Talking retirement with Texa$aver
The Texa$averSM 401(k) / 457 Program is managed by Empower, where there’s a team of Retirement Plan Advisors available to support Texa$aver participants. They're salaried professionals who don’t work on commission. Their job is to help you with your retirement goals.
You may have met Retirement Plan Advisor Mike McLellan, who serves the Dallas-Ft. Worth area and northeast Texas, at one of our in-person fairs. He shares his insight into some of the common questions we hear from members.
As people have different financial needs throughout their lives and careers, how can they benefit from meeting with a Texa$aver Retirement Plan Advisor (RPA)?
The main benefit to meeting with an RPA is being able to orient where they are on the pathway to the retirement they deserve. For some, it’s confirmation they are doing the right things to stay on that path. For others, it can signal to them the need for changes that can have long-term, positive impacts on their lives and their families’ lives for decades to come. The sooner they can make these changes, the more of an impact it can make.
Retirement Readiness Reviews are provided by Empower representatives registered with Empower Advisory Group, LLC. We may provide investment counseling and/or recommendations at no additional cost to Texa$aver participants. It’s important to know there is no guarantee provided by any party that use of the review will result in a profit.
People new to Texa$aver may be concerned that their money is losing value: they don't realize they're investing and not just saving. Explain how this is normally a long-term investing approach.
The key to dealing with this common concern is to start by remembering their investing timeframe. Most people, who are in the accumulation phase, the money they are investing simply isn’t for them for right now—it’s for them 10, 15 or 20 years in the future! The success of their investment won’t be determined by the value of their account today, or this month, or even this year. The final value of their investment won’t be realized for years or possibly decades in the future. People understand this when they think about a home they purchase, and that is a helpful way to think about their Texa$aver investments. When someone buys a home to live in, they probably aren’t concerned with real estate values immediately after they move into the house. They realize that this is their home, and they may own it for a long time. It’s helpful to think of retirement assets in a similar manner. It is also important to realize that investing doesn’t stop just because you retire. Depending on your unique situation, you may need to invest throughout your retirement.
It’s also important to remember that investing involves risk, including possible loss of the principal investment. A Texa$aver RPA can work with you throughout your career to help you align your investments appropriately with your retirement timeframe and goals.
What should they think about when choosing between a 401(k) and 457(b) plan?
The 401(k) plan and the 457(b) plan are very similar. Both are voluntary retirement plans that allow tax beneficial contributions for retirement. Both plans have the same investment options, and both offer the same features for making contributions and managing investments, such as automatic payroll deductions, the ability to find resources and make changes online, and more.
The major difference in the two plans comes when it’s time to take money out at retirement. In a 401(k), generally speaking, you need to be both retired and 59 ½ years of age to take a penalty-free withdrawal. (There are some exceptions, of course.) In a 457(b) there is no age minimum for penalty-free withdrawals, you just must be separated from the Employer of the plan. The practical difference in these plans comes if someone is planning on retiring before age 59 ½. If you are someone who is planning on that, the 457(b) may have more flexible withdrawal options than the 401(k). Of course, there are other differences with the plans, and you should review both carefully before deciding. You may also want to consult with an investment advisor as well.
How should participants consider choosing between Roth and traditional contributions?
Traditional contributions act as a tax deferral because those contributions do not count as income in the tax year they are made. Those contributions also potentially grow tax deferred. Then, only after they are withdrawn in retirement, do they count as income in that tax year.
Roth contributions work the opposite way. Contributions are taxed in the year they are made. However, any earnings grow tax-free (not just deferred), so that qualified Roth withdrawals are never taxed in retirement. People with or considering Roth accounts should keep in mind that earnings on Roth contributions will be taxed unless withdrawals are a qualified distribution as defined by the IRS.
The general difference is that traditional contributions give the tax benefit up front, whereas Roth contributions give the tax benefit at the end of the accumulation period, when someone is in retirement.
What other things should people consider when they’re deciding how much to contribute to retirement savings? For example, when should things like debt repayment and emergency funds take precedence over saving for retirement?
Saving money for retirement is, in many ways, a balancing act. We all know that we need to save money for the days when we will no longer get a paycheck from a job. We know that we want to live a certain lifestyle after we are no longer working. We’ve worked hard and we want a retirement with dignity. However, we also have lives that we are living right now! So, successfully navigating this balance takes intention and planning. It can be hard to plan for your long-term future until you’ve planned for the next few months of your life. So having an idea of your monthly cash flow on is a first crucial step to your retirement planning. Whether it’s on your favorite financial app, or even just a yellow pad and pencil, do your best to budget your monthly cash flow, then are you able to prioritize future spending and savings goals.
Note: Securities, when presented, are offered and/or distributed by Empower Financial Services, Inc., Member FINRA/SIPC.
EFSI is an affiliate of Empower Retirement, LLC; Empower Funds, Inc.; and registered investment adviser Empower Advisory Group, LLC. This material is for informational purposes only and is not intended to provide investment, legal, or tax recommendations or advice.