Hey there MO Deferred Comp Savers! In this tutorial, I’m going to show you how to use the Grow Your Retirement Savings Calculator. This tool is really helpful because it can help estimate your future savings balance and the contributions you need to be making to reach your retirement savings goals and income needs. To get started, open the Grow Your Retirement Savings calculator by visiting www.modeferredcomp.org, hover over the Planning & Tools menu item and click calculators. On the Calculators page, click the Grow Your Retirement Savings link. Once the calculator loads, you need to enter in information that is specific to you, like your current account balance, annual salary, contribution and auto increase amounts, pay frequency, years to retirement and years in retirement. The rest of the information – like the annual rate of return and annual salary increases – are based on historical data and represent conservative default assumptions. Here's an example, let’s say you are a new state employee with zero retirement savings. You are making $40,000 a year, have current contributions of 1% per semi-monthly paycheck, have 25 years until you can retire, and estimate you’ll live 25 years in retirement. After 25 years of saving 1% from each paycheck, your estimated account balance would be roughly $25,940 at retirement. Now one critical piece of information to keep an eye on is the estimated Income Replacement in Retirement percentage. If you plan to work approximately 25 years with the state, a good starting goal is to replace at least 15% of your current paycheck in retirement with your deferred comp savings. In the example we just went through, a balance of $25,940 will only replace 2% of your pre-retirement income over 25 years. So now we need to go back and adjust the sliders to get that number closer to 15%. Let’s try a 4% contribution. That doesn’t do it. A 6% contribution gets us closer. Let’s bump the contribution up a little more. 6.5% gets us to our 15% income replacement goal. If you click the Table tab at the top of the calculator, it will show you your semi-monthly and annual contribution amounts in a dollar format. If this contribution seems a little high, you can go back to the Overview tab, adjust the contribution rate to a lower amount and add in auto-increase. Auto-increase simply increases your contribution each year by an amount you set. Let’s add a 0.5% annual auto increase and a 10% contribution cap meaning your contribution will stop increasing at 10%. That doesn’t quite reach our goal. How about a 2% contribution with a 0.5% auto increase. Now if we jump back to the Table tab, you can see that the starting contribution is just over $33 dollars semi-monthly, which is much lower than before. As you can see, because we have a 0.5% auto increase, the contribution amount will slowly increase each year. Now there is another way you can use this calculator. If you know exactly how much money you’ll need withdraw from your retirement savings each year, you can enter that amount in the Annual Income Needed in Retirement field and it will estimate the balance you need to have saved at retirement. For example, let’s pretend you need $500 each month to cover your healthcare costs over a 25-year retirement. $500 x 12 months is $6000 annually, so I’ll input $6000 in the Annual Income Needed in Retirement box. The calculator estimates that I will need around $120,000 in my deferred comp savings to withdraw $6,000 each year for 25 years. Now we need to adjust the contributions slider until the estimated Account Balance at Retirement number matches the Account Balance Needed in Retirement amount. To keep things simple, I’m going to use the same criteria in the earlier example. If I change the contribution amount to 4% per paycheck, our estimated account balance isn’t close. Let’s try 8%. That’s pushes our estimated balance over our goal, but that’s not necessarily a bad thing. 7%...7.2% gets us really close to that number. We could also do 3.5% contribution with a 0.5% auto increase amount and a 10% contribution cap. The last step to this calculator is to change your contribution amount! To do this, you’ll need to log in to your Account Access via modeferredcomp.org or through the ESS Portal, navigate to the contributions page, and make the changes. To watch a video tutorial on how to change on your contribution or to find more video tutorials, please visit www.modeferredcomp.org and check out the videos section. Thanks for watching!
