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A Good Time to Start Saving

For many, a new year often brings new goals and resolutions. Is one of your resolutions for 2021 to start saving money? While one of the most comforting features of a future ASRS pension is knowing you’ll have a steady, guaranteed income stream, your ASRS retirement benefit, by design, is not intended to replace your entire working income. Instead, it is designed to be one piece of the pie that makes up your retirement plan. The other pieces of that pie? Social Security and personal savings. Here are some tips to make getting started on a personal savings plan a tiny bit easier: 

It’s okay to start small! Don’t get discouraged or think “it’s not worth it” if you can only put away a few dollars a paycheck. The earlier you get started, the more time you give compound interest to do its thing and grow your money. Sometimes, it’s less about how much you’re saving and more about building the habit to save. Start with a comfortable, attainable goal that is easily repeatable! Increasing how much you’re saving can be a good “next step” goal.

Find ways to make it automatic. Think about having money directly deposited into your savings account, so you don’t have to manually transfer money. It removes the “decision” of saving money each month and instead lets you focus on managing the rest of your funds. Additionally, see if your bank has some version of a “round up” or “save your change” program, where the bank rounds your transactions up to the nearest dollar and then deposits the difference into a savings account for you. It can be a great way to start putting money away, a little at a time, without even feeling like you’re doing anything.

Set up a pre-tax savings account. An excellent way to make your money go further is to set up a savings account in which money is deducted from your paycheck before taxes are taken out. Why? It means you won’t pay taxes on that money until you withdraw it in retirement – so all that money you’re not paying in taxes right now is given years – potentially decades – to earn interest and grow.

To that end, the ASRS offers two types of supplemental savings plans that members may have access to through their employer; the Supplemental Retirement Savings Plan (SRSP) and the Supplemental Salary Deferral Plan (SSDP). Ask your employer if they offer either one. (To learn more about either plan, visit the ASRS Supplement Your Retirement webpage for descriptions of both the SSRP and SSDP)

Still in the planning phase? That’s OK too. Investor.gov has a Savings Goal Calculator and a Compound Interest Calculator that you can play with to see how long (and how much) it’ll take you to reach your goals and see just how much of an impact getting an early start can have.

Some Extra Food For Thought...

Wondering how your ASRS pension, Social Security, and extra savings all play together once you're retired? Let’s look at an example of an ‘average’ ASRS retiree:

      • The average member retires with approximately 20 years of service. Under the ASRS benefit formula, this member will receive approximately 43 percent of their average monthly compensation as a monthly retirement benefit. (https://www.azasrs.gov/content/estimate-your-benefits)
      • Social Security is dependent on several variables, but a conservative estimate is that it replaces roughly 35 to 40 percent of a person's average monthly compensation as a monthly benefit.

So conservatively, the average ASRS retiree will typically receive 70 – 80 percent of their average monthly compensation as a monthly pension from just these two sources.  Sound great?  Here’s some more food for thought:

      • The ASRS does not have a guaranteed benefit increase provision (aka, a Cost Of Living Adjustment, or COLA). If you live to be 80 years or more, you may spend 20 years or more as a retiree. Over time, inflation will gradually reduce the buying power of your original pension. This is one big reason why the ASRS is a big advocate of our members supplementing their pensions with personal savings.  
      • Health insurance costs for retirees are one of the main expenses in retirement.  If you plan to retire before Medicare eligibility, the premiums are substantial.
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