Whether you are years away from retirement or a few days short, one thing is certain—a secure retirement requires thoughtful planning and disciplined saving.
If you are employed in a regular full-time position, upon employment, you are required to participate in a retirement plan. Regular means your employment is expected to be more than 12 months, and full-time means you are regularly-scheduled to work 40 hours per week. If you are regular part-time, meaning you are regularly-scheduled to work less than 40 hours per week, you have the option to participate in a retirement plan. Regular non-exempt employees, which means you are eligible for overtime provisions according to the Fair Labor Standards Act (FLSA), participate in the Tennessee Consolidated Retirement Plan (TCRS). It requires that you have five years of retirement creditable service to be vested. Regular exempt employees, meaning you are not eligible for overtime provisions of the FLSA, may participate in TCRS or the Optional Retirement Plan (ORP), which has immediate vesting. The University makes all contributions to the retirement plans; you pay nothing for this important benefit.
Regular and term employees also have the option to set aside supplemental retirement savings via salary reductions through the deferred compensation program, which includes 401(k), 401(k) Roth, 403(b) and 457 plans. These plans allow employees to defer a portion of current income until after retirement. The amount you contribute to your plan will not be considered as income for federal income tax purposes until you actually receive the income. In these plans, you have control of the investments. You may enroll at any time, adjust your investment options or suspend your investments. Here is an overview of each plan:
- 401(k) – The University matches the amount you choose to defer each month, up to $50. There is no match above $50 regardless of the amount you defer. Most employees select this option.
- 401(k) Roth – This plan also has the $50 match feature, but the University’s contribution will go into the traditional 401(k). The advantage of the Roth is that while you pay taxes on the money today, you do not pay taxes when you withdraw the funds. It is important to note that you don’t pay taxes on the growth of the funds either.
- 403(b) – This plan offers the greatest amount of investment choices and is excellent for the investor who likes to choose from a variety of financial products. There are investment advisors who can assist you with this plan.
- 457 – This plan operates similarly to a 401(k) or 403(b), only there is no 10 percent penalty for withdrawal before the age of 59 ½ (although the withdrawal is subject to ordinary income taxation). It allows you to defer an additional amount (up to $17,500 in 2013).
Planning for retirement in stages
Consider your career as occurring in three stages. Let’s take a look at each of these stages and how you can plan for your long-term goals.
Stage 1 Early Career (ages 18 – 35 yrs.)
Start small and grow. Your greatest ally is time. If you do not have many demands on your income, such as a mortgage, children or heavy debt, this is a good time to stretch your dollars and save as much as possible. You should start early because you will likely be responsible for more of your own retirement savings than earlier generations, and you have the time to invest more aggressively, which can bring higher returns.
Stage 2 Mid-Career (ages 35 – 50 yrs.)
As your career continues, your income typically increases. You may wish to defer more money to reduce your taxes. If you haven’t already started saving, do it now. Time is critical. Money may be tight, but even small amounts can make a big difference given the right investments and tax-favorable plans such as those mentioned previously. By maximizing the amount you contribute to an optional savings plan, you can really add to your retirement income while reducing your current tax burden.
Stage 3 Near Retirement (ages 50+)
At this point in your career, retirement no longer seems far off. There are, however, still demands on your time and income. Schedule a time to speak with UT Benefits and Retirement and get more information on how to meet your retirement goals. Limits on your optional plans increase after age 50, meaning you can defer more of your income and play catch-up (several options are available). You may also consider getting an estimate from the Social Security Administration to find out what you might expect upon retirement.
Quick Retirement Tips
- Make saving a habit early in your career.
- Have a savings goal.
- Saving enough to meet UT’s match in a 401(k) plan is a basic goal. Saving at least 10 – 15 percent of pay may also be a reasonable goal.
- When planning, figure out your actual expenses and predict how they might change in the future. Assume health care expenses and the general cost of living will increase as you age.
- Don’t dip into retirement savings.
- Use automatic deductions from your payroll or your checking account for deposits in investment vehicles.
- UT Benefits & Retirement is here for you. Schedule a time to speak with a representative about retirement and establish a plan that works for you.