By Nick Fisher, CFP®
If you’re a university employee in Ohio, you likely have access to invest in a “supplemental” retirement plan in addition to the university pension or 401(a) account. Why would you choose to invest in another retirement account? For many, the pension or 401(a) alone may not be enough to meet your income needs in retirement. Learn about the supplemental accounts and how they can help you reach your retirement income goals.
Checking Your Retirement Readiness
It’s a question many of my clients ask me: Am I on track with my retirement savings? Though the answer is different for everyone, there are some rules of thumb. Your nest egg that you’re saving into today will one day need to be turned into a source of retirement income, along with your other retirement accounts such as your pension and Social Security.
How much can you withdraw each year from that nest egg without running out of money late in life? One rule of thumb is the 4% rule, which states that you can withdraw no more than 4% of your portfolio’s value each year in order for your retirement funds to last through your lifetime. For example, if you have $1 million saved for retirement, you could withdraw and spend $40,000 in the first year of retirement, and then increase that amount by the rate of inflation each year.
To determine if your savings are enough, I recommend investors who are 5 to 10 years away from retirement calculate what they expect to spend in retirement, then measure that against the expected income from all their retirement income sources. If your income won’t be enough to cover expenses when you run the numbers, then it’s time to consider working a few more years, increasing your retirement savings, planning to spend less in retirement, or a combination of all three steps.
Overview of Supplemental Retirement Plans
The supplemental plans offered to university employees can help you save more money to use in retirement while offering a way for that money to grow tax-free in retirement. For 2020 and 2021, you can contribute a maximum of $19,500 each year to either a 403(b) or 457(b) account, and an additional $6,500 in “catch-up” contributions if you are age 50 or older. Note that the university does not contribute to these accounts.
Supplemental plans offer a tax break for your contributions to the plan unless you choose the Roth option, and all funds will grow tax-free until retirement. Also, you can borrow your funds in the plan or withdraw them before retirement age, if needed, though I suggest tapping the accounts early only for emergency use.
Creating Your Customized Retirement Plan
It can be difficult to figure out how much is enough to save for retirement and then make the necessary investment decisions. The best approach may be to talk with an experienced financial advisor and create a plan. I’ve worked with many university employees to help them reach their retirement goals. If you’re interested, schedule a no-obligation meeting to discuss your goals and dreams for your money. Call 614-964-9600, email Nick.firstname.lastname@example.org, or schedule a meeting here today.
Nick Fisher is a CERTIFIED FINANCIAL PLANNER® (CFP®) professional at WealthBridge Capital Management with over eight years of experience in the financial planning industry. Nick specializes in helping retirees, medical professionals, and university employees who want to outsource their financial world to a dedicated professional who will help them achieve their goals and ultimately provide peace of mind for their financial future. Nick graduated from The Ohio State University with a bachelor’s degree in business administration, finance, and insurance. When he’s not working, Nick and his wife enjoy traveling to visit friends and family who live throughout the country. They are active volunteers with their church, Rock City, as well as with the United Way through LINC, a young professional group dedicated to fighting poverty in Columbus. To learn more about Nick, connect with him on LinkedIn.