4 Ways to Benefit From Your Retirement Plan
The U.S. Debt Ceiling & What You Should Know
3 Smart Tips to Help You Fight Inflation
What You Should Know About the Recent Bank Bailouts
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March 2022
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Find out what the federal debt ceiling is, how it can impact public service workers, and what you should do.
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To talk about the benefits of your employer’s retirement plan, contact your MissionSquare Retirement representative who is here to help you.
That’s where your employer-sponsored retirement savings plan can help. The 401(a) and 457 are tax-advantaged plans for public service workers. They can help reduce your tax bill today, build your retirement savings, and provide financial security for your loved ones.
Contributions are typically made pretax and are automatic after you set up your account. You contribute to the account directly from your paycheck before taxes are taken out. This lowers your current taxable income. Plus, the money is invested and grows tax-deferred. When you begin making withdrawals in retirement, the money will be taxed as ordinary income. The amounts you contribute vary depending on plan type and your age. For 2023, the maximum amount that you and your employer can contribute to your 401(a) account is $66,000. With a 457 account, you can contribute up to $22,500 in 2023, and those age 50 or older can add an extra $7,500. Another 457 perk: You can begin making withdrawals when you retire even if you are not yet 59½ years old, and you can make penalty-free withdrawals at any age once you leave your job.* You’ll still need to pay income taxes when you withdraw your money. If offered by your plan, you may be able to take a loan from your retirement account but be aware of the terms and the impact. While it may seem convenient to take a loan, you should avoid taking a loans so your account could benefit from continued growth. For example, when you take a loan, you reduce the amount invested and you’ll need to pay interest on the loan. If you need a loan, consider other options before tapping your retirement account. You can name the beneficiaries for your account. Your account is there for your long-term savings and for you to enjoy in retirement. However, it’s important to establish beneficiaries on your retirement account — especially after you experience a life change such as a marriage, new child, or divorce — to include the people you’d want to receive the account upon your death. Doing so will help ensure your loved ones are protected.
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A general rule is that in retirement you’ll need 80% of your pre-retirement income annually to maintain your standard of living. A pension can provide part of that, but it may not cover all your needs.
80%
to Benefit From Your Retirement Plan
4 Ways
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Contributions are typically made pretax and are automatic after you set up your account. You contribute to the account directly from your paycheck before taxes are taken out. This lowers your current taxable income. Plus, the money is invested and grows tax-deferred. When you begin making withdrawals in retirement, the money will be taxed as ordinary income. The amounts you contribute vary depending on plan type and your age. For 2023, the maximum amount that you and your employer can contribute to your 401(a) account is $66,000. With a 457 account, you can contribute up to $22,500 in 2023, and those age 50 or older can add an extra $7,500. Another 457 perk: You can begin making withdrawals when you retire even if you are not yet 59½ years old, and you can make penalty-free withdrawals at any age once you leave your job. You’ll still need to pay income taxes when you withdraw your money. You’ll benefit from market growth over time, so it’s best to avoid taking loans from your account. Using a retirement account for loans, if offered by your plan, may seem convenient, but you should be aware of the terms and the impact on your savings goals. For example, every time you take a loan, you reduce your account balance and your future savings. If you need a loan, look into other options before tapping your retirement account. You can name the beneficiaries for your account. Your account is there for your long-term savings and for you to enjoy in retirement. However, it’s important to establish beneficiaries on your retirement account — especially after you experience a life change such as a marriage, new child, or divorce — to include the people you’d want to receive the account upon your death. Doing so will help ensure your loved ones are protected.
The amounts you contribute vary depending on plan type and your age. For 2023, the maximum amount that you and your employer can contribute to your 401(a) account is $66,000.
You’ll benefit from market growth over time, so it’s best to avoid taking loans from your account. Using a retirement account for loans, if offered by your plan, may seem convenient, but you should be aware of the terms and the impact on your savings goals. For example, every time you take a loan, you reduce your account balance and your future savings. If you need a loan, look into other options before tapping your retirement account.
Sign Up for a CFP® Webinar Get more retirement planning tips when you attend a complimentary webinar, hosted by one of our Certified Financial Planner™ professionals.
* Non-457 plan assets rolled to a 457 plan and then withdrawn before age 59½ may be subject to a 10% tax penalty.
Please note: The contents of this publication provided by MissionSquare Retirement is general information regarding your retirement benefits. It is not intended to provide you with or substitute for specific legal, tax, or investment advice. You may want to consult with your legal, tax, or investment advisor to review your own personal situation. Some of the products, services, or funds detailed in this publication may not be available in your plan. This document may contain information obtained from outside sources and it may reference external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy. In addition, rules and laws can change frequently.
& What You Should Know
The U.S. Debt Ceiling
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The debt ceiling is a limit, set by Congress, on the amount of borrowing the U.S. Treasury can do, which is currently $31.4 trillion. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily suspend, or revise the debt limit — and often more than one time in a year.¹
What is the debt ceiling?
