Retirement Planning Newsletter Spring 2015 Notice something different? The retirement services business of Great-West Financial has a new name Empower Retirement! Our goal is to help you replace for life the income you earned while working, and our new name reflects a commitment to empowering you to take charge of your own retirement future. You can continue to rely on us to provide superior service, innovation and a focused vision of a better retirement. A Rung at a Time: Climb The Ladder Toward Retirement Goals by Increasing Contributions We all make a variety of decisions every day. Beyond what to wear and what s for dinner, you can make important decisions today about your retirement plan. First and most important is whether or not to join. That s a slam dunk, because joining the plan gives you financial advantages that nonparticipants simply do not have. For example: y You can likely reduce your income tax bill. y You have access to a wide variety of investments, often at better pricing than is available to individual investors. y You may enjoy the ease and convenience of automatic payroll deductions, giving you a predictable, regular way to save and potentially leading to greater retirement savings. So, congratulations on joining your workplace retirement plan! You ve taken that first and most important step. Once you ve joined the plan, though, there are still a few more decisions to make. Did your employer enroll you in the plan automatically? If so, it has demonstrated that it cares about your financial future. Sometimes we need a little push to get going in the right direction, and employers who use automatic enrollment are providing that little push. Or, maybe you enrolled in the plan on your own but started at a low contribution rate. Either way, just because you are in the plan does not mean you re saving enough. Continued 1 Financial Footnotes Spring 2015
A Rung at a Time: Climb The Ladder Toward Retirement Goals by Increasing Contributions Continued from page 1 In fact, some experts now say that most people should be setting aside 15% of their pay toward retirement if they start saving by age 35. 1 While that goal may seem out of reach, don t dismiss it as impossible. If you joined the plan at a minimal level, you have lots of room to improve. Think of the road to retirement as a ladder: Rung by rung you can reach the top. Don t stop when you re just above the ground. If the first rung on the ladder is joining the plan, the second is making sure your contributions are working as hard as they can. Rather than choosing to contribute a fixed dollar amount which will only increase if you change the amount you may be able to set your contribution as a percentage of pay. That way, as your pay goes up, your contributions do, too. It can be easy to slip into a set it and forget it state of mind, and even if the dollar amount you chose was reasonable at the time, it may no longer be enough as you earn more. The third rung is to increase your contribution percentage at the same time you receive a pay increase. Even a small, incremental increase in your contributions every year can really add up! You may still get to enjoy a little more spending money in your budget, but you ll be satisfied knowing that your retirement savings are increasing at a faster rate at the same time. And the fourth rung? Don t forget about any retirement money you may have in a former employer s plan. Explore your options for that money. Did you know you may be able to roll it into the plan you re in now? 2 You may want to consult with a financial advisor who can answer your questions about these options, considering any potential fees and/or limitation of investment options. But remember, it can be easier to have all of your retirement money in one place; that way, keeping track is a snap. 1 Source: http://www.cbsnews.com/news/how-much-to-save-for-retirement/ 2 You are encouraged to discuss rolling money from one account to another with your financial advisor/planner, considering any potential fees and/or limitation of investment options. 2 Spring 2015
What s the right age to save for retirement? Let s face it: People of every age and circumstance face financial challenges. When you re just starting out in a career, you may have trouble stretching your paycheck to fit a new, independent life. y New parents may worry about their ability to save for a family home or future college expenses. y People in midcareer may be funding college for the kids and caring for aging parents. y Folks who are approaching retirement want to save as much as they can for the day the paychecks end. With so many demands on our finances, it can be tough to find the money to save for the future. So when is the best time to start saving for retirement? Right now! That s because no matter your age and stage in life, there will always be competing demands on your money. So, don t wait you have choices about how to spend your income right now. Make them positive and with an eye on your future, and your choices in retirement will open up, too. Mom probably told you to always carry a quarter for the phone (or to carry a cell phone, depending on your age). She didn t expect you to get into an accident, but she wanted to be sure you were prepared just in case. Stashing some money in your retirement account is like that. By saving now, you are more prepared for your life after work. Lots of people today plan to work well into what their parents thought were the retirement years. But what happens if your health changes, or if your job is outsourced? By saving today, you may have more choices tomorrow. Here are a few ideas designed to help you save, whatever stage of life you re in. y Keep your wallet healthy. Set up a budget and spend less than you make. Make a plan for your income and expenses so you don t spend absent-mindedly. y Get control of your debt. If you have debt, make a concerted effort to pay it off as soon as possible. The money you re paying toward a credit card bill each month is reducing the amount you can save for retirement. Hold a garage sale, sell your collectibles, or break open your piggy bank and pay off those debts. Then you will have more funds available for smart (i.e., cash) purchases and your savings efforts. y Review your options. Is one cable TV or cell phone provider cheaper than another? Can you insure your home and car for less money than you are currently paying? It pays to shop. y Commit together. Get the family involved in your savings efforts. Tell the kids that by controlling your family finances, you are less likely to live with them in your golden years! 3 Spring 2015
