29 and thinking about retirement: I have a pension through the gov't...

[newlywed2012]

How concerned do I need to be about retirement? I'll turn 30 in a few weeks and my husband has less than a thousand in his 401(k) thanks to several bouts of unemployment. Thankfully he's in a good job now. My job is for the state government and I have a PERS retirement plan. I've been with the government for four years and have no plans to leave. What should I be doing to better my retirement? Concentrate our money into H's 401(k)? Open a Roth? (I don't know what that means but Suze Orman says the term a lot)

The annual statement for PERS shows I will get a very healthy yearly pension when I turn 55, if I retire then. It's even higher if I wait past 55. The pension at 55 is exactly the amount we would need each month, continuing to live our frugal lives as we do now. What else should we be doing?

[humandraydel]

The annual statement for PERS shows I will get a very healthy yearly pension when I turn 55, if I retire then. It's even higher if I wait past 55. The pension at 55 is exactly the amount we would need each month, continuing to live our frugal lives as we do now. What else should we be doing?

You better understand this number better. My thinking is that it is most likely in dollars 30 years from now, which are not equal to today's dollars. You might actually get about "half" of what you think you are going to get (after inflation).

[Like2Plan]

Conventional wisdom has always been to save at least 10% of gross even with a pension. Have you looked at the survivor benefits for your DH if you pre-deceased him in retirement? (Is it 100% of your full benefit?)
Pension plans can get altered over time. Chances are you would be grandfathered, but why put all your eggs in one basket?
Does your DH also have a pension? He should ideally be saving 15-20% of gross.

Roth accounts take after tax dollars and the earnings are tax free as long as you pull the money out in accordance with the rules at retirement time. 401k contributions and earnings are tax deferred until you pull the money out at retirement time.

If you are eligible to contribute to a Roth, tax free earnings are very attractive--but, you would have to look at your overall tax situation to find the optimum choice for your DH. Your tax situation could change this advice, but CW for your DH is to contributr up to the match on the 401k, then fully fund the roth and then if more savings is needed go back to the 401k.

For you, if you are eligible, a Roth would be a great vehicle for your 10% savings-yes, I would follow CW to save at least 10% even with a pension.

[jpg7n16]

A "Roth" is short for a "Roth IRA" which is short for a "Roth Individual Retirement Arrangement"

In layman's terms, a Roth IRA is a tax free account with annual contribution limits. For 2012, you can put up to $5k away each (so $10k total), and if you wait until after age 59 1/2, all withdrawals are income tax free (to you or to your heirs). Whereas all 401k withdrawals are subject to income tax (to you or to your heirs).

See these links for more info:
Roth IRAs
Income limits:
Amount of Roth IRA Contributions That You Can Make for 2012


Since you already have a pension, you are guaranteed to have taxable income in retirement. Having a 401k only, means that you'll have more taxable income in retirement. But having both a 401k and a Roth means that you'll have flexibiliy with your tax situation. If your tax bracket is low one year in retirement, take more from the taxable account (401k); if you're in a higher bracket in another year, take from the Roth instead.

So some general benefits to a Roth:
-Tax free gains
-Passes income tax free to your heirs
-Flexibility in your tax situation during retirement
-No required distributions

Downside:
-No tax savings today (like you get with your 401k)

[snafu]

It's hard to see our roles 30 years in the future. I suggest you clarify and somewhat quantify retirement benefits as our [gov't] contract showed we get 85% of our best five years of annual salary plus life insurance & health benefits. We've also taken advantage of the $5K tax free a/c.

The biggest problem is that government changes, society changes and laws change. The rules that govern our choices today will likely be different in 35 years. We hear the roar about SS benefits. We saw what happened to auto plant employee pensions when the industry severely shrunk.

