By Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy
Librarians often spend so much time and effort focused on helping others that their own retirement needs are overlooked. It’s time to focus on your own needs by learning more about the retirement programs available to you. Staff at the Securities and Exchange Commission (SEC) issued an Investor Bulletin that can help you learn the basics about two different retirement savings programs.
Similar to a 401(k), the plans allow you to contribute pre-tax dollars from your salary to a 403(b) or 457(b) plan. These plans may provide significant tax benefits because your contributions and their investment earnings won’t be taxed until you withdraw the money, which usually occurs after you retire. And most importantly, taking advantage of these tax-deferred programs as early as possible allows your nest egg more time to grow over the years.
There are a few things to keep in mind when participating in these plans. First, check on the annual contribution limits for both plans, which are set annually by the IRS. Each plan also has different rules and tax implications related to withdrawing money. You can find additional information about these rules and tax implications on the IRS’s website: 403(b) plan and 457(b) plan.
Be sure to ask your employer if they offer 403(b) and/or 457(b) plans and whether your employer’s menu of employee benefits allows you to contribute to these plans.
Your employer may also allow you to choose a financial professional from among a group of pre-selected vendors. When choosing a vendor, carefully consider the vendor’s background, credentials, and experience. For some vendors, it’s easy to do a background check by going to the SEC’s Investor.gov website. For more information about selecting vendors, check out our Investor Bulletin.
Typically 403(b) and 457(b) plans offer two types of investment products—annuities and mutual funds. Generally, annuities involve a financial product that pays you money each year. There are three basic types of annuities to consider—fixed, variable and indexed. Fixed annuities are regulated by state insurance commissioners and involve insurance companies promising you a minimum rate of interest and a fixed amount of periodic payments. For variable annuities, insurance companies allow you to direct your payments to different investment options, usually mutual funds. And indexed annuities combine features of securities and insurance products. Mutual funds pool money from investors and invest the money in stocks, bonds and other securities. Vendors may use different names for these investment products. If you are uncertain about what type of investment product a vendor offers, contact the vendor and ask them to explain it to you.
Make sure you pick the investment products and services that work best for you and know the costs and fees associated with them. Don’t forget to ask if there are penalties involved if you make changes to your investments. And, see if the vendor makes more money for selling one product over another. It’s important to select investments that best meet your financial goals. And remember, while you continue to serve others, don’t lose sight of serving yourself a good, strong dose of preparing for your financial future.
The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This article expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.