Planning for the effects of inflation in your retirement plan
In 2021, inflation increased by 7%—its highest point since 1982 (Bureau of Labor Statistics). So $1 at the beginning of last year was worth around $0.93 at the end.
While inflation is an important consideration, it’s just one of several risks you need to manage in retirement. Protecting yourself in retirement consists of:
- Creating an income plan that factors in inflation over the course of many years.
- Adjusting for inflation spikes that may affect your short-term budget.
While it’s not time to panic, you shouldn’t ignore it, either.
Here are a few steps to consider to help protect your savings.
Save where you can. Even modest steps can add up. Being flexible about your travel or where you live can also help.
Continue investing. Consider keeping some of your savings in stocks for long-term growth.
Pay off debt. Eliminating debt should be a top priority in retirement.
Consider working. Every dollar you earn in retirement is a dollar you don’t have to withdraw. Go part-time or explore a second career as a buffer. It may be an interesting opportunity you hadn’t considered.
If this has you feeling a bit anxious, keep this in mind: Having WRS as a public school employee is a great advantage for you, along with Social Security’s built-in cost of living increases and your personal retirement savings.
Need some guidance?
Explore our financial planning options. Our expanded services give you even more choices to meet your individual needs. We’re here to help.
The above content is not a recommendation to invest. Please consult your financial planner to determine the path best for your financial well-being.
Sources: Kiplinger, Forbes Advisor.
Sarah’s garden of financial knowledge
Sarah Campbell has been sowing seeds since 2009. She has watched those seeds sprout, grow, and in some cases, produce. The seeds Sarah sows are the seeds of financial literacy.
Her passion for financial literacy sprouted in her second year of teaching when she made discoveries about how to cultivate enthusiasm for this important topic in her students. She struggled her first year, teaching content straight out of the textbook. “The kids didn’t care,” she told us.
But after taking courses at the National Institute for Financial and Economic Literacy during summer break, everything changed. The experience showed her how to engage students by making the information personal and real.
Over the last 13 years her methods have changed—going deeper and broader—to reflect the needs of students and to keep up with advancements in technology and the financial world. But she is still teaching Personal Finance at Wisconsin Dells High School (WDHS) with great determination, and her responsibilities have grown, giving her more opportunities to promote financial literacy. But what does financial literacy mean?
For Sarah, it’s not enough to simply understand financial concepts and best practices. It’s much bigger than that. Being financially literate, she says, is about looking at your financial life from many angles—like how you fit into the economy, understanding your role in managing your finances, what your decisions mean to you and those around you, and taking a hard look at what you want your life to be and understanding how finances play into your ability to achieve goals. Sarah likes the term financial independence—it plays like a drum beat in her classes. “It’s the ultimate goal. Regardless of how financially literate you are, the end game is financial independence.”
But Sarah digs deeper still, helping her students look inward at their financial beliefs and why they hold those beliefs. “Understanding the financial mindset that drives decisions, even those that don’t seem financial at the time, can be really useful and necessary.”
If it sounds a little philosophic, that’s because it is. Taking responsibility for your own financial position has been her emphasis from the start, telling students to ‘own’ their future. Her message was and still is, “It’s up to you to determine what you want your life to be like and how you are going to make it happen. No one else can do that for you.”
To incorporate her philosophy in the classroom, Sarah created characters they follow through the units. “I give them a variety of back stories and future plans to reflect the diversity in my class. We analyze their situations, create solutions, discuss back-up plans, and plot out future plans for them.”
And she says a change in scheduling has played to her advantage. Back in 2009, Sarah’s personal finance class lasted nine weeks. Not a lot of time to cover so much ground. That changed to 18 weeks after the district moved away from a block schedule. “I still have around 65 hours, but now it’s spread out into shorter chunks. For me, it’s a win. The longer time frame allows for more time for students to process the information and practice self-observation, and I have more time to build trusting relationships,” she explains.
“Understanding the financial mindset that drives decisions, even those that don’t seem financial at the time, can be really useful and necessary.”
Born to sow
“Without a doubt, imparting financial knowledge is what drives me in the classroom, and not just in the Personal Finance course. I incorporate a lot of financial literacy into my other classes AND my academic support period.” Her additional responsibilities give her plenty of opportunities. She serves as the MATC Dual-Credit Instructor for Accounting and Microsoft Office. Dual-credit courses, she explains, allow eligible students to complete their high school graduation requirements while earning college credits at no cost to the student. “But becoming the Youth Apprenticeship Coordinator was the biggest change to my duties. This program integrates school-based and work-based learning to instruct students in employability and occupational skills.” In essence, students get to “try on” possible career paths without the expense of post-high school courses. Sarah sees it as a time of discovery with very real financial implications.
