Here’s how a target date fund works. It’s a mix of investments that automatically adjust over time to correspond to your target retirement date. In the early years of saving, the fund favors growth, and it becomes more conservative as you near retirement.
Using a target date fund takes the guesswork out of saving for retirement.
But there can be serious negative tax consequences to taking money out of your retirement account. You’ll also lose future compounding interest on the amount that you borrow. And you may be putting your future financial security at risk.
First, you’ll need income when you retire. For most educators, retirement income is a combination of savings and pension. You’ll have CalSTRS or CalPERS, which covers only a portion of what you’ll need. And because educators don’t pay into Social Security, you won’t receive Social Security benefits for this time of employment. This means that even with your CalSTRS or CalPERS benefit, you’ll need to have a supplemental retirement savings plan to help make sure you have enough money to live on when you stop working.
This is why we created the CTA Retirement Savings Plan–to help all California educators enjoy a long, happy retirement.
All investments have fees–you can’t avoid them. What you can do is to make sure you know what you’re being charged and why. This will help you gauge the value of what you are getting in exchange for the fees you’re paying.
You can expect to pay investment management fees on the funds you are invested in, as well as plan administration and custodial fees.
Fees are often expressed as an expense ratio, so while the numbers may seem relatively small, they can take a big bite out of your earnings.
The chart below shows how.
Most educators retire at around age 63 and live long lives in retirement. You could easily live 20 to 30 years after you stop working. Experts recommend you’ll need 80% of your pre-retirement income every year.
You’ll have your CalSTRS or CalPERS pension, so count on that to cover part of your income, but your pension won’t cover all of it. And educators don’t pay into Social Security, so don’t factor that into your plans.
To make sure you’ll have enough income in retirement, you’ll need a high-quality savings plan. This is why CTA developed the CTA Retirement Savings Plan–to help you save now, so you’ll have income in retirement.
This means the money you save today earns more money.
Those earnings are added to your original investment, so the total amount of your investment grows over time.
In fact, the added earnings can actually surpass your original investment.
Don’t assume that your employer has approved or checked out any product or firm selling retirement plans, because they most likely haven’t. It’s important to do your homework on your options. Remember that the decisions you make now about how to save could have long-term irreversible consequences.
This is why CTA has created the CTA Retirement Savings Plan. It is our mission to help educators have a secure financial future. The CTA Plan is the only one endorsed by your union and created for California educators.
For more information on the CTA Retirement Savings Plan, click here.
The earnings in your retirement account–such as interest, dividends, and capital–appreciate and remain in your account until you withdraw the money in retirement. Don't forget, you'll have to pay taxes once you start taking withdrawals.
Start by getting answers to questions about your current plan. To do this, call the company managing your plan and ask these questions:
If you have other retirement accounts, you may be able to exchange or roll over your plan into the CTA Retirement Savings Plan. The CTA Plan was created for educators and is a high-quality, low-cost plan.