The Road to Retirement Starts Earlier Than You Think

This article was first published in the Spring 2024 issue of Bridge Magazine.

Time tends to sneak up on us. One day, you are celebrating your first “real paycheck,” then your next big raise or promotion, maybe a career change, another promotion, and before you know it, you will be pondering your retirement plans. I know it feels like it is forever away, but retirement is much closer than you might think.

The earlier you start saving for your golden years, the more comfortable you will be in retirement and along the way. So, why start early? Here is the bottom line: starting early is a game-changer. Thanks to the magic of compound interest, the money you save now will grow exponentially over time.

Telling you to start early is ineffective without providing you with the skills and knowledge you need to start saving now. So, let’s discuss understanding retirement plans, where you should start, and how much you should contribute.

Understanding Retirement Plans

Retirement plans might sound like a jumble of numbers and letters to the untrained eye. What is a 403(b)? An IRA? What does a pension do for me? Rest assured; these accounts are more straightforward than they might seem. Think of your retirement account options like special, tax-advantaged savings accounts designated to fund the expenses of future you. If this is the first time you have had access to a retirement plan, do not worry. You are not alone, and it is not too late to start.

First Steps in Retirement Saving

Begin by looking into your retirement plan options. Members of Pension Fund of the Christian Church have access to a few different retirement plan options.

Pension Plan

Pensions differ from the traditional 401(k) you hear about most frequently. Pensions are different because your pension amount is based on a system of credits that converts to a monthly payment for life. Once you become eligible for your monthly pension payment, you will have monthly income for life in retirement for both you and your spouse or qualified domestic partner.

Tax-Deferred Retirement Account 403(b)/Roth 403(b) (TDRA 403(b)/Roth 403(b))

I want to ensure we do not get too caught up in the alphabet soup of these accounts. A Roth or a Traditional 403(b) is similar to a Roth or Traditional 401(k) and is simply a savings option that allows you to make monthly contributions that result in a balance to be used when you retire.

457(b) Plan

The 457(b) Plan is an employer-sponsored deferred compensation retirement plan for members who want to make retirement contributions in addition to a Tax-Deferred Retirement Account 403(b) Plan and/or Pension Plan. This option is ideal for those seeking an additional vehicle to defer compensation and decrease their tax liability.

Should You Choose a Roth or Traditional Account?

When you think about Roth and Traditional accounts, we are talking about when Uncle Sam gets to take a piece of the pie. In a traditional account (tax-deferred), you do not pay taxes now, but you will pay taxes when you retire. Roth accounts are the opposite. You will pay the taxes on the contribution now but won't owe any taxes during retirement time. Each option has a time and place, and we recommend talking with a tax professional to determine which tax strategy is best for you both now and in the future.

How Much Should You Contribute

Between student loans, rent, food, subscriptions, and all of life's other expenses, saving can be challenging. There is no one-size-fits-all answer, but there are industry recommendations. The gold standard of retirement contributions is 12-15% of your income being saved for retirement. Prioritize saving for the future, even if you cannot contribute to that standard. Even a little bit helps; small amounts will add up over time. Try increasing your contributions as you eliminate debts, after you receive pay raises, or at the start of a calendar year.

The bottom line is that you must start saving appropriately for retirement now. Saving early and consistently is a decisive step toward a secure future. It might seem daunting, you might feel like you have plenty of time, and you might not think this is a priority right now – but you can (and should) do this. The best part is that you are not alone on this journey. Pension Fund offers Your Money Line as a free service to all our members. If you have questions or concerns about saving for retirement, reach out to the financial guides on our Your Money Line page.