“I had a student work for two years as an auto mechanic, and during his last semester realized he wasn’t happy. He was relieved that he didn’t waste two years of time and money after high school only to learn it wasn’t for him. Another student, interested in business, was able to complete an accounting program at MATC in a year and a half and begin working. It saved him both time and money,” she adds.
WDHS gives students a head start
Wisconsin Dells is one of just 800 school districts in the nation where a one-semester personal finance course is required for graduation. Currently, just one in six students across the nation graduate with a decent financial literacy education, and only 10 states guarantee at least a one semester course in personal finance before graduation. Wisconsin is not among them—leaving it up to the district to decide if and how they want to do it.
“High school is really the best time to get it into their head,” Sarah explains, “while they are on the cusp of major decisions that could determine the trajectory of their lives.”
Data supports Sarah’s hypothesis. Studies show that graduates of high schools with guaranteed financial education are 21% less likely to carry a balance on a credit card while in college1 and are less likely to fall prey to high-cost predatory loans (such as payday loans) than their peers without guaranteed financial education.2
Statistics like these, financial literacy advocates say, show that providing financial education offers a great return on investment.
“Regardless of how financially literate you are, the end game is financial independence.”
Reaping the harvest
Sarah also has a lot of personal examples where the seeds she sows yield good results.
“Just last summer a student stopped by on her way to college, literally packed up in her new (used) vehicle purchase. She was excited to tell me that although the dealer encouraged her to take a six-year loan to reduce monthly payments as a college student, she was adamant on a four-year loan because she did NOT want to have the loan follow her after college. She was so proud of herself,” Sarah shares.
Another time, she saw a student at a baseball game. “Always the jokester—he told me he bought a brand-new truck and stretched out the loan to seven years! But then he began laughing and said, ‘just kidding, I knew better than that.’ In reality, he purchased a used truck for a price that fit into his budget with a four-year loan.” Then his friend jumped in. “He said he got his first credit card and likes to max it out, then make only the minimum payments when he remembers. He broke out laughing too, and assured me he only uses it for gas and pays it off every month. They knew these things were the exact opposite of what I taught them and they didn’t want to disappoint me. Not only did they apply the concepts to make responsible choices, but they wanted me to know it, too. And, they enjoyed hassling me a little,” Sarah chuckles.
In her own backyard
Sarah’s ultimate goal of financial independence for her students is also something she strives for personally and teaches in her home.
In 2009, when her daughter was just three years old, Sarah was intentional about financial literacy—using real life experiences as teaching moments such as the act of using cash in the grocery store to demonstrate the value of money in a transaction. And the financial lessons continued over the last 12 years.
“Because it has always been just the two of us, we have a lot of discussions about opportunity cost—not necessarily using economic terms, but instead ideas. ‘If we did this, got this, spent this—then what would we be willing to give up.’”
When her daughter turned 15 last spring, she started her first part-time job at a local greenhouse. “She loves getting her email alert on paydays. She examines the hours, the taxes, and the amount sent to her savings account. She’s had a savings account for a long time, but now she can see how her actions affect the balance.”
Her daughter has also dabbled in buying stocks with the help of her uncle. “They decided on an amount to invest five or six years ago. She looked for businesses she believed in and purchased a handful of shares in several. She watches them and has seen the ups and downs in performance.”
Sarah’s perennial practice
As for Sarah, she continues to practice what she preaches “maybe to a fault,” she admits. “Sometimes I am a little too frugal. I do love a good garage sale!” Giving herself permission to splurge sometimes is maybe her greatest financial challenge. “I probably could loosen up and enjoy some spending, but my mindset has always been focused on the financial security side of life.”
Sarah set her path when she was a teenager, taking some of her earnings from summer jobs to open an IRA. Then, she opened a 403(b) when she started teaching and has continued to invest and increase her contributions over the years. Saving is second nature for her. “I feel a great sense of security when I open my statements, knowing that the money is growing and will eventually meet me when I need it.”
Her parents, who retired shortly after the 2009 interview after a combined 78 years of teaching, inspire her. “It is encouraging to see them enjoy a comfortable retirement because of their commitment to saving and investing for their future. It motivates me to stay on track.”
Sarah points to the purchase of her home as the most important financial decision she has made since we last talked. “I was able to buy a home in the neighborhood where I grew up. I’m proud that I managed a 15-year mortgage so it will be paid off in five more years.”
Looking to future seasons
This hard-line approach isn’t for everyone but it works for Sarah. As for her future? She will continue to sow financial literacy seeds at WDHS in and out of the classroom. “I want to grow the Youth Apprenticeship program to reach more students and allow for more opportunities in all career paths,” she says. This school year she doubled enrollment in the program and looks to continue that trend.
