and tax-free earnings to accumulate, that money can grow exponentially. Consider the following "time value of money" example:
An employee who starts saving $50 semi-monthly at the age of 25 will save $122,421 by age 55, compared to only $52,233 for an employee who starts saving the same amount at age 35 (assuming a 7% annual rate of return in both cases). That’s a difference of $70,188! More proof that there's never a bad time to start saving for your retirement.
What’s more, if you take the first step and begin contributing when you’re young, you make saving for retirement a part of your monthly savings routine. By getting in that habit at an early age, you're giving your money the time it needs to grow and assuring yourself a more secure financial future.
According to the Employee Benefit Research Institute's 2010 Retirement Confidence Survey, approximately 38% of U.S. workers between the ages of 45 and 54 have less than $10,000 in personal retirement savings.
While pension and Social Security benefits will play a large role in your retirement income, it’s estimated they’ll only account for 60% of the average State of Missouri employee’s preretirement pay. Experts predict most retirees will need at least 80% of their preretirement wages to live comfortably in retirement.
For employees who are well into their careers, or even nearing their retirement date, it’s not uncommon to feel helpless when it comes to filling that retirement savings gap. The short time horizon combined with contribution limits may discourage employees from attempting to save extra money. When it comes to saving for retirement, there’s never a bad time to start. The State of Missouri Deferred Compensation Plan offers 2 unique provisions that help participants over 50, or those who are nearing retirement, enhance their retirement savings. The Age 50 and Over Catch-up Provision allows a participant who reaches age 50 before the end of the tax year to make an additional contribution to their deferred compensation plan ($5,500 extra or $22,000 total in the 2011 tax year). The Three-year Catch-up Provision allows a participant who has not been contributing the maximum to contribute twice the maximum annual deferral amount during the three years prior to their normal retirement age ($16,500 extra or $33,000 total for the 2011 tax year). While the Three-year Catch-up Provision cannot be used in the same year as the Age 50 and Over Catch-up Provision, both options help employees quickly accumulate tax-deferred retirement savings.
Even if you can't make the maximum contribution amounts as you near retirement, remember that your funds can remain in the Plan after you leave employment. In fact, employees can roll BackDROP lump sums (if applicable) into the Plan, even if they have never previously participated in the State of Missouri Deferred Compensation Plan. While you won’t be able to make future contributions to your account, your money can continue to grow, tax-deferred, through retirement until you choose to take distributions.
Catch-up provisions and continued tax-deferred growth during retirement help make the State of Missouri Deferred Compensation Plan an excellent savings choice for savers at all age, experience and income levels.
Between a job, family, nightly chores, hobbies, and weekend commitments, life can be a little hectic. These things can often discourage employees from taking the time to save extra money for retirement. Fortunately, the State of Missouri Deferred Compensation Plan offers several features that truly make it a no-hassle, low-maintenance retirement savings option.
Once you enroll in the plan and establish your contribution amounts, payments are automatically deducted from you paycheck. What’s more, if you don't personally choose an investment option, your contributions will be automatically directed to a Missouri Target Date Fund, where an experienced portfolio team will guide your investments by diversifying your assets depending on your approximate retirement or “target” date. And because your daily schedule can be unpredictable, modeferredcomp.org and online account access are available whenever and wherever you are, 24 hours a day, 7 days a week. View your statements, change your contribution amounts and adjust your investment choices from the comfort of your computer as your schedule allows.
Time truly is valuable, but so too is financial security in retirement, so do both a favor by enrolling in the Plan today.
The State of Missouri Deferred Compensation Plan is mindful of the financial struggles facing many employees in today’s difficult economy. For some, these financial hardships translate to fewer extra dollars each pay period to contribute toward retirement savings. Because their potential contributions would be so little, some employees decide against saving. Fortunately, the State of Missouri Deferred Compensation Plan provides flexibility for those employees who don’t have a lot of extra money to save for retirement. In fact, participants can contribute as little as $12.50 per semi-monthly pay period. While $12.50 per semi-monthly paycheck doesn’t seem like a lot, it can translate to a savings of approximately $30,500 over a 30-year career (assuming no contribution increases and a 7% annual rate of return). That’s one less fast food meal or a few less trips to the vending machine each week in return for a sizable amount of money at retirement.
And because contributions to the Plan are made pre-tax, you’ll decrease the amount of taxes withheld from each paycheck. That means you’re decreasing your take-home pay by less than what you're contributing each check, which is good for your bottom line.
Low minimum contributions and decreased taxes truly make the State of Missouri Deferred Compensation Plan an excellent savings choice for savers at all age, experience and income levels.