Why now is a good time to ask about retirement plans

Financial planner Tim Moomey says the beginning of the year is a good time to talk to your employer about retirement plans.

He joined NTV’s Good Morning Nebraska on Wednesday to talk options.

“Lots of people have retirement plans at work. However, most of those now days are what we call defined contribution plans. Some of us have parents or grandparents that retired, received the nice watch, and had a pension plan that paid them something for the rest of their lives. That was called a “Defined Benefit” plan. Those days are pretty much over. There are still a few of them out there, but for the most part, they have been replaced by what we call, “Defined Contribution” plans. These are 401k’s, SEP-IRA’s, SIMPLE IRA’s, and others, and the ending amount in your plan is a direct result of how much you put in to the plan. What we have to remember here is that this is the employees retirement plan. It’s wonderful and very helpful if the employer contributes or matches into the plan, but the fact is that the plan is ultimately for the benefit of the employee. You are doing this for your own benefit, so you need to take responsibility for contributing to it yourself.

“In what I am seeing in my practice is that most times employees put in the amount that the employer matches and that is it. However, that may not be enough. I would strongly suggest to anyone that they look at the possibility of increasing their own contribution. Companies usually allow that here at the first of the year. Now, some employees may think that this would be really difficult, but I would encourage you to actually check into it a little. If your plan allows you to increase your percentage, try doing that. If you think you can’t afford a lot more, try just increasing by 1 or 2 % of your salary. You may be surprised at how little it affects your “Take-home” pay, and yet it will make a big difference in 20 or 30 years down the road in retirement. If that 1-2 % doesn’t hurt too much, then do another 1-2% in a few months, or the next time you are allowed to change your contribution. Again, you may be surprised at how little it may affect your take-home.

“Unless you are contributing to a ROTH, or a ROTH 401k, the contribution is a deduction from your gross salary, and is not subject to taxes. If you are in a 25% tax bracket and if you assume a 5% or so State of Nebraska tax, about 30% of that contribution would have gone to taxes. So, for example, if you are in a 25% tax bracket and you increase your contribution by 3%, about 1% of that was going to the government for taxes and you never saw it anyway. Now you get to put that into your own pocket.

“As always, you should consult with your tax advisor and your financial advisor to see how this would work in your own individual case.”