“Personally, the next big step for me will be helping my daughter take her next steps in education.” The contributions Sarah has been making to her 529 college savings plan will help with the cost, but you can be sure her daughter will be involved in the financial aspects of her higher education. It’s just how Sarah helps good things grow.
We’re here for you
Learn more about Member Benefits’ programs and services by calling 1-800-279-4030.
1 Stoddard, C. and Urban, C. (2018). The Effects of K-12 Financial Education Mandates on Student Postsecondary Education Outcomes.
2 Harvey, M. (2019) Impact of Financial Education Mandates on Younger Consumers’ Use of Alternative Financial Services. The Journal of Consumer Affairs.
April is National Financial Literacy Month
We love the national focus on financial literacy because it reinforces our belief that education is fundamental to the financial security of those we serve.
To help you achieve your financial goals, consider these resources that promote financial literacy in April and all year long. You’ll find a wealth of knowledge for your personal financial plans as well as financial literacy resources for your classroom.
(Virtual) Money Smart Week
This year marks the 20th Anniversary of Federal Reserve Bank of Chicago’s Money Smart Week! Sign up to participate in this virtual event with free webinars on topics such as managing money, building and improving credit, understanding Social Security benefits, and more between April 9-16, 2022. There will be one daily live event plus select resources.
Money Management International’s Thirty Steps to Financial Wellness
Offers a 30-step path to help you achieve financial wellness. Includes budgeting tips, quizzes, information on how to save money, tools to track your income and expenses, and more.
The Department of Labor, the Social Security Administration, and the Centers for Medicare and Medicaid Services have collaborated to provide a list of publications and interactive tools to help in your retirement planning, plus information on how to contact them with specific questions.
Find financial information for your personal and professional use as an educator. You can also access a clearinghouse of federally-funded research reports, articles, and datasets on financial topics.
Jump$tart Coalition for Personal Financial Literacy
A national non-profit coalition of organizations dedicated to improving the financial literacy of pre-kindergarten through college-age youth. It strives to prepare youth for life-long successful financial decision-making by providing advocacy, research standards, and educational resources. You can subscribe to Jump$tart’s FREE weekly newsletter! Click here for Wisconsin’s Jump$tart page.
Edutopia: Resources and Downloads for Financial Literacy
A comprehensive list of links to resources to help students learn financial concepts, practice money management, and build strong financial decision-making and economic-reasoning skills.
Don’t forget to set up your personal financial consultation
Make an appointment for a financial planning service* with Member Benefits. Or call 1-800-279-4030. Summer appointments fill up fast.
*All investment advisory services are offered through WEA Financial Advisors, Inc. Consultation is free; however, if you choose to invest in the WEA Tax Sheltered Annuity or WEAC IRA program, fees will apply. Consider all expenses before investing. Must meet eligibility rules to participate. Family members may also be eligible. Call for details.
Before you head back to school…
Here are a few things to consider for your financial checklist before you head back to the classroom this fall.
Complete a new Salary Reduction Agreement (SRA) to give yourself a raise in your 403(b) contribution for the next school year.
Review beneficiaries. If you’ve experienced any life events (marriage, divorce, birth of a child, etc.) it’s time to update your beneficiaries. Beneficiaries named on your retirement account supersede your will.
Update your address, review your portfolio, and change your investment allocation. Visit yourMONEY online to review your account or make an appointment to meet with one of our financial advisors for more assistance.
Let your family know about the Member Benefits programs that are available to them.
This summer, and anytime, call us at 1-800-279-4030, Extension 8577 for assistance.
6 things no one tells you about retirement
It’s to your benefit to prepare yourself now for some common financial considerations. After all, forewarned is forearmed.
Social Security benefits and retirement savings are taxable
You may not know that once you start collecting Social Security, Uncle Sam is going to want some of that money back. Withdrawals from a 403(b) or IRA will trigger taxes as well, unless you have Roth accounts. Take these taxes into account when you’re planning your retirement budget.
Healthcare costs may catch you by surprise
According to the Fidelity Retiree Health Care Cost Estimate, in 2020 an average retired couple age 65 needed approximately $295,000 saved to cover health care expenses in retirement. You will still have to pay premiums and co-pays once you’re on Medicare. And some services aren’t covered at all, like long-term care. Consider supplemental insurance and a long-term care insurance policy to help cover unplanned expenses.
You’re required to withdraw from your nest egg
You can’t keep retirement funds in your account indefinitely. You will need to start taking required minimum distributions (RMDs) from your retirement accounts generally at age 72 (or 70½ if you turned 70½ before January 1, 2020). If you don’t withdraw on time, you’ll pay 50% of the RMD amount not taken.
