Missed Opportunity

Missed Opportunity
Missed Opportunity:  invest in your employer-sponsored retirement plan

Invest in Your Employer-Sponsored Plan

Are you immune to this classic sales pitch – Don’t miss this once-in-a-lifetime opportunity! What if there really was a fantastic opportunity you shouldn’t miss? Investing in your employer sponsored retirement plan is definitely one of those times.

Excuses, excuses, excuses

People have countless excuses to put off investing for their retirement. "I can’t afford it," "I’m too young," "I don’t understand investing." When you put these – and other excuses – to the test though, are any of them really valid? The answer is no. The truth is, it’s always a good idea to take advantage of your employer-sponsored retirement plan.

Pay yourself to save

One of the biggest benefits of investing in your employer-sponsored plan is that your contributions reduce part of your salary on which you pay taxes. Here’s how: If you’re in the 28 percent tax bracket, and you invest $5,000 a year, that’s $5,000 of your salary on which you’re not paying taxes this year; so you reduce your annual tax bill by $1,400 ($5,000 x .28). It’s like you’re paying yourself first to save for retirement.

And once you’ve decided to invest, doing so with an employer-sponsored plan actually may keep more money in your pocket today. Consider the chart below showing the difference between investing with a plan versus investing outside a plan.

Stan makes $40,000 a year and decides to put aside 6% of his biweekly salary for the future.

 

If he contributes to a plan:

If he saves outside a plan:

His biweekly paycheck

 $1,539

$1,539 

6% of his biweekly pay contributed to the plan

 -$92

N/A 

His new taxable income

 $1,447

$1,539 

Federal income taxes

 -$405

$-431 

Take-home pay

 $1,042

$1,108 

Money saved outside the plan

 N/A

-$92 

Money left in his pocket

 $1,042

$1,016 

Youth is on your side

If you think you’re too young to start planning for your retirement, just the opposite is true. The younger you are, the better. By investing early in your career, you’ll enjoy the potential benefits of tax-deferred growth and compounding of interest for decades. Compounding is a multiplier effect. Consider Larry and Susan:

 

Larry

Susan

Age at which savings started

45

25

Monthly contribution

$300

$100

Total contribution by age 65

$72,000

$48,000

Total pre-tax savings at age 65

$171,798

$324,180

Susan not only ends up with more money than Larry, but she also contributed significantly less money than him. This is one of the benefits of starting early.

Pension and Social Security are not what they used to be

You might be thinking, "Why do I need to save so much? Isn’t that what Social Security is for?" Not necessarily. In recent years, this traditional source of retirement income has become a smaller part of the equation. Consider that for the average worker, Social Security replaces only about 40 percent of pre-retirement income.1 For the next generation of retirees, these percentages may be even lower. That leaves you responsible for more than half of your own future income. That’s why participating in your company’s retirement savings plan may be more important than ever to ensure the future of your dreams.

It’s never too late to start

If you’re nearing retirement and still haven’t taken advantage of your company’s plan, you probably believe it’s too late. But every little bit helps. While you may miss the long-term advantages of a younger investor, you’ll still get the current income tax benefits. Plus, your investment’s earnings will also be exempt from current income taxes. That’s a significant advantage over many other kinds of investments, whose earnings may be reduced each year by taxes.

If possible, consider investing the maximum amount allowable. You may even be able to take advantage of "catch-up" provisions to increase your contributions even more. A few years of investing could put you ahead of where you’d be if you’d done no investing at all.

Borrow money from yourself

If you’re concerned about locking up money that you may need to access in an emergency, keep in mind that many plans allow you to take a loan from your account and then pay yourself back out of your ongoing contributions. Note: loans will reduce your account balance.

No expertise required

So you don’t understand stocks, bonds, mutual funds, asset classes and all the other seemingly complicated terminology that comes with investing? Guess what? You don’t have to. Your company’s plan may have easy-to-understand educational materials. Plus, software, worksheets and calculators will help you clarify your investment goals – based on your own life situation.

Saving made painless

By using automatic payroll deduction, contributions are automatically deducted from your paycheck – before you have a chance to spend them.

What’s your excuse?

Why would you not invest in your employer-sponsored retirement plan? Contact your local ING representative to learn more about this great opportunity.

1 Social Security Administration, SSA Publication No. 05-10035, January 2007, ICN 457500, www.ssa.gov/pubs/10035.html#plans



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