April 2014 DC Update
It's Your Time?
Adding It Up: It's Your Time
There’s a popular savings example that follows two employees who start saving for retirement at different times during their careers. The first employee begins saving at age 25 by contributing $200 a month (or $2,400 annually) to a retirement savings plan. This employee continues that contribution trend and earns a 7% annual rate of return for 10 years (total contributions of $24,000) and then stops contributing completely to the savings plan at age 35. However, the accumulated savings continue to earn a 7% annual rate of return until this employee retires at age 55. The second employee begins working at age 25, but puts off saving for ten years. Finally, at age 35, he or she starts contributing the same $200 a month to a savings plan, earns an identical 7% annual rate of return, and continues this trend until retirement at age 55 (total contributions of $48,000). Who ends up with more? Conventional wisdom might suggest that since the second employee contributes $200 a month for 20 years that he or she would have a larger balance than the first employee who only contributed to a savings plan for 10 years and then didn’t contribute another dime. Conventional wisdom would be wrong. Using the above assumptions, the first employee would have a savings balance of nearly $140,000, while the second employee will have only accumulated a little over $104,000 by age 55. All of this despite the fact the second employee actually contributed twice as much to the savings plan.
This classic example illustrates the time value of money and why starting sooner rather than later can have a huge impact on your total contributions and bottom line. It also underscores the fact that there are certain things you can’t control when it comes to long-term retirement savings – markets can be unpredictable after all – but time is not one of them. You can control when you start saving. Likewise, you can also control how much you save. Looking at our example employees again, had the first employee saved $250 a month instead of $200 for those ten years, his or her balance could have been approximately $35,000 larger by age 55. Had the second employee saved $300 for 20 years instead of $200, his or her balance could have increased by more than $50,000.
As a participant in the deferred compensation plan, it’s crucial to take advantage of the factors you can control. If you’re young, start saving now and put time in your corner. On the flip side, don’t be discouraged if you’ve put off saving for a few years, but understand the importance of your contribution amount and how it may need to be increased to meet your savings goals.
Visit Bankrate.com’s Simple Savings Calculator to run your own scenario and to see the time value of money at work.
Orientation Just Got Easier with Education On-Demand
The State of Missouri Deferred Compensation Plan is an important part of your benefits package, but it's just one piece of the sometimes confusing, often changing benefits puzzle. To help you make sense of the deferred compensation plan, we've converted some of our most popular seminars into webinars and posted them to our Education On-Demand page. These easy-to-navigate webinars are available 24/7 from the comfort of your desk or mobile device. Topics range from new employee orientation to preparing for and accessing your money in retirement. Not only are these short presentations a great refresher for individual participants, but they’re a perfect solution for new employee orientations or group benefit training events of any size. You simply name the time and place and Education On-Demand will be there for you.
Now That’s a Great Question
Last month we began highlighting popular participant questions in a segment called “Now That’s a Great Question”. This month’s great question is: Who are the education specialists?
Education specialists provide FREE seminars and one-on-one consultations on a variety of financial topics across the state. Each specialist represents a specific territory or agency in Missouri (view the territory map). Their dedicated custom service is what helps separate the deferred compensation plan from other retirement savings options.
Visit the Education Specialist page at www.modeferredcomp.org to see who represents your territory or agency and to register for an upcoming seminar or consultation. If you don’t see an educational event in your area, feel free to contact your education specialist by phone or email to arrange one at your agency.
For more answers to common questions, browse our FAQ section on the Plan website. If you can’t find answers there, don’t hesitate to call a friendly participant service representative at 800-392-0925 or send us an email.
Will you take the challenge?
Later this month we will unveil an exciting savings challenge that will culminate at State Employee Recognition Day on May 29. Those who participate in this unique event will receive a free giveaway and be entered in a prize drawing. You will not need to be present at State Employee Recognition Day to be eligible for either. Stay tuned to the Plan website and our social media channels later this month for participation and prize information.
Stay Connected with the Plan on Facebook, Twitter, LinkedIn and YouTube
You can find the State of Missouri Deferred Compensation Plan on Facebook, Twitter, YouTube, and now LinkedIn. Whichever you prefer, staying connected with the Plan is a great way to receive timely plan news, valuable savings tips and more.