You may be retired for decades
A 65-year-old can expect to live another 19 to 21.5 years on average, according to the Social Security Administration. What’s more, one third of 65-year-olds will hit age 90, and 1 in 7 will live beyond age 95.
The prospect of a 20-year or more retirement and the increased chance of health care expenses with age mean you risk outliving your money. Be sure you plan accordingly. Meeting with a financial advisor at Member Benefits can help you balance out your risk and plan for the myriad of considerations that come with a longer life span.
Housing will remain your biggest expense
Many retirees work hard to pay off their mortgage so they can afford to travel or experience once-in-a-lifetime activities. But even if you pay off your mortgage by the time your retire, property taxes and the cost of upkeep can still take up a large chunk of your budget. U.S. households led by someone age 65 or older spent an average of $17,472 on housing in 2019 (MoneyTalksNews). Make sure you plan realistically for this continued expense.
Good news: You can keep saving for retirement
If you continue to work later in life, even part-time, you can still save in tax-advantaged retirement accounts. Consider saving at least enough to get any company match.
As of 2020, there is no age limit on making regular contributions to either Traditional or Roth IRAs. And if you are self-employed, you have a few other options. Visit irs.gov for more information.
Make a fresh start on your finance$
When you think of spring, what words come to mind? Some words on your list might include planting, growth, or renewal.
It could be that after the long year we’ve had, you’re not feeling particularly spring-like. Maybe none of those words popped into your head. But spring is a good time to get a fresh start on things. And those particular words are good to keep in mind when it comes to your finances, because they can be applied so aptly to your spring to-do list:
- Plant…the seeds for a financial strategy for 2021.
- Grow…your savings with a retirement savings account.
- Renew…your commitment to make sure your personal insurance meets your needs and to educate yourself on how best to save for your future.
Member Benefits can help you with many of those items you may have on your financial to-do list. Let us help you with your fresh start this year. Begin here to create and review your list before you spring ahead with your plans. Then give us a call—we’re here to help.
Whether you’re just beginning to save or want to continue to grow your savings, it’s important to plant some seeds—not just at the start of the journey, but throughout your lifetime. Life is full of beginnings and endings, and as we move forward, our circumstances may dictate that some new planting is needed.
Germinate a plan
If you haven’t started saving for retirement yet, now is a great time. Even as little as $20 per pay period will make a big difference over time due to compound interest. Compounding is when earnings on your investments are reinvested in your account. The reinvested earnings may also have earnings and then those earnings are reinvested and so on.
Not sure how much to save? Use our paycheck comparison calculator to help you determine the impact of changing your retirement savings payroll deductions. Go to our calculators page for this and many other free financial calculators.
Our retirement account fees are among the lowest around, so more of your money is working for you. Consider investing in a WEA Member Benefits 403(b) and/or IRA. No large amount is required like at many other providers. It’s easy to get started online. Or give us a call and we’ll walk you through it.
Feather a new nest
Many people don’t think about insurance as a way to conserve money, but if you don’t have the right coverage, you put yourself at financial risk. If you’re putting down new roots in a home, condo, or apartment this year, you need to start protecting it right away. But if you’re like most people who treat insurance like a commodity—or one-size-fits-all—you risk leaving yourself (and your family) exposed to financial loss or purchasing coverages you don’t need.
For example, umbrella insurance is an often overlooked or misunderstood coverage because many people assume their basic insurance policy offers them adequate protection. However, you may be surprised at the situations in which you may need umbrella insurance—your dog bites a neighbor, someone slips on your sidewalk, or your teen throws a party while you’re gone and one of the guests gets an Operating While Intoxicated (OWI) on the way home. An umbrella policy provides extra protection for you as well as other members of your family.
Another common way people put themselves at financial risk is by assuming their home insurance policy protects all of their possessions—even those of extreme value. However, standard home policies provide only limited protection for high-value items. So you may need to add an endorsement (sometimes called a rider or schedule) to your home policy for valuable possessions to provide coverage for their full worth.
Member Benefits can help you make informed decisions regarding the right coverage for your situation and help you become a better insurance consumer in the process. Sign up for a free consultation with one of our Personal Insurance Consultants.
And if you’re planting new roots and purchasing a home this year, download our free home buying ebook, which is full of tips and information on purchasing, evaluating, and protecting your new home. Find it and other ebooks on various financial topics on our website.
Cover your ride
Auto insurance protects not only you, but also passengers, other drivers, and pedestrians. It also offers coverage for damage to your vehicle and other people’s property. Just like home insurance, it’s not a one-size-fits-all. We suggest you consider three principles to help find the right coverage for you:
- Buy the right amount of protection for your situation.
- Buy more liability protection rather than less.
- Choose the highest deductible amount that you can comfortably afford.
