Q:

Can I borrow money from my retirement account?

A:

For many of us, it’s easy to look at our 403(b) or 457 plan savings and think we could better use this money for immediate needs.

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.

Q:

How many retirement plans do I need?

A:

Understanding your retirement savings options can be confusing. Here’s what you need to know.

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.

Q:

How do fees impact my savings?

A:

Fees impact your total retirement savings, and many plans charge high fees. High fees have a corrosive effect on your savings.

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.

Q:

How much do I need to save for retirement?

A:

Figuring out how much money you need to save for retirement can help you make a plan today that will help make sure you achieve your goals for the future. Sometimes this is easier said than done. Here are some important things to think about.

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.

Q:

I'm young, so why would I start saving now?

A:

Why do you need to start saving now? Because when you are young, time and compound interest are your friends. Compound interest is a powerful force that works for you when you save and invest over many years.

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.

Q:

How do I pick a good retirement plan?

A:

There are a lot of people and companies trying to sell plans to educators, so it’s hard to know which plan is good and whom to trust with your savings.

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.

Q:

Pre-tax saving–how exactly does it work?

A:

We’ve got this one. Pre-tax savings simply means that your contribution to your retirement savings plan is made before taxes are deducted. Contributing to a pre-tax retirement account actually reduces the amount you’ll owe this year in taxes.

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.

Q:

I think I already enrolled in a crummy retirement plan. What do I do?

A:

There are many people selling plans, and a lot of these people take advantage of educators by selling them plans with high fees and poor options. If you find yourself involved with such a plan, CTA can help.

Start by getting answers to questions about your current plan. To do this, call the company managing your plan and ask these questions:

• What type of plan do I have?
• How much are you charging me in total fees?
• Are there surrender charges or early withdrawal fees?

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.