Why You Should Save

Why do you need to save for retirement?
A secure retirement future doesn’t just happen. It takes vision, planning, and determination. Part of the planning you need to do involves understanding why you need to save for retirement in the first place. Read on for some retirement realities you may face after you decide to begin your retirement.

People are living longer and healthier lives
The good news is that with today’s focus on health and fitness, people are living longer and healthier lives. Many people are also retiring earlier. These facts, taken together, mean that you could spend 15, 20, 25 or more years in retirement. Because you want your money to last as long as you do, it’s important to make sure you’re saving enough today!

Will you have enough income?
While Social Security is often a significant source of income for most retired people, it was never designed to be the only source. In fact, on average, Social Security will replace less than half of your income in retirement.

You want work to be a choice
Many people find that they may need to work part-time after retirement to supplement their income. If your retirement dream doesn’t include work, then you’ll have to save more today to generate the extra income you’ll need.

Inflation means things will cost more
Not too long ago—maybe even within your lifetime—a gallon of gas cost less than a dollar and you could buy a new house for less than $50,000. Everything costs more today because of inflation. Inflation is the rise in the cost of goods and services over time. It has averaged about 4% per year for the last 30 years.

You deserve a great retirement
All of the facts you’ve read are important. But the most important reason to save is that you deserve a great retirement. Imagining what you want to do in retirement is an important first step in getting started.

Why your retirement plan is a great way to save
For most people, saving is easier when they are saving for a specific goal and have a specific way to reach that goal. Your retirement plan gives you a simple way to reach your retirement goals, and it offers some special advantages that you can’t get with any other type of savings plan.

You enjoy the convenience of automatic deductions
Your retirement plan is set up to provide you with the convenience of automatic deductions. The money comes out of every paycheck automatically. So even if you’ve found it hard to save in the past, your retirement plan can make it easy.

You may be able to roll over money from other plans
If you have had a 403(b) or other type of retirement savings account at another employer, you may be able to consolidate your accounts. Talk to Union Bank for details on how to roll over your account balance.

It costs less than you think
The money that goes into your retirement plan comes out of your paycheck before it is taxed. Because your gross salary is reduced, you pay less tax on the amount that remains. This advantage is often called pre-tax savings. So you save two ways—you save on current taxes and you save for your future.

You may also choose to make post-tax contributions called Roth 403(b) contributions. To learn more about this opportunity, please click here.

Tax-deferred compounding grows money faster
In your plan, your money has the chance to grow without being reduced by current taxes. The growth on your account is not taxed until you withdraw it. This special feature is called tax-deferred compounding, and it has the potential to greatly increase your account earnings over time.

There is no easier way to save!
Saving for something that may be as far in the future as your retirement may seem difficult. But as you’ve already seen, the special benefits offered by your retirement plan make it easier to save.

Payroll deductions make it simple for you to save a portion of your salary from each paycheck.
Pre-tax savings and tax-deferred compounding make your money work harder for you.
It’s always your choice of how much you want to contribute and how you want your contributions invested among the options offered by your plan.

Start saving early and watch your account grow
Time can be your most important ally when you’re saving for retirement. The longer you have to invest, the greater the potential benefits of compounded earnings. With the power of compounding, putting aside even a small amount early in your career can mean big savings at retirement. And saving gradually over several years is less difficult than trying to save a lot when you have less time until retirement.

How much will you need?
Experts generally agree that many people will need between 70% and 85% of their current income throughout their retirement. However, depending on your financial goals and personal situation, you may need more or less than this. To help determine how much income you will need, click here to take this retirement income quiz.

The difference between saving and investing
Saving is putting something aside for use later. Investing is when you put something in with the hope of getting something better out. Understanding how to invest doesn’t have to be hard. You just need to learn a few terms and investing strategies.

What are the major types of investments?
There are three major types of investments—stocks, bonds, and cash equivalents. Each of these investment types has its own characteristics described below:

Stocks represent shares of ownership in a company. Sometimes called “equities,” stocks can make you money in one of two ways—by growing in value or by paying dividends.

Bonds are loans made to a government or corporate entity. In return for borrowing money, bonds pay a fixed amount of interest. For this reason, they are often called “fixed income” investments.

Cash equivalents can be turned into cash at any time without losing much, if any, of their original value. Cash equivalent investments include certificates of deposit (CDs), U.S. Treasury bills, and money market funds.

What is a mutual fund?
In your retirement plan, you usually don’t invest in individual stocks or bonds—you invest in mutual funds. A mutual fund pools the money of many investors who share the same investment objectives. A professional fund manager then invests this money in stocks, bonds, and/or cash equivalent investments in a way that meets the investment objective.

Greater risk, greater return
Every investment carries risk. In general, the greater the level of risk you’re willing to take, the greater the potential return.

Diversification helps you manage risk
Diversification is the process of spreading your money around within an investment type. Mutual funds are automatically diversified. Let’s say you invest your money in a stock fund. That fund may hold stock in many individual companies. Even if a few of those companies do poorly, those losses may be offset by the stocks that perform better than expected.

Time smoothes out risk
Stocks have historically been much riskier than investments like bonds or cash equivalents. Stocks have historically outperformed other types of investments over time. If you have many years until retirement, you can usually afford to be more aggressive with your investments, because you have more time for your money to recover if your investments fall in value. If you are nearing retirement, you may want to take a more cautious approach by investing in more conservative investments.

Asset allocation helps you manage risk
Asset allocation is a proven investment strategy for managing risk. It takes diversification one step further by spreading your money over different types of investments, or asset classes. By spreading your money across asset classes, you balance risk because different investments do better in different market conditions—stocks may thrive while bonds languish, and vice versa. Asset allocation has been proven to account for more than 90% of investment performance

Some funds do the work for you
Your plan offers blended funds that spread the money around for you. These are often called balanced, asset allocation, or lifestyle funds. These funds can make it easy for an investor to get the advantages of a balanced portfolio without having to create a personalized asset allocation strategy. Many investors, however, prefer a more hands-on approach to asset allocation.

Creating an asset allocation strategy
When you create an asset allocation strategy, you decide how much of your money you want to put into each of the three major asset classes based on your time horizon, investor type, and personal goals. Creating an asset allocation strategy can be done in a few simple steps. To get started,
click here to take an investor quiz to learn what type of investor you are and what asset allocation may work for you.