While many companies offer auto insurance, ours is the only one created exclusively for public school employees like you. Set up a consultation, and we’ll review your coverage so you can compare. Or get a quote.
And if you have any recreational vehicles or classic cars, make sure they’re covered, too. We can help with that.
In order to continue growing your savings, you have to maintain an active role in your financial strategy.
Save more for retirement
When was the last time you reviewed your investment allocations in your retirement savings account? You may want to change your level of risk. How long has it been since you gave yourself a raise to grow your savings? Most plans let you choose a certain dollar amount or a percentage of your salary.
Make an appointment with one of our financial consultants if you’d like guidance on asset allocation. If you want to change your contributions and have a 403(b), you’ll need to update your salary reduction agreement with your school district. If you’d like to increase your contributions to your WEA Member Benefits IRA, give us a call.
Make it automatic
A good rule of thumb to live by is “pay yourself first.” Financial experts suggest saving 10% or more of salary (if possible) to meet retirement income needs. One really easy to way help you save is to automate your savings. Payroll deduction means you give permission to deduct a certain percentage (or amount) from each eligible paycheck and deposit it into your 403(b) plan account. For your WEA Member Benefits IRA, SmartPlan is an electronic transfer system that allows you to move money into your IRA from your bank, savings and loan, or credit union. For either, you can opt out anytime or change the amount you have deducted.
Peek at your policies
Are you getting married? Adding any new little seedlings to your family this year? You should always review your policies at any life event, good or bad. Check beneficiaries on all your accounts and review life insurance and long-term care (LTC) insurance policies for any changes you may need to make. If you’re adding or subtracting any drivers to your auto policy, be sure to review your coverages and liability limits.
New life events are also the perfect time to explore life insurance or LTC insurance options. Member Benefits offers both. Read more about LTC insurance and get life insurance comparison quotes on our website.
Weed out old spending habits
Make a plan to clean up debt, control spending, and limit credit cards. Debt is like a weed—ignore it and it will multiply, take over, and block out new growth—lessening the potential earnings you could make by saving more instead.
It can also negatively affect your credit score. Information in your credit report is used in various ways. For example, credit card companies may give you a more favorable interest rate and a larger line of credit with a higher score. Potential lenders, landlords, insurance companies, and even some employers use your credit score to help make decisions about you. Companies use different sets of factors related to your score to make their decisions, so it’s safe to say that the higher your score, the better.
Share your bounty with family
Many of your family members may be eligible to participate in our retirement and insurance programs. Let them know! This includes our IRA program, financial planning program, and home and auto insurance.
Even some of your family members who live outside of Wisconsin may be able to participate in our IRA program.
When did you last look at your insurance coverage? Are you saving enough? Time to review your protection and renew your savings goals.
Review your coverage
Make sure your insurance coverages continue to meet your needs. Taking a look at your home and auto policies at renewal can be a good reminder to review your coverages. Perhaps you renovated or added to your home. Maybe you’ve accumulated more possessions in the past year and need to increase your coverage. Minimize your risk so you can more easily maximize what you’re able to save. Ask us for a free insurance review.
Renew your commitment to saving
When you’re ready to retire, will you thrive or survive? Having a financial plan helps you see the big picture, set goals, and stay on track, whether you are just starting your career or planning your exit.
A Member Benefits consultant can provide basic guidance on a variety of financial topics with individual consultations. Or meet with one of our financial advisors for help with building your assets, discovering whether you’re on track for retirement, or planning for an upcoming retirement. Visit our financial planning services section for more information.
Harvest our resources
Make 2021 the year to boost your financial knowledge. Use our free financial calculators, read articles, download ebooks, use an interactive budget sheet, find information on programs and services, or sign up for seminars. Visit our Learning Center to get started.
If you want your finances to flourish, you need to do a little hands-on work. Giving your finances a little care each year can help you cultivate the life you want to live.
No matter what growing season you’re in, we’re here for you and we want to help. Contact us at 1-800-279-4030 or firstname.lastname@example.org to get going on your fresh start.
Financial tips to fight against formidable times
We can probably all agree that this has been…a year. One that has presented various challenges for us mentally and emotionally and, for many, financially.
The pandemic has changed our way of living and has led many people to reevaluate their financial priorities. More than one in three Americans say they have been saving less since the pandemic started. And unfortunately, another one-third say they have turned to their savings or retirement accounts just to pay their bills (Pew Research).
You’re not alone if you’re feeling a bit financially unprepared during these times. Because life as we know it has become more complicated, we want to share a few financial tips to help you weather this year and beyond—regardless of your financial situation.
Use this time as an opportunity
Let’s start with creating a mindset. You may have made totally different financial choices before COVID, and maybe you feel guilty for not being more prepared. Channel those feelings into something more productive by resolving to take an active role in your financial life and make better decisions moving forward.
