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Understanding Retirement Plans and Preparing for a Secure Future · Talking FACS

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  Welcome to Talking FACS, what you need to know about family,
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  food, finance, and fitness.
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  This nationally recognized, award-winning podcast is hosted by the University
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  of Kentucky Family and Consumer Sciences Extension Program.
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  Our educators share research knowledge with individuals, families,
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  and communities to improve quality of life.
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  Hello and welcome to Talking FACS. What you need to know about family food, finance, and fitness.
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  I am your host, Mindy McCulley, Extension Specialist for Instructional Support
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  with Family and Consumer Sciences Extension at the University of Kentucky.
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  We are housed in the Martin Gatton College of Agriculture, Food, and Environment.
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  Investing is a word that might be daunting to a lot of people.
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  But if we say investing in yourself, that makes it sound a little bit more exciting.
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  When we talk about retirement plans, that makes me want to turn somersaults
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  because when I think about retirement,
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  I'm thinking about the days when I get to do what I want to do and enjoy life to its fullest.
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  So my guest today is Kelly May.
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  She is our Senior Extension Associate for Family Finance and Resource Management.
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  And we're going to talk about investing in yourself and our retirement plan. So welcome, Kelly.
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  Thank you so much for having me today. Wow.
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  Retirement plans. There are so many different types that there are.
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  Retirement sounds good, doesn't it? it does sound it sounds really really good
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  but boy if we want to talk about all the retirement plans we could be here all
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  day right well yeah and it's important to talk about it way before you need
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  it exactly yeah it's the same time a lot a lot longer window than i do don't you,
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  maybe a little but at the same time it's never too late so even if you're just
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  getting started and you're later in your career you can still work on it well
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  and i like to say At the University of Kentucky, we have a requirement.
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  At your 30th birthday, you have to start contributing to the retirement plan.
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  But if you're one of those young people who gets hired straight out of college,
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  I encourage you to go ahead and start contributing to the plan immediately.
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  Because if your employer is like ours and they will match what your contribution
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  is or to a certain point, then that's free money.
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  So go ahead and take that free money right off the bat and don't wait until
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  the requirement hits. But let's...
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  I digress. We have gotten way off topic. So let's talk about defined benefit plans.
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  What is a defined benefit plan?
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  I love that you mentioned that free money, because that's exactly what we're
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  going to talk about today.
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  So we're going to talk about defined benefit and defined contribution plans.
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  And those are big, fancy words for what some people used to call a pension.
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  So do you know anybody who was on a pension? Oh yeah. I do.
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  I think, you know, I've got people in my family who are living off their pension now, right?
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  Heck yeah. But they're less common now. So people in the workforce now are less
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  likely to have a pension, which is one form of defined benefit plan.
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  So thinking of that kind of plan, it's a specific amount of money that you will
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  receive once you retire.
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  So it's an amount that you know you're going to get.
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  Often it's in the form of a pension. It may also be a cash balance plan,
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  an annuity, or a lump sum payment plan.
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  But if we have this kind of plan, we're going to pay some money from our paycheck
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  into a pool of money that the company then redistributes upon retirement.
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  So how much money is usually calculated from the salary earned and the length of time worked.
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  But it's less that the employee has to think about. It just kind of automatically
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  goes in and you know you're going to get it when the time comes.
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  So you also mentioned then the defined contribution plan.
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  So what is that type of retirement plan?
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  Right. So that's the one that I think people first think of a 401k when they're
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  talking about that one, but there are other types of those as well.
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  And so that does not promise a certain amount of money.
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  It is where the employee or the employer or both will contribute and they put
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  the money in during your work time and then you get paid out, whatever gets put in.
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  So with the defined benefit, that redistribution and that promise of a set amount
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  is different than with the defined contribution where you are contributing.
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  And if your employer is contributing also, often that's referred to as a match.
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  And so that's the free money you were talking about.
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  So if your employer is going to match your funds that you're putting in,
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  the bigger the match, the better for you.
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  And this is important to know when you're looking at a new job,
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  especially because if you're comparing two jobs and one has a defined benefit
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  plan and one has a defined contribution plan, that's a very different.
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  Resource for you personally that you can benefit from in the future.
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  So that should be, you know, it's easy to compare the salary or to compare how
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  many vacation days you get or to compare the sick time.
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  Definitely compare the retirement options that are offered.
