On January 1, 1962, a momentous event occurred. It may have been one of the greatest mistakes ever made in both business and music. Mike Smith and Dick Rowe, executives in charge of evaluating new talent for the London office of Decca Records, invited a band to audition on New Year's Day in London. The band spent two hours playing 15 different songs at the Decca studios, then went home and waited for an answer. They waited for weeks. Finally, Mr. Rowe called the band's manager and passed on signing them to a record deal because they sounded too much like other popular bands in England at the time.
This band, you may have guessed, went on to sign with EMI Records, and become the cultural icon known as The Beatles. Now many of us would not equate this story of the Beatles with retirement savings, but is illustrative of making a decision that we will kick ourselves about for years to come. Simple decisions can sometimes result in big mistakes.
Below are five common mistakes that educators' can make when it comes to saving for retirement.
1. Not Knowing Exactly What Your Pension Will Pay
One of the great benefits educators have is a state retirement plan (in Idaho, it is PERSI). Combine that with Social Security, and you may assume that you will live comfortably in retirement. Will it be enough? Think about som of the following factors:
- People are living longer. One in three 65-year-old women will live into their 90's. Your retirement income may need to last 25-30 years or more.
- We are spending more in retirement. The average retirement age of NEA members is 59. At that age, people are a lot more active, and spend more money than in their older years.
- Social Security falls short. IF you are eligible for Social Security, it may only end up funding a small portion of your retirement needs.
- Rising healthcare costs. Inflation alone can deplete your retirement savings. Couple that with healthcare costs that skyrocket above and beyond the pace of inflation, and your retirement savings can take a real hit.
Your NEA Valuebuilder* representative has planning tools that can estimate what your state pension and Social Security will pay. Take a few moments to sit down with your representative to review your retirement and make sure you know where you will be financially.
2. Borrowing From Your Future
The last few years have been bad financially for many of us; money's never been tighter. It can be very tempting to dig into your retirement savings and loan yourself money. After all, if you're going to pay yourself back, and you'll be earning interest, why not take out a loan on your 403(b)? While you do earn a modest interest rate, the real dollars you may lose by being out of the market are significant. You may be cutting your future nest egg in half or more, and that can translate into lifestyle changes later on.
3. Keeping Contributions Flat
Some of us enrolled in our 403(b) years ago, and began with a set contribution amount, which hasn't changed over the years. There's a subtle trap here that as our salary increases, so do our lifestyle needs. This means that if you want to live a similar lifestyle in retirement, you'll need to save more. When your salary goes up, boost your 403(b) contribution, too.
4. Not Rebalancing Your Assets
When you first signed up for your 403(b), you selected a blend of investments. Unfortunately, if you haven't changed around those choices, you may be losing out. Your investments may be creeping into areas of risk and return that aren't right for you and your current goals. Each year, sit down with your NEA Valuebuilder* representativeand assess your investments to assure they are right for where you are now.
5. Hanging on to Mediocre Funds
Most of us do not actively manage our investments. You don't need to actively and constantly trade funds in your 403(b), but at the same time, many of us hold on to funds that underperform their peers. On at least an annual basis, check out the funds you are invested in, and make sure there are no similar funds that are performing better. Your NEA Valuebuilder* representative can help you with this process, and can even recommend professional money managers for your account who can make those decisions for you. You may end up paying a small fee for their services, but if you are not comfortable with your investment choices, or having to make those investment decisions, it can take a lot of the worry out of the process for you.
Start the year out right with great decisions about your 403(b). A few minutes with your NEA valuebuilder* representative can help you avoid some common but large mistakes that educators make with their 403(b) accounts.
* Your NEA Valuebuilder representative is Educators Financial Assurance at 1-800-332-8327.
You should carefully consider the investment objectives, risks, and charges and expenses of the mutual funds and variable annuities available under the NEA Valuebuilder Program before investing. You may obtain a prospectus that contains this and other information about the mutual funds and variable annuities by calling our National Service Center at 1-800-NEA-VALU (632-8258). You should read the prospectus carefully before investing. Investing in variable annuities and mutual funds involves risk and there is no guarantee of investment results. The NEA Valuebuilder Program provides investment products (the “NEA Valuebuilder products”) in connection with retirement plans sponsored by school districts and other employers of NEA members and individual retirement accounts established by NEA members. Security Distributors, Inc. and certain of its affiliates (collectively “Security Benefit”) make the NEA Valuebuilder products available under this program pursuant to an agreement with NEA’s wholly-owned subsidiary, NEA’s Member Benefits Corporation (“MBC”). Security Benefit has the exclusive right to offer the NEA Valuebuilder products under the program, and MBC generally may not enter into arrangements with other providers of similar investment programs or otherwise promote to NEA members or their employers any investment products that compete with the NEA Valuebuilder products. MBC promotes the program to NEA members and their employers and provides certain services in connection with the program. Security Benefit pays an annual fee to MBC based in part on the average assets invested in the NEA Valuebuilder products under the agreement. You may wish to take into account this agreement and arrangement, including any fees paid, when considering and evaluating any communications relating to the NEA Valuebuilder products. NEA and MBC are not affiliated with Security Benefit. Neither NEA nor MBC is a registered broker-dealer. All securities brokerage services are performed exclusively by your sales representative’s broker-dealer and not by NEA or MBC. The NEA Valuebuilder Variable Annuity TSA, Contract Form No. V6029, also includes a Fixed Account. The NEA Valuebuilder Variable Annuity TSA is distributed by Security Distributors, Inc. and is issued by Security Benefit Life Insurance Company. The NEA Valuebuilder 403(b)(7) is a Custodial Account under §403(b)(7) of the Internal Revenue Code. The NEA Valuebuilder Mutual Fund 457 is a Trust Account under §457 of the Internal Revenue Code. The NEA Valuebuilder IRA is an IRA Custodial Account under §408(a) of the Internal Revenue Code. Annuities are long-term investments suitable for retirement. Securities distributed by and services offered through Security Distributors, Inc., a subsidiary of Security Benefit Corporation (“Security Benefit”). Security Distributors, Inc.
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