The dog days of summer are upon us, which means you may be seeking refuge from the heat in a swimming pool. Staying afloat in a pool reminds us of a valuable lesson on retirement paycheck sources. As a state of Missouri employee, once you reach certain retirement eligibility requirements, you will receive a pension. This is a guaranteed monthly benefit that will last the duration of your retirement once you leave state employment. Let’s pretend a pool float is your pension benefit. While it provides a reasonable amount of support to keep me above water, I’d be much more comfortable with a little help. That’s where social security and personal savings come into play. Social security provides another form of pay that will supplement that pension benefit in retirement. The age that you can begin receiving full social security benefits will vary depending on your date of birth. It may help to know that retired employees can begin receiving reduced social security benefits at age 62, but full social security benefits can begin anywhere from age 65 to age 67, again, depending on your birth date. Whether you decide to put off receiving social security in return for a higher future benefit or begin receiving reduced benefits at 62, it’ll be extremely important to have a third form of retirement pay to keep you above water. That’s where personal savings in the deferred compensation plan come into play. The deferred compensation plan is simply a retirement savings account that you contribute to and build up while you’re working, which will, in turn, provide monthly supplemental pay to support pension and social benefits in retirement.
The great thing about the deferred compensation plan is that you build up your savings throughout your working career with convenient paycheck deferrals and any investment earnings on those contributions. To think of it another way, to immediately fill up this pool I'm standing in would take a 10,000 gallon container of water. But if this pool was your personal savings account and you had a 25 year career to fill it up, it would only take a little more than a gallon of water a day to do so. That’s not so bad, right?
Another great feature of the deferred compensation plan is that you can make both pre-tax and after-tax, or Roth, contributions to the plan. Roth is certainly a buzz word in the retirement savings industry, but it’s basically paying taxes to Uncle Sam now, before your contributions go into your deferred compensation account. As a result, your withdrawals will be tax free in retirement – assuming you meet eligibility requirements. Traditional, pre-tax savings work in reverse. You make tax-free contributions to the Plan while you’re working, and only pay taxes when you withdraw those savings in retirement.
Visit mosers.org or mpers.org to learn more about how your specific pension plan works. For more detailed information on how all three sources of pay work together in retirement, be sure to attend one of the deferred compensation plan’s Completing the Retirement Income Puzzle seminars. Visit the Plan’s event registration page to see when this session will be in your neck of the woods. For an even deeper understanding of your personal financial situation, have your agency schedule a Pocket Change financial workshop. This 2-hour session, presented by deferred compensation plan representatives, tackles both general and state-employee-specific financial topics in a fun and unique way. Each attendee leaves this session with a personalized retirement road map that outlines each of the paycheck sources discussed in this update. If this sounds like something you may be interested in, have your HR representative contact plan manager Tasha Reinkemeyer directly at 800-392-0925, option 2, ext 5, then 4811 or by email at treinkemeyer@icmarc.org.
Thanks for tuning in to the August video edition of the DC Update. Remember that you can view other informative videos, just like this one, by visiting our YouTube channel. And be sure to also connect with us on Facebook, Twitter, and LinkedIn. Whichever you prefer, connecting with us on social media is a great way to receive important Plan news and valuable savings tips. Until next month, this has been Casey Fick with the State of Missouri Deferred Compensation Plan, your smart, simple savings solution.