Create a strategy
Build a new budget strategy for your “new normal.” It may help to break things down by thinking on a per-spending basis, like setting a spending limit for each time you get groceries instead of for the whole month.
You can also separate your money into categories by giving it different labels: necessary bills, current weekly expenses (like groceries), and long-term costs (like your retirement fund). This can help you get a clearer picture of your finances and prioritize what’s most important.
Don’t get carried away by emotions
We’ve said it before and we’ll say it again—if you’re thinking of pulling out or jumping into the market now, you may want to think differently. History has shown us the market tends to bounce back over time. While past performance is never a guarantee of future performance, it is an important fact to consider before making any major financial decisions. If you do move your money, consider whether any interest you make will keep up with the cost of inflation. It may be worth working with a financial advisor for some guidance. We can help. Visit our financial planning page to view your options.
Keep your credit score up
In the future, there may be opportunities to refinance mortgages, student loans, and auto loans at lower rates. You’ll need to maintain a high credit score if you want to save some money on interest—which is just as important to your finances as what you gain in investments or dividends.
If you have credit card debt, student loans, or medical debt, it’s ok to hit pause for now and make minimum payments if you need to—making at least the minimum payment is crucial to keeping your credit score up. However, before you decide, determine if the interest you’ll be charged is worth the wait.
Continue saving for retirement if you can
If you’re newer to the workforce, you may not think this is important—but it is. The earlier you save, the more you take advantage of compound interest. And if you’ve been saving for a while, keep at it—or at the very least, decrease your contribution temporarily but increase it again as soon as you can.
Consider life insurance
The pandemic has been a grim reminder about the importance of having life insurance. It is an essential part of a holistic financial plan. Visit our life insurance pages to learn more and get free quotes.
Build some routines
When we’re stressed, we seek comfort. Find some free or inexpensive new routines to bring back some stability and enjoyment. It could include staying (virtually) connected with friends and family, exercising, cooking, trying a new hobby, or resurrecting an old one.
10 ways to build your wealth
No matter what your age, saving enough money to meet your needs and wants is probably up there on your list of priorities. For most of us, it will pose a challenge at some point in our life—or maybe many times. And during a challenging time such as we are facing now, it can cause a great deal of anxiety.
However, some of the basic steps you can take to help build your personal wealth are the same now as they have ever been. Yes, everyone’s situation is different. But following these tips by doing as many as you can—to the best of your ability, based on your situation—may just improve your savings account over time.
1. Save enough
According to the Social Security Administration, a 65-year-old can expect to live another 19 to 21.5 years on average. Further, one-third of 65-year-olds will hit age 90, and 1 in 7 will live beyond age 95. Depending on when you retire, you could be looking at 30+ years in retirement.
Even though your expenses during retirement average 70% of your working years, because of early retirements and active lifestyles, our expenses may be greater than 85% in the early years.
And don’t forget about the impact of inflation. A million dollars after 10 years of 3% inflation is worth about $737,000, before figuring taxes.
For health costs, Medicare doesn’t cover everything. Things like prescription drugs, custodial care, and long-term care are not covered. Consider long-term care insurance and a supplemental insurance plan to cover what Medicare doesn’t. Remember, the longer you live, the more likely you will need long-term care. The Genworth 2019 Cost of Care Survey found that the median monthly cost for a home health aide in Wisconsin is $4,767. A semi-private room in a nursing home facility is $8,273. Plan ahead for possible costly health care expenses.
2. The earlier you save, the better
The earlier you start, the more you can benefit from compound earnings. Compounding is when earnings on your investments are reinvested in your account. The reinvested earnings may also have earnings, and then those earnings are reinvested, and so on. This means that contributing a small amount now could benefit you more in the long run than any larger amount you contribute later on. Even modest monthly contributions have been shown to grow exponentially.
— Kyle Steenport, teacher, Stanley-Boyd Area Schools
You may have heard the phrase, “Pay yourself first.” It can be a powerful savings strategy. It means you pay into your own savings and investments before anything else. Setting up automatic contributions into your retirement account using payroll deduction or electronic funds transfer can make it easier to do.
Kyle Steenport is in his early 20s and just started his first year of teaching at Stanley-Boyd Area Schools. He follows the pay yourself first mentality. “I think it’s important to be saving for my future at a young age. I think a lot of people coming out of college are just so excited to finally have a salary and make money that they forget the importance of saving. All of my family members who are older have been saying for years how imperative it is to start saving up as soon as possible. To me, that means utilizing the benefits you are given through your job.”
