On Retirement

It’s Never too Late to Save

As a provider of retirement plans for more than 700,000 state and local employees, ICMA-RC always encourages young employees to sign up for their employer-sponsored retirement plans as soon as possible. That way, time works to their advantage.

For all sorts of reasons, however, employees often wait until they are getting close to retirement age before they realize that they could face a difficult time after they leave service if they do not begin to seriously start putting money away.

Although older workers may not have the miracle of compounding working for them for as long as those who begin saving for retirement at the beginning of their careers, they should not despair. It is still possible to build a significant retirement savings balance if they begin contributing immediately.

So, where should they begin? The most important principle that workers should understand is that they are saving not for the first day of retirement but for 20 or 30 years beyond that date. In other words, a person who retires at 65 today can expect to live to be about 90 years old—a 25-year investment horizon after retirement.

Second, they should try to save every dollar possible for their retirement. Even a small amount can add up considerably. For example, $10 per day in a 457 deferred compensation plan will amount to more than $100,000 in 15 years at a rate of earnings of 8 percent per year.

In 2007, an employee can contribute a maximum normal contribution of $15,500 to a deferred compensation plan. Employees who are age 50 or older are also eligible to contribute up to an additional $5,000, for a total of $20,500. Employees who are age 50 or older can also choose to use a “pre-retirement” catch-up provision that permits them to contribute an extra $15,500 in addition to the normal contribution of $15,500, for a total of $31,000.

The “pre-retirement” catch-up provision allows public workers to contribute additional dollars in the final years before retirement. This helps them make up for years in which they did not contribute the maximum for which they were eligible to contribute under their current employer’s 457 plan.

If the worker is eligible, a tax-deductible IRA may also be available in 2007 for an additional contribution of $4,000. For people who are over 50 years old, the maximum IRA deduction for those eligible in 2007 rises to $5,000.

Even if an employee starts saving later rather than sooner, there is still time; and tools are in place to help build retirement security. It’s important for older workers to take advantage of those savings tools now and to encourage their younger colleagues about the importance of starting early.

—Joan McCallen
President and CEO
ICMA-RC
Washington, D.C.
www.icmarc.org

This article is intended for educational purposes only and is not to be construed or relied upon as investment advice. The ICMA Retirement Corporation does not offer specific tax or legal advice and shall not have any liability for any consequences that arise from reliance on this material. It is recommended that you consult with your personal financial adviser prior to implementing any new tax or retirement strategy. Vantagepoint securities are sold by prospectus only, and the prospectus should be consulted before investing any money. Vantagepoint securities are distributed by ICMA RC Services, LLC, a broker dealer affiliate of ICMA-RC, member NASD/SIPC. ICMA Retirement Corporation, 777 North Capitol Street, N.E., Washington, D.C. 20002-4240; 1-800/669-7400; www.icmarc.org. AC: 1205-406.

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