$31.4T
Currently the federal government’s outstanding debt has surpassed
When the debt ceiling is reached, it doesn’t automatically result in a default. The Treasury Department can employ temporary measures called “extraordinary measures” to ensure that the government can continue meeting its financial commitments for a limited period. However, if the debt ceiling isn’t raised, these measures will eventually be exhausted, and there is a risk of defaulting on the government’s obligations.
What happens if we hit the debt ceiling?
Failure to increase the debt ceiling could lead to an inability to fulfill financial obligations, resulting in default and market volatility.
Finding the right balance between financial stability and preparedness is crucial in times of uncertainty.
What should you do?
For more information on staying prepared and managing finances effectively, visit www.missionsq.org.
Consider increasing your emergency savings as a proactive measure.
Strengthen your financial resilience by prioritizing debt repayment during times of market volatility.
Align your investments to your specific goals and timeline.
¹ Graph Data Source: White House OMB Historical Tables: Tables 7.1 and 7.3 The information contained herein is for informational purposes only and is not intended as a solicitation, nor does it constitute investment, tax or legal advice. Reference to any fund or asset class is not a recommendation to buy, sell or hold that fund or asset class. Neither MissionSquare Retirement nor its subsidiaries are responsible for any investment action taken as a result of the information presented or interpretation of such information. Investors should carefully consider their own investment goals, risk tolerance and liquidity needs before making an investment decision. Investing involves risk, including possible loss of the amount invested.
In the public sector, furloughs may be implemented, causing disruptions in government services.
Public service workers may continue working, but paychecks could be delayed, and contracts could be put on hold or not renewed.
Raising the debt ceiling instills confidence in the ability for the U.S. to pay their bills and safeguards jobs, Social Security, and other vital services.
Essential expenses such as government wages, Social Security, and Medicare could go unpaid if the debt ceiling is not raised.
Persistently raising the debt limit without appropriate caution may be regarded as a reckless approach, potentially undermining long-term financial stability of the U.S. economy.
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Build your emergency fund. To strengthen your financial footing and to avoid borrowing when interest rates are high, it’s helpful to have an emergency fund that covers at least three to six months of living expenses. Having an emergency fund you can turn to for unexpected expenses or life changes is especially important when costs are rising, as even a single large repair bill could wreak havoc on your budget. In this rising rate environment, a high-yield savings account could be a good place to keep some of your emergency fund.
Focus on your future. With inflation increasing, it’s a good idea to build toward long-term goals such as retirement or paying for college. One way you can benefit from rising interest rates is by putting money in a high-yield savings account or certificate of deposit. If you have children, consider establishing or building up a 529 plan for their education savings where the earnings can grow tax-free.
Reduce your debt. Don’t let the high-interest rates of credit cards and loans drain your savings. With interest rates rising, you face higher payments on any borrowing that features variable rates, for example. If you can, take steps to pay down your account balances, beginning with the credit card or loan that has the highest variable interest rates. You might also want to look into fixed-rate options. The less money you spend on interest, the more you’ll have available for other financial goals. Paying down your debt sooner can mean paying significantly less interest over time. Try our debt calculator to see the difference.
During this time of inflation, you may be thinking about ways to meet today’s needs and still save for your future. Here are some smart tips to help improve your finances:
to Help You Fight Inflation
3 Smart Tips
3 Smart Tips to Help Fight Inflation
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Get More Insights Access the latest market analysis from MissionSquare investment professionals, including quarterly perspectives and outlooks.
1 https://www.investopedia.com/who-is-paying-for-svb-first-republic-bank-bailouts-7487138 2 https://www.forbes.com/sites/emilywashburn/2023/03/13/bank-bailouts-what-they-are-and-why-some-experts-say-signature-bank-and-svb-didnt-get-one/?sh=30e500546557
Investments are subject to short-term market corrections, but don’t let them distract you from the long-term goal of growing your retirement savings by being invested and staying in the market.
The bottom line:
Market volatility can be very unnerving, and it may be tempting to make changes and want to exit the market.
Should I be worried about stability risks in my retirement plan?
Borrowing may get more difficult and will continue to get more expensive. When borrowing, shop around at banks of all sizes.
Some experts predict that smaller banks, in particular, will be more cautious about lending. The bank failures have also done nothing to slow down the Federal Reserve, which has continued to raise interest rates to fight inflation.
How might this affect me if I need a loan?
Even if it were to happen to your bank, your money is protected.
Any funds you have in federally insured U.S. banks are protected by the Federal Deposit Insurance Corporation, up to $250,000 per depositor, per bank. This covers losses for any circumstances. While the FDIC has spent $23 billion¹ in this year’s bank bailout, that’s a fraction of what was spent in the crisis of 2008, when the FDIC and other government bodies spent $245 billion.²
Is my money safe?
In the last few months, the fallout and subsequent bailout of some banks have made it to news headlines. It’s not surprising that individuals may be concerned about how they and their families could be impacted, especially if more failures occur. Here we answer three questions that may be on your mind:
About the Recent Bank Bailouts
What You Should Know
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