Smart Retirement Savings Discussed
As published in the Fort Gordon Signal News (PDF 2.71 MB), February 9, 2007
Bonnie Heater, Signal staff writer-editor
This is part three of a three-part series on the financial forum offered at Fort Gordon on January 11, 2007
John Gannon, the executive director of the NASD Investors Education Foundation, gives advice on investing and saving for retirement at the financial forum held January 11, 2007 at Alexander Hall.
Investing can often appear complicated and confusing to many of us. That’s why the National Association of Securities Dealers Investor Education Foundation teamed up with the Fort Gordon Army Community Service and presented a free financial forum at Alexander Hall on January 11, 2007. Their objective was to provide valuable information on savings and investing to active duty service members, reservists, National Guard members, military retirees, Department of Defense and Department of Homeland Security civilian employees and their families.
Col. Bob Hoelscher, the commandant of the Leader College of Information Technology at Fort Gordon, introduced the three presenters.
“Frank Dong is one of our own, a retired Army officer, who joined NASD in 2005 to head the Military Financial Education Program and John Komorske is vice president and counsel for NASD,” said Hoelscher.
“John Gannon is the executive director of the foundation,” added Hoelscher. “He has been with NASD since 2001 and he will be giving the last presentation on smart saving for retirement.”
The first tip Gannon offered was to get out of debt. “After you get out of debt, pay yourself first,” said Gannon. “There are 401(k), 403 (b), 457, and Thrift Savings plans in which you save for your retirement. This is especially important today since many employer sponsored pension plans are disappearing. In the 70’s about two-thirds of the companies in the United States offered pension plans for their employees. Today, about one-third of the employers offer a 401(k) plan.”
“The military fortunately offers two types of retirement plans,” explained Gannon. “Military members have the Thrift Savings Plan and their military pensions. The uniform services retirement system is a defined benefit plan where retirement pay is based on years of service and rank at retirement."
“Participation in the TSP is an option unlike the uniform services retirement system,” said Gannon. “Contributions to the TSP and any earnings are yours to keep even if you don’t serve the 20 years normally required to receive uniform retirement system pay.”
According to Gannon, the benefits to the TSP include: before-tax savings and tax-deferred investment savings, daily valuation of account, and low administrative and investment expenses. In addition, you have a choice of six investment funds, the ability to change contribution allocations daily, the ability to make interfunds transfers daily and the TSP accepts transfers from eligible retirement plans and individual retirement accounts.
The pre-tax contribution limit in 2007 is $15,500, according to Gannon. The pre-tax catch-up contribution in 2007 for individuals age 50 or older is $5,000.
“Military members can contribute any percentage (from one to 100 percent) of basic, special, and incentive pay, even if you are not currently receiving these types of pay,” said the executive director of the NASD Education Foundation.
“It is important to invest in the TSP early in your career,” he added. “The longer you have money in the account, the more time your account has to grow through compounding. You can estimate your future account balance using an interactive calculator on the TSP Web site at www.tsp.gov.”
The third smart strategy offered by Gannon is to understanding risk/reward and historical returns. Historically, stocks have exposed investors to greater risks, but provided higher returns, according to Gannon.
“Over rolling 10-year periods (1941-1950) including the Great Depression, stocks have never lost more than an annualized one percent,” said the director of the NASD Investor Education Foundation. “Over 5-year periods stocks have made money 90 percent of the time as measured by S & P index. Over 20 year periods, stocks have never lost money — and always beat bonds and cash.”
Gannon encouraged the audience to invest for the long term. He also suggested that you diversify to cut your risks.
“Take advantage of dollar cost averaging by investing a set amount on a monthly basis,” added Gannon.
Another tip he offered was to look for ways to invest that offered reduced fees and taxes. The TSP is a great tax advantage vehicle for military members, Department of the Defense and Department of Homeland Security employees, according to Gannon. “You can invest any portion of your account in any of the TSP investment funds which includes: Government Securities Investment (G) Fund which invests in short term government securities, Fixed Income Index Investment (F) Fund which invests in grade bonds; and Common Stock Index (C) fund that invests in stocks that match the performance of the S & P 500."
“The other TSP investment funds you can invest in is the Small Capitalization Stock Index Investment (S) Fund which invests in stock that match the performance of the Dow Jones Wilshire 4500 index (stocks not included in the S & P 500), the International Stock Index Investment (I) Fund which invests in stocks that match the performance of the Morgan Stanley Capital International Europe, Australia, and Far East) Index; and the newest one called the Lifecycle (L) Funds. The (L) funds are the L2040, L2030, L2020, L2010 and L income,” explained Gannon.
A life-cycle fund is the closest thing to maintenance free retirement investing, according to Gannon.
According to Gannon, there are two important ages to keep in mind when saving for retirement. “Age 59 ½ is the age you can start taking withdrawals from your TSP, IRA or other employer-sponsored retirement plan without owing a 10 percent early withdrawal penalty,” explained Gannon. “Age 70 ½ is the age when you must begin taking minimum required distributions from the TSP or another retirement account.
You can consult the NASD Web site www.SaveAndinvest.org as an excellent source of information for buying a home, saving for college, and about managing your money wisely.