With so many financial obligations in life, it’s easy to put your own needs on the back burner. But saving for your retirement is one of the best things you can do to achieve lasting financial well-being. It won’t seem like a struggle once you get into the savings habit and stick with it.
Pay Yourself First
No matter your age, start investing in a retirement account now. Many employers offer retirement plans such as a 401(k). Often with 401(k) plans, the employer will match your contributions, typically between 2% to 8%. For example, if your employer provides a 6% match, and you contribute the same, an amount equal to 12% of your gross pay will go toward your retirement savings. That can really add up over time. In addition, that 6% match is free money, but you can only take advantage of it by making your own contributions.
Because your contributions are taken out of your paycheck before taxes, you’ll reduce your overall taxable income. You won’t pay taxes on the contributions until you start making withdrawals when you reach retirement age.1
For School Employees
If you are a school employee, you’re fortunate to be able to save for retirement with a CalSTRS or CalPERS pension plan. Although these are great ways to build savings automatically, you may need to supplement your plan with additional savings to maintain your standard of living when you stop working. You can do this with tax-advantaged retirement plans, such as a 403(b), Roth 403(b) or 457(b), offered by your school district. These plans are similar to 401(k) plans. Our team of retirement plan advisors2 can discuss your situation with you and explore your retirement savings options.
Starting Young Matters
Of course, when you’re beginning your career, you may not have a lot to put toward your retirement plan. But by contributing a set amount every month, you deploy a strategy called dollar-cost averaging. This means you’re automatically set up to buy more investment shares when prices are lower and fewer when prices are higher. Remember that dollar-cost averaging won’t assure a profit or guard against loss in declining markets. However, retirement is a long-term goal, and that allows for potential recovery time for your investments, should the market take a dip.
How Much Should You Contribute?
Starting in 2020, you can contribute up to $19,500 a year to your 401(k), 403(b) or 457(b), or $26,000 if you’re 50 or older. Some 403(b) plans offer an additional perk — you can contribute up to $3,000 per year for five years if you’ve been with the same employer for more than 15 years.
If you don’t have an employer-sponsored retirement plan, consider opening another tax-advantaged plan, like a traditional or Roth IRA. The 2020 annual contribution amount is $6,000, or $7,000 if you’re 50 or older. These accounts can also be set up for automatic contributions. Income limits may affect your maximum income deduction and/or contribution amounts.
Bump Up Your Contributions, Even Just A Little
Increasing your contributions over time as your income grows will help boost your savings. Saving even 1% more can be significant over the long term. If you earn $50,000 a year, that contribution bump equals less than $42 a month. So if you earn 6% annual returns on your investments, that extra 1% could add up to $59,838, assuming 12 pay periods, after 35 years. The goal is to eventually contribute at least 10% to your plan.
Take The Saver’s Credit
If you are a low- to moderate-income taxpayer, Uncle Sam offers a special credit if you’re saving for retirement. To qualify, you must be at least 18, and you can’t be a full-time student or claimed as a dependent on someone else’s tax return. Also, for 2020, your adjusted gross income cannot exceed $65,000 for a married couple filing jointly, $48,750 for a head of household or $32,500 for all other taxpayers. The credit is worth up to $1,000, or $2,000 if you are married filing jointly.
Get Financial Advice
We have retirement plan advisors2 who work exclusively with school employees to assist with their district retirement plans — 403(b) and 457(b) — and financial advisors2 who can assist Members with IRAs. Both provide complimentary one-on-one advice to SchoolsFirst FCU Members, and can help find creative financial strategies tailored to your specific needs. They could help you maximize your savings and create a retirement strategy.
Visit schoolsfirstfcu.org/advisors to learn more.
- SFFCU does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. 2. Financial Advisors are registered representatives of CUNA Brokerage Services, Inc. Representatives are registered, securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with SchoolsFirst FCU to make securities available to Members. Not NCUA/NCUSIF/FDIC insured, may lose value, no financial institution guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc. is a registered broker/dealer in all fifty states of the United States of America.