Closing The Gap - Page 3 of 5

Closing The Gap

contributory plan, by making the effort to set something aside, you are gaining value right there.”

If your employer is making a matching contribution, it’s “free money,” Simms says. “It’s already there, and you don’t have to do anything extra except sign up and do whatever it is you are supposed to do to make it happen. Even if it’s less of a good deal than it used to be, it’s still a pretty good deal, because it helps you out.”

Singletary’s advice to young people combines homeownership with retirement planning. “Coming out of school,” she says, “you’ll want to own a home, but, from day one, you ought to start retirement savings. Even after you’re married and have children, college savings comes last. Your children can borrow to go to college but you can’t borrow to live in retirement.”

But even well-intentioned young people may have difficulty getting started saving through an employer’s retirement plan. “I remember when I started working, a few years ago,” says Jasmine Brown, 25, a high school teacher in Albany, New York. “I was given a bunch of papers about employee benefits, including the retirement plan, but no explanation or direction. It was overwhelming.” Last year, when her husband, Markeith, 26, began working as a guidance counselor for the same school district, he had a similar experience.

Fortunately, the Browns persevered in their efforts to plan for retirement. They contacted Markeith’s sister, Sharon Brown, a registered representative with William Tell Financial Services in Latham, New York. “They both are eligible to participate in a 403(b) plan, which is comparable to a 401(k)
,” says Sharon. “They also have opened up Roth IRAs. Unlike a 403(b) plan, Roth IRA contributions will not give them any tax deductions. However, Roth IRAs can provide tax-free withdrawals after age 591/2.”

For now, the Browns are making modest contributions to all of these retirement accounts, but they plan to increase those amounts as their careers progress and their incomes rise. “My co-workers have helped me to figure out my retirement plan,” says Markeith. “One teacher, in fact, taught me while I was in school here. He’s making a fairly large salary now so he can contribute a great deal to the 403(b), but he says he wishes he had started making contributions, even small ones, while he was in his 20s. Over time, the compound earnings can be enormous.”

Spriggs agrees that sooner is better when it comes to retirement savings. “Money you put in early counts a lot more than the money you put in late,” he says. “You get punished if you wait, in any retirement savings plan. You get so much from the compounding, from those first investments while you’re young, that those investments far outweigh anything that you do later on.”

In addition to retirement cash flow from their Roth IRAs and their 403(b) accounts, the Browns may get pensions if they stay in the Albany school system long enough, and they might receive Social Security retirement benefits several decades from now.