By Matt Hotsinpiller

Have you been thinking about retirement?  You certainly should be planning for it, no matter where you are in your career. You have a fair amount of control over how your retirement will look, but it requires a bit of education, homework, and action. Have you attended a STRS retirement workshop? It is never too early. Our retirement system is quite good and can provide much of the income you will need. However, in conjunction with your defined benefit plan, you may want to consider augmenting your retirement by putting money in one of several investment vehicles that offer you tax benefits.  Let’s consider the 403(b):

A 403(b) is a retirement plan similar to a 401(k) plan, but one which is offered by non-profit organizations, such as universities and some charitable organizations, rather than corporations.  There are several advantages to 403(b) plans: contributions lower taxable income, larger contributions can be made to the account, earnings can grow tax-deferred, and some plans allow loans.  Contributions can grow tax-deferred until withdrawal at which time the money is taxed as ordinary income (which is sometimes a disadvantage).

Source: Investorwords.com

Your contributions are pre-tax, so every dollar you put in your 403(b) reduces your tax bill by whatever your bracket is multiplied by the amount you contribute. The money will come out of your pay before it reaches you, which is the best way to save. This year, the federal government allows 403(b) contributions up to $16,500 for folks under 50.  Those 50 and older may contribute up to $22,000.  This money grows unfettered by the IRS until you begin making withdrawals. Let’s have a look at the power of saving and compound interest.

We will assume you have just turned 35, plan to work until you are 65 (you may begin distributions at 59 1/2), and will average $500 a month in contributions over that time. The wise old owls I have read suggest you invest in an S&P 500 index fund for your retirement, which has historically returned  around 9.5% per year.  With these assumptions, you would have more than $1,000,000 waiting for you in addition to your STRS benefit.  That is not too shabby.  As each of us has different circumstances, consider having a look online at a compound interest calculator.  They are easy to use and offer infinite considerations for the future. I encourage my students to start saving early.  With the same returns as above, a 22 year old need only put aside $133 per month to arrive at $1,000,000 by age 65.  Waiting until 30 increases the monthly contribution to $292, and waiting until 40 brings the monthly sum to a little over $800.  Get started as early as you can.

Retirement is an important issue, so why don’t we spend more time learning about it and planning for it?  Consider the following periodicals: Kiplinger’s, Money, and Smart Money.  They are easy to read, informative, and will not take too much of your time.  If you’d like to be a bit more ambitious and would like some basic philosophy regarding personal finance, try Clason’s The Richest Man in Babylon or Stanley and Danko’s The Millionaire Next Door.  Finally, consider visiting with a financial advisor.  It seems spending a few bucks on a financial plan from a professional would be time and money well spent.  It is important to take the first few steps and then develop the habit of educating yourself and saving.

Start your education by speaking to an advisor and do some reading: the periodicals will help you familiarize yourself with the various investment vehicles that are available for your 403(b).  Set some definite goals for your retirement and pick a realistic number. Use a compound interest calculator to see how much you need to save to reach your goal.  Do you have a monthly budget written down?  This is a great time to do that and to begin the virtuous practice of paying yourself first. Ask human resources about a 403(b) vendor list and what paper work you will need. Find a vendor from our list, create an account online, and forward human resources your account information with the amount you would like deducted.  You do have a great deal of control over how you will spend your retirement, and a 403(b) can be an important tool to help you realize your goals.  Please have a look at FAB online for links to the tools mentioned here.