Your DH needs to try to catch up on his retirement benefit allowables taking advantage of any employer contribution and max out contributions. While there are tax consequences on capital gains, having a personal portfolio with Bond, Equity and International Mutual Funds or ETFs has potential to accelerate you to 'The Millionaire Next Door' via tiny increments that seem more like a utility bill than 'portfolio.' Perhaps read 'the Wealthy Barber,' or 'The Millionaire Next Door' to see the picture I'm trying to explain. Do you read Kiplinger's Financial Magazine? It's an easy read & available at most libraries.

[GREENBACK]

Do you have a 457 plan available to you through your employer? It's very similar to a 401k and is a great supplement to a pension. I too, am a state gov't employee and have taken advantage of this plan. I am going to retire in about 5-8 yrs. in my mid 50's and investing in the 457 and a roth have made this decision a very comfortable one financially.

Do plan for the costs of tommorow and treat the pension as only a portion of the funding you'll need down the road.

[Kircheis]

I think it's great that you are starting to think about retirement so early. I would definitely consider having multiple retirement accounts (as one poster said, don't keep all of your eggs in one basket).

I would definitely contribute to your husband's 401k up to the match (does his company match his contributions)? I would also see if your state employer offers a 457(b) plan. If you can contribute, it should allow you to contribute money pre-tax (and pay less taxes for now). After that, if you have any money that you can still put away, I would look at putting it into a Roth IRA.

[dontgopoor]

Great that you're thinking about retirement. Retirement should be top of the list once you have an emergency account in place. The types of accounts and percentages realy depend on your specifics - income, tax rates, existing tax shields, etc., and you'll need to provide a lot more detail to get good answers. But for your general question, the answer is yes, you need to make saving for retirement a priority.

[newlywed2012]

OP here. My husband says his employer matches up to 2 1/2 percent so he will up his contributions to match that.

My PERS has a deferred comp option ... is that different from 457?

[newlywed2012]

(sorry double)

[GREENBACK]

My PERS has a deferred comp option ... is that different from 457?

That's what you want. Deferred comp. is your 457 plan. This is seperate from your pension plan and as I said before is similar to a 401k.

[Christian321]

It's great that you are thinking about retirement.

My question is this: how certain is it that you will hold your current job long enough to reach retirement eligibility under that plan? I am in a government job too (Military) and if I make it to retirement eligibility date, I will have a pension... but that is a big IF. I suspect this is the case for you too?? I know my pension is waiting for me ONLY if I am able to stay in long enough to qualify for it. With all the talk regarding trimming of the DOD, state, and federal budgets, as well as talks regarding the restructuring of government/state pension plans, chances are, the Government will try to eliminate paying out as many pensions as possible moving into the future (Gov't is VERY VERY broke...VERY broke). I would have a plan "B" if I were you, just in case. Also, have your husband max out his 401k and you could get a Roth IRA (Make sure you are closely monitoring any 401k/Roth account or any other money you have invested in the stock market...never take your eye off that (it could sit - earning you nothing, or worse - could disappear slowly/quickly, especially in these uncertain times if you are not paying attention). Other than that, continue to save as much as possible, this is always the key. The % you save for yourself (i.e. the money you pay yourself each month) is most important.

[Gina23]

My only comment is this:

When I was 29 I was in a goverment plan type like yours (PERS) and thought - this is a great retirement vehicle and I can never see myself leaving this job.

Today I am 33, I do not work that job anymore and I only had 6 years into the pension plan at the time that I left.

My point: You do not know what is going to happen. I think it's important for our generation to rely on MANY retirement vehicles... i.e. Roth IRA, 401(k) outside of pension, 457, 403(b), etc...

[LivingAlmostLarge]

What happens if you don't make it to 55? If you die or are disabled? How does it work out? I think it prudent to save outside the pension definitely.

[maat55]

I would ignor the pension. It may or may not be there later.

I personally, would satrt out investing at least 10% of your gross incomes and work your way to 15% by the time you reach 40.

Depending on your incomes, I would meet the match in your husbands 401k, then fully fund roths for both of you. Additional investing would be added to his 401k.