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- November 2015 DC Update
Hey there, I'm Casey Fick with the deferred compensation plan and this is the November video edition of the DC Update. This month a number of Missourians will spend long hours outside waiting around in the woods. That sort of patience and commitment reminds us of a valuable lesson on retirement savings. As anyone who has hunted will tell you, there are times when you ask yourself: "What am I doing out here?" It's dark, it's cold, it's windy, and nothing is happening. It's the same doubt retirement savers face as they try visualizing a retirement day somewhere in the unforeseeable future. With each contribution they make to their retirement savings account, they may be asking themselves, "What's the point?". The point is that all of that hard work and patience will pay off in the end. Let's face it, there will come a day when you're ready to stop working. The objective then, much like in hunting, is to do everything you can to prepare yourself for that big moment. If you think about it, nature provides a number of metaphors on retirement planning.
Consider my furry friend, the squirrel. As you probably know, each fall squirrels begin stockpiling acorns in preparation for the winter months when food is less bountiful. Sound familiar? It's no different than what we do when we prepare for retirement. We save some money now, while we're employed, so we have additional money at our disposal when we decide to stop working.
While you may think the squirrel's example – preserving food to survive in the winter – is quite extreme, consider this: According to a 2013 National Institute on Retirement Security study – 18.3 million households with workers aged 45 to 64 have no retirement savings whatsoever. Even when other assets, like homes, were taken into account, about one-third still fell short of what they'd need to maintain their standard of living in retirement. Diane Oakley, executive director of the institute, predicts that millions of workers are headed for poverty in their old age. They'll need housing assistance, utility bill subsidies, food stamps and help from other government programs, she says.
It's important to remember that state of Missouri employees do have access to pension plans, which will provide a certain level of guaranteed income throughout retirement. If you don't know what a pension plan is or how it works, we strongly encourage you to contact either MOSERS or MPERS, depending on your employer, for more information.
Even with a pension plan, it will be necessary to save additional money for your retirement years. One big reason – health care costs. According to HealthView Services, a 65 year old couple retiring today can expect to pay $266,000 in health care premiums in retirement1. This estimate includes Medicare parts B and D coverage as well as supplemental insurance. This is a resounding reason to start stockpiling your savings now. Your well being could depend on it.
Another thing you're sure to see as you're sitting around in the Missouri wilderness is falling leaves. Leaves are a fantastic example of how compound earnings work. Your first contribution to a retirement savings plan may seem meager, but it's certainly not meaningless. As contribution after contribution piles up, you start seeing something far more substantial.
For example, let’s pretend this leaf is really a $50 contribution. Saving $50 with one semimonthly paycheck will get you, well, $50. Saving $50 over 720 semimonthly paychecks – which happens to be 30 years worth of paychecks – gets you much more. Assuming a 7% annual rate of return throughout employment, those $50 semimonthly contributions could get you approximately $122,000 after 30 years. That's because any investment earnings your savings incur will compound over time. In other words, you receive earnings not only on your contributions, but also earnings on previous earnings. Put far more simply, given these assumptions, one leaf saved while working could earn you almost 3.5 leaves in retirement.
If you haven't started saving extra money for retirement, now is the best time to begin. You don't even have to be at your desk to do so. You can enroll anytime, even from the comfort of the outdoors, by visiting www.modeferredcomp.org and clicking the big red Enrollment button.
Once you're enrolled and contributing money from each paycheck, you can also check your account and perform a number of transactions online, including designating your beneficiary. Establishing a beneficiary is arguably one of the most important steps when setting up your retirement account. A beneficiary designation tells us where your money will go in the event something happens to you. If you don't set up a beneficiary, a probate court could ultimately decide how your assets are distributed, costing your loved ones time and money.
1 HealthView Services 2015 Retirement Health Care Cost Data Report
This month's edition of the DC Update includes cumulative auto enrollment statistics by department as of October 1. Auto enrollment was first implemented in July of 2012. Since then, over 10,600 new state employees have started saving with the deferred compensation plan, accumulating $7.8 million in combined retirement savings.
Please note: Detailed data for agencies with 10 or fewer hires is omitted in this report.
| Department |
Total AE
|
Opt Out
|
Net AE
|
AE Success Rate
|
|---|---|---|---|---|
| State Auditor |
21
|
0
|
21
|
100.0%
|
| Office of Administration |
302
|
25
|
277
|
91.7%
|
| MOSERS |
11
|
1
|
10
|
90.9%
|
| Dept of Corrections |
2,878
|
282
|
2,596
|
90.2%
|
| Dept of Elem & Sec Ed |
326
|
36
|
290
|
89.0%
|
| Dept of Social Services |
1,879
|
228
|
1,758
|
88.5%
|
| Dept of Labor & Industrial Relations |
103
|
13
|
90
|
87.4%
|
| Dept of Revenue |
323
|
42
|
281
|
87.0%
|
| Department of Health & Sr. Services |
378
|
50
|
328
|
86.8%
|
| Dept of Agriculture |
64
|
9
|
55
|
85.9%
|
| Dept of Conservation |
132
|
19
|
113
|
85.6%
|
| Dept of Transportation |
756
|
112
|
644
|
85.2%
|
| Secretary of State |
54
|
8
|
46
|
85.2%
|
| Dept of Ins, Fin Inst, Prof Reg |
86
|
13
|
73
|
84.9%
|
| Public Safety |
1,245
|
193
|
1,052
|
84.5%
|
| Judiciary |
755
|
125
|
630
|
83.4%
|
| Dept of Natural Resources |
213
|
38
|
175
|
82.2%
|
| Dept of Mental Health |
2,158
|
404
|
1,754
|
81.3%
|
| State Public Defender |
209
|
44
|
165
|
78.9%
|
| Dept of Econ Development |
126
|
29
|
97
|
77.0%
|
| Attorney General |
113
|
27
|
86
|
76.1%
|
| Legislature |
160
|
45
|
115
|
71.9%
|
| Housing Development Commission |
12
|
5
|
7
|
58.3%
|
| Dept of Higher Education |
-
|
-
|
-
|
-
|
| Governor's Office |
-
|
-
|
-
|
-
|
| Highway & Highway Patrol |
-
|
-
|
-
|
-
|
| Lt. Governor |
-
|
-
|
-
|
-
|
| Missouri Consolidated Healthcare |
-
|
-
|
-
|
-
|
| State Treasurer |
-
|
-
|
-
|
-
|
| TOTALS |
12,450
|
1,752
|
10,698
|
85.93%
|
Thanks for tuning in to the November video edition of the DC Update. Don't forget you can check out past DC Updates and other informative videos on our YouTube channel. Also, be sure to connect with us on Facebook, Twitter and LinkedIn. Whatever platform you prefer, social media is an easy way to keep up with plan updates and other important savings news. Until next time, this has been Casey Fick with the State of Missouri Deferred Compensation Plan, your smart, simple savings solution.