Nick German agrees. Nick has spent 18 years in the Appleton Area School District. He teaches high school, coaches middle school, and runs engineering and robotics camps for elementary kids in the summer. “Start saving early and live within your means. My wife and I are both fortunate to be educators. We’re also fortunate to come from modest backgrounds, so we’ve continued to live a simple life as our income has increased over the years. This allowed us to devote an aggressive percentage of our income to our retirement for the first half of our careers.”
Take a look at our infographic to see what happens when you start saving early for retirement. You might be surprised.
3. Don’t spend more than you earn
It’s important to be aware of the money you have coming in versus what’s going out. Spending more than you earn on a consistent basis can build debt quickly! Being in debt has a BIG impact on financial wellness by affecting your credit score, making it harder to get a loan, etc.
Once you’ve assessed your debt, devise a plan to pay off the highest interest debt first. If you need some help, contact one of our financial advisors. We’ll help you come up with a plan to get you back on track. And use our online debt calculators.
The best way to avoid debt is to be proactive about managing your money, which brings us to the next tip…
4. Make a budget
Not only does it help ensure you’ll have money for the things you need and that are important to you, but having a spending plan can also help keep you out of debt (or work your way out of it). And following a budget can make it less likely you’ll spend money you don’t have.
On the more positive side, a budget also helps maximize your savings and investments, allowing you to make sure your hard-earned money is being used to its best purpose. You’ll be better prepared in case of an emergency such as a job loss, major health crisis, or extensive home repair. And it gives you some room to splurge. That may sound counterintuitive, but having a budget can “give you permission” to buy those fancy shoes or purchase those drive-in concert tickets by tracking your expenses and building in an amount you choose for the fun spending.
Another way a budget can help you is to make it easier to clarify your short- and long-term savings goals. Long-term financial goals are often too easy to put off for later. For example, depending on your age, saving for retirement may seem a long way off. However, a budget can help you discover a way to fit it in, even if it’s just a small amount at first.
Here are a few examples of goals you may want to achieve:
- Short-term (0-5 years): Emergency fund, vacations, start a family.
- Intermediate term (5-10 years): New car, new home/condo, college fund.
- Long-term (10 years or more): Retirement savings (IRA, 403(b), etc.).
There’s a need for all three types of saving in your financial wellness plan. Starting earlier than later gives you a huge advantage by utilizing the power of compound earnings (see tip #2).
A budget can also be a helpful tool to use if you have a partner. Kyle, who was recently married, adds, “Another thing I’ve found to be important for my wife and me is our ability to budget and to communicate about money. This saves so many headaches and allows us to be on the same page. Once a month, we review our budget and see how we did. Then we adjust it accordingly. This small step allows us the chance to understand where our money is going and puts it on paper.”
Consider setting up a budget if you don’t have one. You can download a myriad of budgeting apps, set up a simple Excel sheet, or use our interactive budget form.
5. Keep credit card debt to a minimum
Credit card loans crossed the $1 trillion mark last year, reaching $1.08 trillion in the third quarter of 2019 (debt.org). Before credit cards, people knew easily whether or not they were living within their means. But the average credit card debt for Americans reached $6,194 in 2019, and balances increased 3% compared to the year before. Also of note, generations X, Y, and Z tend to carry more debt, including credit card debt, than older generations (Experian). Those who don’t pay attention and overuse their credit cards may not realize they’re overspending until they’re weighed down with debt.
Paying off outstanding bills has many benefits—it improves your credit score, reduces stress, and increases your financial security. Focus on paying off credit cards and other high interest debt.
Use our credit card pay-off calculator to see what it will take to pay off your balance. Visit our financial calculators page for this and many other helpful financial calculators.
6. Don’t chase the market
Especially during times of uncertainty like we’re in now, people tend to make investment choices based on emotion rather than careful consideration of their long-term plan. Selling stocks or cashing out your retirement savings when things look shaky, then buying again when the outlook seems brighter, is a common mistake. Trying to time the market almost never pays off because no one really knows what will happen next. Moving out of your investments into cash or very conservative investments means you may lose any opportunity to recover your losses when the stock market rebounds. One of the best things you can do right now for your retirement is to stay the course for the long term.
7. Create an emergency fund
Plan for unexpected expenses—there will always be surprise financial situations that pop up in daily life. Start with a goal of saving at least three months worth of expenses in your emergency fund—six months is even better if you can do it.
Consider setting up a recurring transaction to place money in your emergency fund each month. If you need to, take it slow and just save $20 per paycheck, increasing as you are able.
Do you already have a well-established emergency fund and it’s calling your name? Every time you consider spending money from your emergency fund, ask yourself these three questions:
- Is it unexpected?
- Is it necessary (a need vs. a want)?
- Is it urgent?
Use your answers to guide your decision to make it less tempting to dip into the fund.
