Tasha Reinkemeyer. What has changed? What has changed? 8/20/2012. The Retirement Savings Reality Check

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1 The Retirement Savings Reality Check Tasha Reinkemeyer What has changed? What has changed? Investment line- up Target Date Funds MIP ( MOSERS Investment Portfolio) Monthly valued investment option TD Ameritrade Self Directed Brokerage Account No annual fee for account Lower trading fees $9.99* Record Keeper ICMA-RC new record keeper for the plan Fee reduction from $2.75 to $1.00 per month for Enrollment and Account Access Auto Enrollment Effective date July 1, 2012 Applies to new permanent full-time and part-time employees being hired for the first time by the state. (i.e. Employees with no SAMII record ) Excludes temporary part-time, seasonal, and college/university employees *Additional fees may apply please refer to the TD Ameritrade Fees/Charges Sheet 1

2 What has changed? Deferral options ability to choose a percentage of salary or fixed dollar amount Roth Source added November 2011 Pension changes ( MSEP 2011 Plan for new hires) ESS Portal Auto Enroll Why is auto enrollment successful? Streamlines the benefit enrollment process Allows employees to take full advantage of their benefits Participants have access to low-cost, professionally managed investment options Penalty free access to funds at any age after separation from service ( 457 plan) Account consolidation options for previous employer savings plans Encourages new employees to start saving early Auto Enroll Facts Since July 1, auto enrolled 39 opted out 41 increased from 1% 91% enrollment success 2

3 New Opportunities Participants may now use % of salary to contribute to the plan Allows for gradual increases over time as salaries change Roth contributions now available Participants may use pre-tax or after-tax deductions to save for retirement Paystub categories Pre-tax defce After-tax defrt New Opportunities Roth Benefits Tax-free distributions* Higher after-tax contribution limits than Roth IRAs Eligibility at all income levels Tax planning * Must meet qualified distribution guidelines Contribution Rules vs. Roth IRA 457 Roth IRA What is the maximum contribution? (2012) Do contributions reduce taxable income? Do earnings accumulate tax-deferred? Roth Pre-Tax Roth $17,000 or 100% of compensation Age 50 Catch-Up: $5,500 ($22,500) Pre-Retirement Catch-Up: $17,000 ($34,000) Limits apply to the combination of pre-tax and Roth contributions $5,000 Age 50 Catch-Up: $1,000 ($6,000) Pre-Retirement Catch-Up: N/A No Yes No Yes Yes Yes 3

4 What has not changed? What has not changed? Need for personal retirement savings Guaranteed pension benefit from the State Need for retiree healthcare coverage Concern over Social Security and Medicare Need for strong working relationships with HR & pay reps across the state How important are personal retirement savings? 80 % Replacement income $82,016 required monthly savings of $ % Replacement income $136,693 required monthly savings of $ % Replacement income $191,370 required monthly savings of $414 *Assumptions- Avg. salary at retirement $35,000- Avg. years of service 20 years- 6% annualized return while employed and saving 20 years- 4 % annualized return during retirement 25 years Figured in Today s dollars- Inflation not considered- 65% replacement provided by pension and social security 4

5 How important are personal retirement savings? Current Average Monthly Plan Contribution $ How valuable is the pension? What will the average vested retiree get from the pension plan for their 4% contribution? $541,982 ( approx. 47% replacement of pre-retirement income) * Assumes 2% cola increase and retirement of 20 years, $28,000 starting salary, 2% salary increases, 28 years of service How valuable is the pension? What would an average vested retiree contribute to get that six figure pension? $41,497 ( average monthly contribution of $123.50) * Assumes $28,000 starting salary, 2% salary increases, 28 years of service 5

6 How valuable is the pension? What monthly amount would you have to contribute over your career in order to receive $541,982 in retirement income if you received no guaranteed pension? $ * * Assumes 6% return while employed Quiz & Questions Option 1 Call center for transaction/acct information Option 2 Local office for general assistance plan information Option 3 Education Specialist For important news, savings tips, and more Sign up for DC