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  And if, you know, if it's two jobs with the same kind of defined contribution,
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  see which one offers the bigger match.
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  How much can you contribute? What are the types of plans and how much are they
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  going to help you along the way?
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  And if you're leaving a job, find out if you're vested in that retirement plan.
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  If you are going to be able to take the money with you or if you have not reached
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  that vested period and so you have to leave the money.
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  Oh, that's such a good point, Mindy. So vesting means that if If there's a vesting
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  policy, then there's a certain amount of time you have to work there before
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  what they're offering you becomes officially yours.
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  So they'll put that match in. But if you don't stay the minimum amount of time
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  they want you to stay, they don't have to give you the match.
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  So that's important to know, too. That is an excellent point.
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  Besides a 401k, other types of plans might be a 403b or a 457 or an IRA.
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  And the difference is mostly with the other ones with the numbers in front are
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  available to different types of groups.
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  So like a 403B is for teachers or nonprofit employees or charitable organizations and that sort of thing.
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  So if it's one of the plans with the numbers in front, or if it's an IRA,
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  which is an individual retirement account, it could be another type of defined contribution plan.
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  So on a traditional IRA, the earnings aren't taxed until it's paid out.
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  And if contributions were tax-deductible, those do not get taxed until they get paid out.
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  And like I said at the beginning, there are so many plans.
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  And they're like alphabets and numbers, alphabet suit, letters and numbers.
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  And it can get confusing, can't it? It can. There are a lot of options.
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  And so besides a regular IRA, there's also a Roth IRA, which is kind of the
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  reverse. so the consumer would pay the taxes before they contribute.
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  And then that's beneficial because your tax rates may rise over time.
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  If you've been around for a while, you've probably seen that happen.
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  Taxes cost a little more. So you can have both if you have the means to put money in both.
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  And then that way, when you retire, you can draw from whichever one is benefiting
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  you better, or you can take a guess which one might work for you in the future.
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  So how do I know how much money I'm going to need to retire?
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  And that's the tricky question. Isn't it? Because it's different for everyone.
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  So I'm sorry, Mindy, I can't answer that today.
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  One thing to keep in mind is how much has your salary changed over time?
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  So this can be something really important to think about when you're trying
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  to decide when you want to retire.
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  Retire often our lifestyle is determined by our
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  salary so knowing that helps
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  you know how much you need to maintain a certain kind
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  of lifestyle that you'd like to have and maybe
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  you don't have as many things to
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  pay for by the time you retire maybe you plan to
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  have your house paid off and you're not really planning to go anywhere so maybe
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  you need less money or maybe you're planning an exciting retirement where you're
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  going to do lots of things like travel and visit with family and do things that
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  might cost a little more than you're used to. So it helps to...
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  Think about those goals that you have for yourself. We like to talk about real, concrete, smart goals.
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  And use an online calculator to help you come up with real numbers.
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  That helps you plan more specifically for what you need.
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  Always be aware that we tend to outlive or live longer than what those before
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  us did in this day and age.
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  And so don't sell yourself short, I guess, is what we want to say with that.
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  That's a great tip. So why is it so important that we plan for retirement?
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  Why don't we just walk out the door and say, I'm free. I don't have to do any more planning.
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  We like that idea of retirement, don't we? We like to imagine real loosely what
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  we might be doing if we weren't at work today.
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  However, there are many things to pay for and some things can be unexpected.
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  So it is important to ask yourself questions ahead of time. I'm like,
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  what do I want to do with my time?
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  And do I want to provide financially for my children if I have them? Or do I want to travel?
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  Or is there anything I want or anyone I want to splurge on in retirement?
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  And again, so thinking about those specific goals can help you prepare in advance.
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  And so knowing how much you need later can help you decide how aggressive you
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  need to be now to put money away in order to have that future that you want.
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  Well, and also think about your health and those sorts of things that might
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  impact your finances because that will certainly make a difference.
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  Kelly, thank you so much for sharing with me today.
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  I hope that we have provided some food for thought for our listeners.
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  Thanks for having me. It's been fun. If you are just tuning in,
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  you're listening to The Talking FACS And we are available wherever you listen
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  to your favorite podcasts.
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  F-C-S-E-X-T at U-K-Y dot E-D-U. Visit us online at F-C-S dot U-K-Y dot E-D-U.
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  To learn more about the University of Kentucky Family and Consumer Sciences
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