- February 2008 > Retirement Corner
The UTSaver supplemental retirement plans offer employees a powerful tool to save for retirement, and the sooner you get started, the more you will have when you need it most—at retirement!
What You Will Need
Most of us will need at least 70% of our pre-retirement income—and probably much more than that—to live comfortably in retirement. That means if you are currently earning $4,000.00 a month, you would need at least $2,800.00 a month to maintain even the basics of your current lifestyle.
Will your mandatory retirement plan be sufficient to cover that monthly expense? If you are a member of the Teacher Retirement System, you can calculate your estimated retirement savings at http://www.trs.state.tx.us/global.jsp?page_id=/global/calculators. You can also view a Social Security calculator at http://www.ssa.gov/planners/calculators.htm.
Many people will find that their mandatory retirement saving vehicles will not be enough for their basic needs in retirement. That is where the power of the supplemental retirement plans come into play.
How You Can Get There
Unlike normal savings or bank accounts, the UTSaver 457(b) Deferred Compensation Plan (DCP) offers you the opportunity to defer savings directly from your paycheck before you even pay taxes. With the UTSaver 403(b) Tax Sheltered Annuity (TSA), you can defer savings directly from your paycheck before or after you pay taxes.
The UTRetirement Programs offer six authorized providers, all of whom are nation-wide leaders. These six providers offer several hundred funds for you to use for your retirement savings.
When you contribute on a "pretax" basis—before taxes are subtracted from your salary—your taxable salary is lowered and your current tax bill is reduced. To illustrate, if you’re in the 28% federal income tax bracket and your contribution for the year is $15,500, the actual cost from your pay would be $11,160, netting you a current annual tax savings of $4,340.00.
The Power of Compounding
Even if you can’t contribute a large amount from your paycheck, starting early can go a long way to making up the difference. For example:
If you can’t afford to save $15,500.00 a year, then start smaller. If you saved just $25.00 a month, but increased your deferral by an additional $25.00 per month with each annual raise, after 30 years with a 6% average annual return you could save over $250,000.00!
If you can contribute the maximum, starting early can also go a long way. For example:
Say you’re 40 years old and you want to retire at age 62 but currently have no deferred savings in your UTSaver TSA or DCP plan. If you contribute $15,500.00 for 22 years and earn an average annual return of 6% during this time, by age 62 your accumulation would be worth over $695,000.00. During these 22 years, you would contribute $341,000.00 but would accumulate twice as much.
Please note these examples are used as an illustration only. Actual results will vary based on your personal tax bracket and financial circumstances.
It’s Never Too Late
It is never too late to start contributing to a UTSaver TSA or UTSaver DCP account. The sooner you start, however, the more time you will have to let the power of compounding work for you!
For more information on the UTRetirement Programs, including a list of investment options, go to www.utretirement.utsystem.edu.
If you would like a specific topic discussed or have a question you would like answered in a future issue of this newsletter, please send your suggestions to firstname.lastname@example.org.
UT System Employee Benefits Website: www.utsystem.edu/benefits/
UT System Retirement Programs Website: www.utretirement.utsystem.edu
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