Secure Your Future
Right time to review your finances
Oct 23, 2008 1:39 PM
As we mentioned in the last issue, we are in the midst of the congressionally sanctioned “National Save for Retirement Week.” This week is designed to help further the goal of educating and urging both public sector and private sector employees to increase their savings. This would be an excellent time to conduct what should be an annual review of your finances.
The economic situation in the country has led to a lot of questions related to the current state of the economy, but a comprehensive assessment of your financial plan is probably long overdue. If you follow some of our suggestions at this time, and then remind yourself each year in the future to do the same, you will not be as stressed over cyclical upheavals in the economy which occur from time to time. Let’s go.
What are your financial goals?
Writing down specific financial targets is a good way to start. Rank your objectives in order of importance. When do you want to reach each goal and what do you project it will cost?
Identify areas where your spending does not reflect your priorities. Then realign your spending plan and reallocate dollars into short-term, midterm and long-term investment accounts that are more closely aligned with your goals.
We are among the minority of Americans that have a defined benefit pension plan. This is very important in freeing up assets for other important priorities.
How are your assets allocated?
Now that you have identified your goals, you should determine the most appropriate allocation for each objective.
Short-term goals should have a different investment allocation than midterm goals or long-term goals. As time passes, you must adjust your allocation — a midterm goal over the years becomes a short-term goal, a long-term goal becomes a midterm goal, etc.
Assets for short-term goals should be invested in liquid, nonvolatile instruments such as bank accounts, money market funds or U.S. Treasury bills, for example.
Midterm goals can mix nonvolatile, safe fixed-income and some volatile stock investments.
Long-term goals like retirement may be largely invested in stocks.
Remember, as long-term becomes midterm and as midterm becomes short-term, your allocation must change.
It may be fine to invest a newborn’s college fund in all stocks, but when the child becomes a teenager and college looms closer, the college fund allocation should change.
Do you have high-interest debt?
How much debt do you have? Is it good debt like a fixed-rate house mortgage? Or is it very-high-interest-rate debt like a credit card? You may have too much debt if more than 20 percent of your take-home pay goes to finance non-housing expenses, or if your rent or mortgage is more than 30 percent of your monthly take-home pay.
It is important to determine if you are living beyond your paycheck and therefore are not funding your priorities. It is almost always a good idea to eliminate as much high-interest, bad debt as possible.
Do you have the appropriate insurance you need?
Insurance needs change over time; it is a good idea to check your life, health, disability, property and liability insurance to make sure you have appropriate coverage.
Are you paying your taxes properly?
Review your tax situation. Check your federal and state withholding taxes. Are you having enough deducted to meet your obligations? Are you having too much taken off? By adjusting this, will you have more money to use all year long?
By reviewing your position once a year, you can make any appropriate corrections that may be necessary and help to “Secure Your Future.”
2009 TDA
We want to further promote “National Save for Retirement Week” by emphasizing the Tax-Deferred Annuity. The TDA, as you know, is the Teachers’ Retirement System’s voluntary savings plan created to supplement our great defined-benefit pension plan.
In the New York City school system, the TDA is administered by the TRS and it is one of the most popular benefits enjoyed by members. In 2007, more than 73,800 TRS members participated. This rate is about twice as great as TDA participation in all of the thousands of other school districts in the country.
As of June 30, the total invested in our program was over $14.2 billion, thereby making it one of the largest voluntary deferred compensation programs in the country. About 63 percent of eligible members contribute. This is a very large participation rate considering that there is no matching employer contribution. All age groups of TRS members contribute to the TDA. Twenty-three percent of those younger than age 25 contribute and more than 76 percent of members over age 45 contribute.
Under current rules, the Internal Revenue Service allows members under age 50 to contribute $15,500 in 2008. Members age 50 and older can contribute up to $20,500. Members with at least 15 years of service who have contributed at an average of $5,000 or less per year may contribute up to an additional $3,000 per year in “catch-up” contributions, to a maximum of $15,000 over the remainder of their career.
Do not be intimidated if you cannot contribute the maximum. You may contribute as little as 1 percent of your salary. Many members start with small contributions and gradually increase them. The average account balance for members younger than age 25 is about $3,900. The account balance for those 55 or over averages about $140,300. As a person’s financial situation improves, contributions can be increased. Of course, this is in addition to our superior pension benefits.
To get more information on the TDA, read the recently issued PensioNews, check the TRS’ Web site, www.trs.nyc.ny.us, or call your UFT borough office or the TRS.
Additional tax-deferred savings
The City of New York provides an additional tax-favored investment program. The program is generally utilized by those members who can afford to contribute the maximum to the TDA and still have additional income available for savings. It offers different investment choices from the six choices available in the TDA program.
Some members may wish to contribute to this plan, which is known as the New York City Deferred Compensation Plan (DCP), even if they do not fully participate in the TRS’ TDA.
Information on the DCP can be obtained from: Deferred Compensation Plan, 40 Rector St., New York, NY 10006; 1-212-306-7760; http://nyc.gov/deferredcomp.
New TRS members
The required pension deductions for newly hired Department of Education employees have been initiated. This mandatory deduction for the Qualified Pension Plan (QPP) of 4.85 percent of salary should be indicated on pay stubs with the code 414(h). The deduction will continue until 10 years of credited service or membership in the TRS is completed and then will be reduced to 1.85 of salary until 27 years of service is completed.
A TRS welcome kit is scheduled to be sent to each new member by the end of November. This kit will contain a Summary Plan Description of the pension plan as well as important forms to file.
It is essential for a smooth entry into the TRS that you file the required forms ASAP. The TRS must receive these forms to properly set up your accounts.
Among these forms is an enrollment application for the TDA. While filing this particular form is voluntary, the TDA is a wonderful program that will help to provide you with a more financially secure future. Join now if participation fits in with your other financial goals.
Reminder
If you are a newly hired paraprofessional, you will not receive the welcome kit from the TRS but you may obtain the enrollment application from the UFT or the TRS. Also, if you are a regular or day-to-day substitute teacher, you may join the Board of Education Retirement System (BERS) and enroll in its TDA program. The number for BERS is 1-718-935-5400.
“Secure your future” is compiled and written by Mel Aaronson, Sandra March and Mona Romain, teacher-members of the NYC Teachers’ Retirement Board. For further information on items discussed, call your UFT borough office or the TRS. BRONX: 1-718-379-6200; BROOKLYN: 1-718-852-4900; MANHATTAN: 1-212-598-6800; QUEENS: 1-718-275-4400; STATEN ISLAND: 1-718-605-1400; Teachers’ Retirement System: 1-888-8NYC-TRS (692-877), www.trs.nyc.ny.us.
