WASHINGTON — Whether retirement is rapidly approaching or an unimaginable distance down the career path, higher education professionals should act quickly and aggressively to understand and plan for their post-career financial needs.
What message reverberated throughout a recent teleconference sponsored by the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF) and broadcast to more than 400 sites nationwide via the Community College Satellite Network. Experts representing private financial services firms and public and non-profit organizations joined TIAA-CREF’s President and Chief Operating Officer Thomas W. Jones and Assistant Secretary of the Pension and Welfare Benefits Administration for the U.S. Department of Labor Olena Berg in offering basic savings principles and strategies to more than 21,000 viewers.
“Many people feel they don’t have adequate income to contribute to a retirement plan,” Jones said. “They don’t understand how little they need to put aside. The potential is quite dramatic if one can save with discipline and start early.”
Since most retirement goals cannot be achieved through Social Security benefits alone, planning for retirement requires that individuals contribute to employer-sponsored savings plans or individual retirement accounts, according to Dallas L. Salisbury, president and CEO of the Employee Benefit Research Institute and chair of the American Savings Education Council (ASEC).
Bridging the Gap
During the retirement years, most people will need between 70 percent and 80 percent of their pre-retirement income to maintain their lifestyle, Salisbury said. Yet, Social Security benefits for the average middle-income retiree will account for less than 40 percent of their retirement income. Employer pension plans will account for another 20 to 30 percent. The gap must be bridged through personal savings and investments.
Contributing 10 percent of salary to a retirement savings plan could replace 35 percent to 40 percent of pre-retirement earnings, said Jones.
Although higher education institutions are much more likely to sponsor savings plans, employees must decide for themselves how much to invest and what level of risk they are comfortable with in deciding on investment options, according to Trudy Brown-Clark, a member benefits consultant with the National Education Association.
“You need to understand the relationship between risk and reward,” she said. “Risk [in investing] is unavoidable … but it can also be advantageous. You have to learn to manage risks so that [your retirement plan] strikes a balance of security and investment potential.” That balance could be struck through a variation in investments in stocks (which carry higher risk) and low-risk bonds.
In general, long-term retirement plans (for individuals further away from retirement age), should not be more of an investment risk than can safely be managed. As retirement inches closer, individuals should gradually minimize contributions to investment plans with greater risk from fluctuations in the stock market, Brown-Clark said.
Over a period of years and decades, even lower-risk investments can add up to thousands more dollars for retirement, according to Rita Metras, first vice chair of the Profit Sharing/401(k) Council of America. “You need to take control of your retirement plan. You and you alone are ultimately responsible for saving for retirement,” Metras said. “The earlier you start the more you can capitalize on the power of compound interest. Put all the money you can possibly manage into tax-deferred vehicles.”
Finding ways to save money is an obstacle for many employees, but not an insurmountable one, according to Martha Priddy Patterson, director of KPMG Peat Marwick and author of “The Working Woman’s Guide to Retirement Planning.”
“You can figure out ways to save. You can drop the premium channels from your cable station, forgo that cup of coffee each morning …. When you get that next pay raise, forget about it,” and invest it instead, Patterson said.
And when you reach retirement age, she said, continue your financial planning. “When you retire take as little out of those tax-favored accounts as you can,” she said. Above all, individuals need to educate themselves, be aggressive about their retirement plans and determine the best savings and investment strategy for meeting personal retirement objectives, said Robert G. Keller, director of personnel for Montgomery College (MD).
Individuals have to determine the kind of investment strategy they are comfortable with, he said. Then, “employees need to ask questions regularly.” Copies of ASEC’s booklets for employees, “Top Ten Ways to Beat the Clock and Prepare for Retirement,” and “The Power to Choose,” are available by calling (202) 775-6364. Individuals can obtain information on their Social Security benefits by calling 1 (800) 772-1213.
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