California Educator

May 2011

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Eight tips for your 403(b) and 457 plans I t’s a good idea to keep an eye on your retirement financial goals including defined contribution plans — 403(b) and 457 plans, where you contribute a specific amount of pretax dollars that will eventually supplement your pension in retirement. Financial consultants say that a retiree will need 80 to 100 percent of their preretirement income to retire comfortably. The average California State Teachers’ Retirement System (Cal- STRS) retiree receives only 63 percent of preretirement earnings through their pension. To bridge that gap, 403(b) and 457 plans become valuable for CTA members. Now is the time to take control of plan- ning for your retirement, no matter what age you are. Here are some tips to consider as you begin making contributions or re- fining your current 403(b) and/or 457 plan strategies: 1. Invest early and wisely. With pretax contributions, you save on taxes now. Money you contribute to 403(b) and 457 plans is subtracted from your paycheck before federal and state income taxes are calculated. Tax-de- ferred savings and the magic of long- term interest compounding work to grow your account balance over time. 2. Review your pay stubs and read your statements. Watch your pay stubs and retirement plan statements to ensure your contri- butions are being made accurately and in a timely manner. Your money should be invested in your selected products within two weeks following the deduc- tion from your paycheck — the sooner the better. 3. Become educated so that you are comfortable making good investment decisions. Visit our special website dedicated to financial and investment information, Download or order your free copies of the CTA guides “Closing the Gap: Supplement Your Pension Benefits with a 403(b) or 457 Plan” and “Selecting a 403(b)/457 Ad- visor & Understanding Plan Fees” at or 403(b) prod- uct information is also available at the CalSTRS website Consider attending 403(b)/457 plan presentations scheduled at many CTA conferences. You can also review your plan prospectuses — if you can’t lo- cate them, contact your vendor and request copies. 4. Ask for help if you need it. Be careful about whom you trust, however. Do your homework and ask questions. Unless the adviser is work- ing in the capacity of a fiduciary, he or she is not ethically or legally obligated to act in your best interest. Be aware that commissioned agents are moti- vated by income concerns — probably more theirs than yours. For informa- tion on evaluating advisers, you can order copies of the guides listed above at 5. Be wary of insurance sales represen tatives. Insurance sales representatives target ed- ucators and work hard to reach out to you. Educators may assume that invest- ment professionals who give presenta- tions at their districts or contact them through the districts have been vetted and are endorsed by the district. This is probably not the case. It is up to you to evaluate their credibility and the prod- ucts that they recommend to you. 6. Think twice before investing in annui- ties. Consider investing in mutual fund products. Insurance companies may try to con- vince you to invest in annuities, which are an alternative investment offered in 403(b) and 457 plans. You need to ask questions such as: Will annuity products provide the results you need? Are their fees disclosed and reasonable? Is the financial s t rength of the insurance company strong, and will it remain so? Will the agent receive commissions for the sale or convincing you to change invest- ments? Does the annuity product include expensive and unnecessary insurance features? Note: Before transferring funds from an annuity product or requesting a distribution, determine if surrender charges will apply — this is money you can lose if you withdraw your investments too early. There is more information about annuities and mutual fund products including guides and calcu- lators at 7. Manage your defined contribution accounts. Avoid taking loans or withdrawals from your accounts unless absolutely neces- sary. Contribute as much as you can. Consider allocating more toward your contributions when you receive pay in- creases; and take advantage of catch-up provisions if available. Review your in- vestment products and account balanc- es regularly to determine if your diver- sification strategy and asset allocation is appropriate for your needs. 8. Speak up with concerns. If you have concerns about your 403(b) and 457 investment choices, sales pre- sentations being given at your district, or your district’s 403(b) plan third-par- ty administrator, bring these concerns to your chapter leaders. You deserve a comfortable retirement without financial worries. We hope these suggestions will help you to make the most of your opportunity to supplement your pension benefits with 403(b) and 457 plans. DIANE MORTE, CTA MEMBER BENEFITS CONSULTANT MAY 2011 | 29 403(b) 457

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