Save for Retirement

Recently a friend asked me how much do I contribute to my retirement account and how much does my employer contribute? I shrugged, but inside I cringed, because I didn’t know the answers to these simple questions. Do you know how much you contribute to your retirement account? 

Retirement financial literacy

Financial literacy knowledge and confidence are key to investing in your retirement. According to Fearless Woman: Financial Literacy and Stock Market Participation, the study found that “…women have lower financial literacy than men, but they [women] know more than they think they know.” Regardless of gender, schedule time to find educational books, library resources, blogs, or podcasts and gain the financial confidence to invest in your retirement.

When I tried different educational formats, I found listening to podcasts was the best way I absorb financial information. It was like taking a crash course on retirement planning and financial jargon.  Admittedly, the first time I looked at my 401(k)-summary statement, it felt like reading a foreign language. Overtime, I gained the knowledge (work in progress) and confidence to have retirement planning conversations with my friends.

Learning investment basics 

Certainly, it can be overwhelming. You do not have to tackle everything at once. Start where you are. Invite help from others and offer help yourself. A good starting point is learning investment vocabulary. Here are some great online free resources:

• Smart Investing Courses | FINRA.org
• Key Investing Concepts | FINRA.org
• Home | Investor.gov

Questions to ask yourself

There are many questions to ask yourself as you are planning to save for retirement.

• Are you contributing to a retirement account?
• Do you know how much your employer contributes?
• Does your employer match contributions?
• How long do you need to work for your employer to be 100% vested in the retirement fund?
• Is your retirement pretax or post tax from your payroll?
• If you change jobs, can you transfer and take your retirement with you?

If the answer to any of the above is no, here are a few options to start your journey to save for retirement. 

What are my options? 

You’re not alone. In Colorado, “more than 40% of the state’s workforce does not have access to an employer sponsored retirement savings account,” according to the CO Dept. of Treasury. Here are some options.

• Traditional IRA

  • • The money deposited is tax-deductible, it reduces your taxable income, and you pay taxes upon withdrawal
    • Distributions may be fully or partially taxable
    • The IRS requires withdrawals no later than 70 ½ years.

• Roth IRA

  • • The money deposited is with after-tax income (pay taxes today)
    • Offers significant tax and retirement planning advantages with the funds in the account growing tax-free
    • Tax-free withdrawals may be made at age 59 ½ years or older

Employer-sponsored plan

This type of plan is an IRS-approved plan offered by your employer. The type of account depends on the employer—private corporation, government, civil service, or non-profit sector. Many variations of retirement accounts exist, check with your employer. Generally, two types of plans are offered:

• Defined contribution plan (DCP), the most common type is known as the 401(k)
  1. Employee’s controls the assets in their account.
     • You take a portion of your wages and postpone receiving it
     • Your contributions are automatically deducted from your paycheck and are not subject to income taxes at the time
     • Reduces the amount of gross income reported to IRS; the tax-free contributions are designated on the employee’s
       W-2 form
     • Your earnings are tax deferred. (Income taxes are paid at the time of withdrawal.)
  2. Some employers offer a full or partial matching contribution
  3. The fund balance will be influenced by your contribution, the interest earned over time and the success of the investments

• Defined benefit plan, known as pensions
  1. Employer assumes the investment risk since it contributes all the money into the account
  2. A defined amount is received at retirement typically based upon a predetermined formula of years of service, average pay in the last few working years, and a percentage

In either employer-sponsored plan, the money is deposited to your account at a financial institution.  With 401(k)s, the plan vendor has a list of investment options, you can look up the investments using the FINRA Fund Analyzer | Tools & Calculators (finra.org). The FINRA tools helps analyze how fees and expenses associated with your account impact your savings overtime.

In conclusion, retirement is complicated, start by taking one step towards saving for your future self.

 #ASW2022