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  • Archive for the ‘National Save for Retirement Week’ Category

    Retirement Plans – Understanding the Basics

    Wednesday, October 15th, 2014

    October means pumpkins, turning leaves, and the beginning of the holiday season. While it is easy to launch yourself into shopping mode and spend your money on gifts for family and friends, WISER suggests paying yourself first. Luckily, National Save for Retirement Week is right around the corner (October 19-25, 2014). It’s a perfect time to improve your knowledge of retirement plans and how to maximize your savings.

    The first step is to understand the different types of retirement plans and which ones may be available to you at your workplace. Many employers offer retirement plans. There are two types available – defined benefit plans and defined contribution plans. What do these mean?

    Defined benefit plans are ones in which your employer often contributes money to the plan and selects a plan administrator who makes investment decisions. Since the plan has an administrator, your company entirely controls your investment risk and portfolios management. Once you retire, you receive a specific monthly benefit determined by formula. The formula takes into account the age at which you retire, your rate of pay, and the number of years you worked at the company. One of the best features of this type of plan is that you will have a fixed benefit, ensuring you know exactly how much income you will have in retirement.

    Defined contribution plans, on the other hand, are ones in which you as the employee contribute some or all of the funds and decide how to invest the money. Sometimes an employer will match part or all of the employee contribution. If this is the case, you should always invest at least enough to receive your full employer match. It’s basically free money for your retirement!

    The most common defined contribution plan is a 401(k). If you have a 401(k), your money is contributed from your paycheck before taxes, meaning you do not pay taxes on the money you add to your retirement plan. The more you contribute, the lower your taxable income. You will only be taxed on the money once you start withdrawing it. If you withdraw the money, however, before you are 59 ½, you will pay a penalty up to a 10% additional tax. There are some contribution limits to these plans, but they are significantly higher than other retirement plans. The current limit (for 2013 and 2014) is $17,500. Check out the IRS website for more information on contribution limits. Unlike the defined benefit plan, however, the amount of money available at your retirement depends entirely upon how much money you contributed and how well your chosen investments performed over the years.

    Additionally, 401(k)s are considered “portable.” When you change jobs, you can take all the money in your account and roll it over into an individual retirement account (IRA) or other qualified, employer-sponsored 401(k) plan. WISER has a chart to help you understand what types of plans you can rollover.

    If you work for a tax-exempt organization, you may have a 403(b) plan. These plans are similar to 401(k).

    Other defined contribution plans include an employee stock ownership plan, money purchase plans, profit-sharing plans, and stock bonuses. Small businesses may offer Keogh plans, payroll deduction for IRAs, a simplified employee pension (SEP), or a savings incentive match plan for employees (SIMPLE). Our factsheet offers some more details on these plans.

    Are you self-employed, working part time, ineligible for an employer-sponsored retirement plan, or otherwise want other options? There are other ways to save for retirement.

    You can open an IRA account. There are two typical types of IRAs – Traditional IRA and Roth IRA. For both types, your contribution limit is $5,500 ($6,500 if you’re age 50+) in 2014. This limit may change in 2015. The main differences between these two accounts are how they are taxed and when you can withdraw your money. For a Traditional IRA, your money is tax deductible, meaning you will not pay taxes on it in the year you contribute it. Like contributions to a 401(k), you will only pay taxes on the money once you start withdrawing it in retirement. You cannot withdraw money before you are age 59 ½ without paying a penalty. You also must start taking distributions by April 1 following the year you turn age 70 ½. If you are further along in your career and in a high-income bracket for taxes, a Traditional IRA may be a good option for you because it will lower your taxable income.

    Contributions to Roth IRAs, in contrast, are taxed as you contribute them, and are tax-free when you withdraw them (if you are 59 ½ older and opened your account at least 5 years prior). If you are younger than 59 ½, you can withdraw money 5 years after opening the account for certain medical expenses, higher education expenses, or to buy your first home. You are not required to take distributions at any age. Many young savers prefer Roth IRAs because they have a lower tax bracket now than they will when they retire.

    You may also want to invest in government bonds. These are safe ways to invest money because the government backs them. You can buy small bonds for as little as $25. Different bonds have different interest rates and cash them in at different times. We break down I bonds, EE bonds, and HH bonds in more detail on our factsheet.

    Understanding your retirement plans may seem daunting at first, but by starting with the basics, you can continue to build on what you learn. The more you know, the better prepared you will be to make decisions that can greatly impact your savings and future financial security.

