Terry and Aaron Maryniw: Know basics to get most from retirement savings plan

Your organization’s retirement savings plan holds an important place on your road to retirement.

You should understand the basics of the plan, including how contributions are made.

A little can potentially mean a lot: The good news is your organization’s retirement savings plan makes it easier to save than you would think. You pick an amount you want to save each pay period, and it’s contributed to the retirement plan on your behalf. Even if you already are saving, increasing your contributions by just 1 percent of your income can help you work toward your retirement savings goals.

Catch-up contributions: If you’re age 50 or older by the end of the calendar year, you can make catch-up contributions over specified annual IRS or retirement plan limits, up to a certain dollar amount. For 2013 and 2014, in addition to contributing the lesser of the IRS limit of $17,500 or the amount limited by your organization’s retirement savings plan, you can contribute an extra $5,500.

Step ahead: Employees can choose to increase the amount they contribute each year to their organization’s retirement savings plan.

Evaluate where you stand and how much you may need: Once you’ve reviewed your organization’s retirement savings plan, take a closer look at where you stand today – plus your goals for retirement. If you would prefer to have a calculator do the work for you online, most providers will provide a calculator and worksheet for your convenience.

Take advantage of your employer’s match: Let’s use Mike as a hypothetical example. Mike currently is contributing 4 percent of his salary. His employer kicks in an additional 50 percent for every dollar contribution to the retirement plan (up to 6 percent of his pay). If Mike increases his contribution to 6 percent from 4 percent, the impact could be substantial. Over 25 years, by contributing an extra 2 percent each pay period in order to  receive the employer’s full match, Mike could potentially end up with an additional $95,231 in retirement savings.  

Impact on your take-home pay: A common misconception many people have is that they don’t earn enough to start saving for retirement. But small changes in your budget may allow you to increase your contributions by 1, 2 or 3 percent. If you can’t afford to contribute as much as you would like right away, don’t worry. You can opt to increase the rate at which you save in the future.

Why it may pay to invest for the long term: When you sell an investment option and get out of the market, you can increase your chances of missing market movements that signal the start of a longer recovery. Many of these major upside moves can happen quickly, often in just a few days. To avoid missing these key days, you may want to consider staying invested and avoid panic selling.

Let’s look at the hypothetical example of John and Sue, two investors who reacted differently to downturns in the market. 

Both John and Sue invested $10,000 in the S&P on Jan. 1, 1992. John stayed invested, even when the markets fell. By the end of 2011, his investments had grown to $44,997, with an average annual return of 7.81 percent. 

Sue, on the other hand, occasionally panicked and sold her investments, causing her to miss the 10 best trading days over the same 20-year period. As a result, her investments grew only 4.13 percent annually to $22,466. By missing  just those 10 best days, Sue missed out on almost $23,000.

Budget toward retirement: It can be challenging to find extra money for increased contributions to your organization’s retirement savings plan. 

For many people, a good place to start is to reduce what they pay in interest – that is, the cost of borrowing. Then those savings can be put toward contributing more for retirement. Here are some ideas for better budgeting when it comes to borrowing:

• Pay off your highest-interest debt (such as credit cards) first. If you don’t, you will end up paying a lot more in interest for everything you buy.

• Pay cash whenever you can. If you need to use credit cards, look for the best rates available. And charge only what you can afford to pay off each month.

• If possible, avoid incurring new debts.

• Terry Maryniw and Aaron Maryniw are investment advisers with Maryniw Financial, 910 E. Oak St., Lake in the Hills. Contact them at maryniw@maryniw.com, 847-658-9251, or visit www.maryniwfinancial.com.