8. Understand and take advantage of your workplace benefits
Understand and take advantage of your benefits including flex spending accounts, health savings accounts, life insurance, disability insurance, WRS, matching contributions to your retirement savings plan, etc. Visit your district office if you’re unclear about the benefits available to you.
9. Have adequate insurance coverage
Stuff happens. Insurance is key to your financial well-being and is an important part of your financial plan. Protect yourself appropriately with auto insurance, renters/home/condo insurance, umbrella insurance, and more.
However, while nearly everyone thinks they are adequately insured, few actually are. If you’re like most people who treat insurance like a commodity (i.e., based solely on price), you risk leaving yourself and your family exposed to financial loss or purchasing coverages you don’t need.
Member Benefits can take a look at your insurance needs and your existing coverage. If you’re well protected, we’ll tell you! If not, we’ll recommend changes and coach you to become a better insurance consumer. Call 1-800-279-4030 for a free consultation.
10. Pay attention to fees
Fees are everywhere—bank fees, credit card fees, loan fees, and retirement account fees. Fees matter. Keep an eye on how much you’re paying in fees because they can take a bite out of your bottom line.
— Nick German, teacher, Appleton Area School District
Remember, Member Benefits is here to help you with financial information and guidance, whether it’s an online resource, an individual consultation, or an in-depth financial plan. “I can’t say enough about Member Benefits’ efforts to help us understand our retirement investments,” adds Nick. “This year we met with Mark Resch (a Member Benefits Consultant) for a short individual consultation. He helped us realize we were on track for a comfortable retirement and that we could afford a larger home that better fits our growing family.
“We appreciate the time and expertise Member Benefits provides our family as we make long-term financial decisions.”
Member Benefit Consultants can provide assistance with your retirement savings accounts but do not offer investment advice. Registered Representatives of and securities offered through WEA Investment Services, Inc., member FINRA. All financial advisory services are offered through WEA Financial Advisors, Inc., an SEC registered investment advisor.
Coffee or Savings
Take a look and see what saving $20 per month could do for your savings goals with our infographic demonstrating the power of compound interest!
If you would like to download a PDF of the infographic, click on the image.
This infographic and these calculations are for informational purposes only and is not intended to constitute legal, financial, or tax advice. Certain recommendations or guidelines may not be appropriate for everyone. Consult your personal advisor or attorney for advice specific to your unique circumstances before taking action. Your actual situation may be different from the value shown here. This example uses a projected interest rate of 6% for illustrative purposes only. No guarantees are expressed or implied. Results will vary depending upon the actual rate used in the calculation. Over time, the results of any investment will fluctuate, can lose value, and are not guaranteed.
The 403(b) retirement program is offered by the WEA TSA Trust. TSA program registered representatives are licensed through WEA Investment Services, Inc., member FINRA. All advisory services are offered through WEA Financial Advisors, Inc., a registered investment advisor.
Tips for paying for health care in retirement
Before you start, keep this in mind: Figuring out when you can retire isn’t predominantly driven by your savings; rather, it’s driven by your expenses. Determining the income you need each year to support your lifestyle is important, as well as estimating your future health care costs and insurance options.
Fortunately, you have several options to choose from based on your individual situation.
Employer-sponsored health insurance for retirees
Your school district may offer the option to continue your health insurance coverage as you enter retirement. If so, be clear on what is actually offered and their approach on covering premiums for spouses/partners/dependents. Rising costs are leading many employers to change the retiree benefits they offer, so approach with some caution and be sure you have enough flexibility to go with the changes.
Health savings account (HSA)
An HSA is a tax-advantaged account to help people save for medical expenses that high-deductible health plans don’t cover. Your district may offer this in lieu of employer-sponsored insurance after retirement.
COBRA typically extends your current employer-sponsored plan for up to 18 months after you retire. It can be quite expensive. You may be able to use funds from an HSA to pay for premiums.
Affordable Care Act
This public market place for insurance varies in cost by age, state, insurer, plan level, and year. Depending on your income, you may qualify for subsidies.
This is often significantly more expensive than the public exchange, but it may be preferable if you have the resources or specific medical needs. Be careful not to miss the open enrollment period.
Spousal health plan
If your spouse is still working, they may be able to enroll you in their plan, which can be the easiest and most cost effective option. Be sure to talk together about the timing of your retirement and the possibility of other options to bridge the gap.
Some retirees choose to work part-time for the insurance, which can still give you flexibility and plenty of time off depending on the job.
In general, plan for escalating costs over time. Health care costs are anticipated to rise by an average of 5.5% per year over the next decade (CMS). Invest in healthy habits to help you enjoy life and make living more affordable.
Consider whether early retirement is worth cutting back on enjoyable lifestyle expenses in order to pay for health care costs—there is no wrong answer, but it’s important to understand the costs and benefits.