    Young Women and Savings: Save Early, Finish Strong

    Thursday, October 23rd, 2008

    As a young woman, it’s easy not to save for retirement. Student loan payments, rent, and that pesky college credit card debt all have to be paid off monthly, while retirement seems like something that is light years away. “Sure,” you think, “I’ll save for it, once the loans are paid off, next month’s rent is taken care of, oh and after that vacation next summer…”

    There will always be other expenses that seem more urgent than saving for retirement. In the next few years, you may finish paying off those loans, but replace them with graduate school tuition or a mortgage, and it will still feel easier to put off saving for another time. When it comes to retirement savings, the earlier you start, the more impact your savings will have on your future retirement security. If you put aside $500.00 a year from age 22-30 you’ll save $4,500 dollars. Okay, so that doesn’t seem like enough to retire on–but wait! If you put that money in a tax-deferred retirement plan at an average rate of return of 6%, you’ll come out with $63, 918 dollars.

    The point is, you don’t have to save a ton at this point in your life, but it is important to make sure that you’re saving. Here are a few tips for young workers to get you started from the National Save for Retirement week website:

    • Start now: Most people join the workforce soon after they graduate from high school or college, but research shows that many neglect to save for retirement. According to a survey conducted by the Employee Benefit Research Institute, 41 percent of workers between the ages of 45 and 54, have less than $25,000 in total savings and investments.Thirty-nine percent of workers aged 55 and older also total savings of less than $25,000.
    • It all adds up. Skip one trip to the corner deli each week or forgo that $5 bucket of popcorn at the movies. It’s a simple way to free up a little extra money every week. Even $5 to $10 a week makes a big difference, if you start now. Starting early could give you 20-30 years of opportunity for investment earning, which can really add up over time.
    • Pay yourself first. Be sure to take advantage of your employer-sponsored retirement plans. One advantage of saving through your employer-sponsored retirement plan, is that the money goes to savings before you have a chance to spend it. An added benefit is that you are saving pre-tax, which means you get the full dollar benefit of the money you save and reduce your taxable income at the same time.

    Need help creating a budget? Download WISER’s Budget Worksheet to help you budget your money. You may also want to consider having a percentage of your paycheck put directly into a savings account or retirement plan. For more savings tips, read WISER Women: Keep Track of Your Spending.

    National Save for Retirement Week: 3 Ways You Can Celebrate

    Monday, October 20th, 2008

    It’s that time of year again. The air is growing cooler, Halloween is approaching in all its candy coated glory, and soon the holiday season will be upon us. Before you get swept up in the upcoming winter holiday spirit, take some time to celebrate a week dedicated to protecting your financial future. October 19th kicked off the beginning of National Save for Retirement Week! This week represents the first Congressional effort to encourage Americans to save more for retirement. By retirement age, women are twice as likely as men to be poor and millions will confront their older years with scarce if any savings. Give yourself the ultimate gift, before the holidays wear on your wallet, by starting a savings plan now. Here are three tips to help you get in the National Retirement Week spirit:

    1. Join a Savers Club: The American Savings Education Council (ASEC) has local chapters throughout the country that can assist you in meeting your savings needs through free events, tips, newsletters and club meetings. The DC Saves chapter features testimonials from other Savers on their website as well as targeted savings plans that can help you get out of debt, save for a home, or create an emergency fund. Visit ASEC’s website to find a chapter near you or for more savings tips.

    2. Try a Retirement Savings Calculator: ICMARC has created a page filled with retirement calculators and worksheets in honor of Retirement Savings Week. WISER features a retirement calculator on the WISER website which is accompanied by a Retirement Calculators fact sheet that can help you get started with your retirement savings plan. For more retirement calculators, read “Retirement Calculators: Predicting Your Future Income” or visit the FINRA website for an additional retirement calculator resource.

    3. Learn About the Saver’s Credit: The Saver’s Credit is a non-refundable tax credit that’s eligible for tax-payers who set aside part of their pre-tax income in employer sponsored retirement plans and traditional and Roth IRAs. Are you eligible? Learn more here.

    Want More? Check back Thursday for a special National Save for Retirement week post from our Young Woman’s Financial Planning Guide series!

     

    WISER

    About Us

    WISER is a nonprofit organization that works to help women, educators and policymakers understand the important issues surrounding women's retirement income. WISER creates a variety of consumer publications including fact sheets, booklets and a quarterly newsletter that explain in easy-to-understand language the complex issues surrounding Social Security, divorce, pay equity, pensions, savings and investments, banking, home-ownership, long-term care and disability insurance.

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