Should you make Roth contributions? If your employer offers Roth contributions as an option in your retirement plan, you may wonder if you should put some money there. Here are a couple of reasons you might want to do so. I believe my income taxes will be lower after I retire. The primary reason to make Roth contributions rather than traditional before-tax contributions is the difference in income tax. With traditional before-tax contributions, you contribute part of your pay before taxes are applied, thereby reducing your income (and, therefore, your tax liability) for the year. But, when you begin to take the money out of the account, you will be taxed at the rate that is then in effect for income. On the other hand, Roth contributions are made after tax. When you withdraw the money, no further taxes are due because they ve already been paid. If you expect to be earning less money in retirement than you are now, or if you think the tax rates will be lower, you could stick with traditional before-tax contributions. But if you expect to earn as much or more in retirement than you do now, or if you believe income tax rates will be higher, Roth contributions may be a good option for you. I pay very little federal income tax now. One of the main reasons to make traditional before-tax contributions is to save money on your income taxes. If your tax liability is very small, you won t be getting one of the main benefits of the plan. Of course, that doesn t mean you shouldn t be saving money toward retirement; it just means that you should consider saving it in a different kind of account. By making Roth contributions to your retirement account, you will be paying your taxes on the money now so you can enjoy that tax-free status later, when you withdraw the money in retirement. A few reasons that might put you in this category are: y A year in which you earned less money because you took substantial time off. y You have a lot of tax deductions or exemptions, like many dependents or a large mortgage. y You are young and don t earn much money. Remember that these situations can change, so you should revisit the decision each year. If your plan offers Roth contributions, you may be able to make both Roth and traditional before-tax contributions. Talk to your plan administrator or visit your plan s website to find out how to get started. 4 Spring 2015
New, easy-to-use calculators available online Wondering how much to contribute to your retirement account or how different contribution amounts will affect your paycheck? You can find out quickly and easily by accessing the new suite of online calculators on your retirement plan s website. Each of these new calculators is designed to help you develop a plan for reaching your financial goals through a quick, intuitive process to get the information you need. Using the latest in technology, the new calculators work well from any device. You can learn about the cost of debt, protecting your assets, or projecting your retirement income at work or on the go. To use these new tools, simply log in to your account online and select the Financial Planning Tools icon. 3 Impact economy: How are you affected? It s no secret that interest rates today are among the lowest ever. That can be great if you re a borrower. The payment on a 30-year, $150,000 mortgage at 4%, for example, would be $183 less than a similar mortgage at 6% ($716 per month compared to $899). By all means, if you can refinance your mortgage or purchase a home, this is a great time. However, low interest rates are not so attractive for investors, especially those who prefer to invest in cash. Remember that in a low-interest environment, cash and equivalents may be paying less than 1%. Because that return can easily be outpaced by inflation, cash investors may actually lose money. Talk to a financial advisor to find out how you can allocate your portfolio appropriately and at the same time help your account grow. 4 You can learn more about asset allocation by visiting the Education section of your plan s website. 3 Access to the website may be limited or unavailable during periods of peak demand, market volatility, systems upgrades/maintenance or other reasons. 4 Asset allocation does not ensure a profit and does not protect against loss in declining markets. Please note: This newsletter does not constitute investment or financial planning advice. Please consult with your financial planner, attorney and/or tax advisor as needed. Core securities, when offered, are offered through GWFS Equities, Inc. and/or other broker dealers. GWFS Equities, Inc., Member FINRA/SIPC, is a wholly owned subsidiary of Great-West Life & Annuity Insurance Company. Empower Retirement refers to the products and services offered in the retirement markets by Great-West Life & Annuity Insurance Company (GWL&A), Corporate Headquarters: Greenwood Village, CO; Great-West Life & Annuity Insurance Company of New York, Home Office: White Plains, NY; and their subsidiaries and affiliates. The trademarks, logos, service marks, and design elements used are owned by GWL&A. 2015 Great-West Life & Annuity Insurance Company. All rights reserved. Want to receive your account statements electronically too? Log in to your account and click on Go Paperless under the My Profile icon. G3784FF_Spring2015 (04/01/2015) PT220612 5 Spring 2015