If you are concerned about retirement income shortfalls, saving and investing are options you should review as possible ways to bridge your income gaps.
There are two basic ways to save on your own for retirement.
Tax-deferred saving or pre-tax saving allows you to save pre-tax now and you pay your taxes on withdrawal at retirement. Basically, it means you take your savings right off the top of your gross salary, and put it towards retirement. At retirement, as you withdraw it, you’re taxed like it is regular income.
A 403(b) and a traditional Individual Retirement Account (IRA) are two vehicles that allow you to save tax-deferred. There are limits to how much you can save in a year. Visit or speak to your NEA Retirement Specialist for exact contribution limits.
After-tax savings means your salary is taxed before you contribute to your savings. Your money in a bank savings account or CD is saved in a taxable account. The downside is that any interest you earn is also taxable each and every year.
There is a way to save after-tax and gain some advantages. A Roth account – an IRA or Roth 403(b) – allows you to contribute on an after-tax basis, but the difference is that all of you contributions and earnings are completely tax-free at retirement.
Growing your Assets
Supplemental saving is pretty much putting aside money designated for retirement, protecting it in a basic interest-earning vehicle. If you’re looking to grow your assets more aggressively, you may consider investing in a mutual fund and/or annuity.
What is a Mutual Fund?*
A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments, or similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.
What is a Variable Annuity?
A variable annuity is a contract between you and an insurance company.
A variable annuity offers a range of investment options. The value of your investment as a variable annuity owner will vary depending on the performance of the investment options you choose. The investment options for a variable annuity are similar to mutual funds that are invested in stocks, bonds, money market instruments, or some combination of the three.
Variable annuities are tax-deferred, they often offer other benefits and let you choose to receive periodic payments through annuitization as you enter retirement.
We offer a suite of products under the NEA Retirement Program to help you save for retirement, as well as create guaranteed retirement income. View our Investment Products or speak to your NEA Retirement Specialist to learn more.
Three Important Investment Factors
As you look at retirement investing, there are three very important factors you need to consider: inflation, taxes, and your return on investments.
You can help prepare for inflation by creating a versatile retirement portfolio. An important part of that portfolio is an investment vehicle that can help you earn more than inflation by offering better potential returns than other interest-bearing accounts, like a traditional CD.
Paying taxes on investment earnings creates tax drag which can significantly reduce your potential assets. Some saving vehicles create returns that are taxed annually. If you save in one of those vehicles, you lose some of the advantages of compounding savings with this substantial tax drag.
You can avoid tax drag on earnings from investment vehicles where don’t pay taxes until you make a withdrawal. All of your earnings can continue to compound until withdrawn. Over time, that can lead to a sizable savings advantage.
Some investments offer additional benefits but these features can be accompanied by large fees. Whatever fees you pay will reduce your earnings, this is called fee drag. A benefits heavy product could drain your assets for a benefit you may not use.
Fee drag will vary by company, by product, and by the benefits they offer. You want to ensure you understand and carefully review the charges to ensure you optimize the return on your investment. Choosing a product with lower fees and only the benefits you need could yield a higher return on your investment.
This information is provided by Security Distributors, in connection with the NEA Retirement Program for retirement plans sponsored by school districts and other employers of NEA members and individual retirement accounts established by NEA members. Security Distributors and certain of its affiliates (collectively, “Security Benefit”) make products available under the NEA Retirement Program, directly or through authorized broker/dealers, pursuant to an agreement with NEA’s wholly owned subsidiary, NEA Member Benefits (“MB”). NEA and MB are not affiliated with Security Benefit. Neither NEA nor MB is a registered broker/dealer. All securities brokerage services are performed exclusively by your sales representative’s broker/dealer and not by NEA or MB.
NEA, NEA Member Benefits and the NEA Member Benefits logo are registered service marks of NEA Member Benefits.