by Natalie Baur
Baur earned her M.A. in American History and certificate in Museum Studies from the University of Delaware in 2010 and the M.L.S. with a concentration in Archives, Records, and Information Management at the University of Maryland in 2011. She has worked in a variety of museums and archives, including her most recent post as Archivist for the Cuban Heritage Collection at the University of Miami.
First you get the job. Then, you move and start all over again. And then finally you start the job. Everything may seem new and overwhelming, and it is very easy to get caught up in living in the moment, especially since we archivists work almost exclusively with the past. But to think only of the past and what is on the agenda for that day, week or month, we are not doing our future selves any big favors. I don’t recall any classes or professors or even supervisors or co-workers telling me, “remember to set up your retirement savings account” as part of being employed (or, even, unemployed). All the advice I ever got was, “get a job and pay your bills.” Present tense. It was almost by accident when I started thinking far into my future, that one day I may not want to work and would like to enjoy a retirement.
These days, company pensions are on the out and planning for your golden years is entirely in your hands. And the earlier you start, even if what you can save now isn’t much, the more likely it is that you will be able to sit on the beach and sip those mojitos one day. I decided to do a little bit of math and plugged my information into a 401K calculator (http://www.bloomberg.com/personal-finance/calculators/401k/): zero money saved up, age late-20s, and desired retirement at 65. The future looked okay. I could save over one million if I started now and saved a modest 10% (with employer contributions) into a tax deferred retirement account with a 7% return on investment. What if I waited a few more years? I could really use that 10% for other things, now. So, I ran the numbers. Those few years made a startling difference-hundreds of thousands, possibly millions, less. Because of a wonderful concept called compound interest (http://money.usnews.com/money/blogs/my-money/2012/09/20/10-things-you-need-to-know-about-compound-interest), it is in your best interest (ha, pun intended!) to start saving now, even if you can’t contribute much. Anything is better than nothing. Remember, zero times zero equals zero. If there’s nothing in there to compound, you’ll still end up with nothing.
Ideally, I would have started contributing to an Individual Retirement Arrangement (IRA) when I got my first after-school job in high school. In the simplest case, you are allowed to contribute up to $5,500 per year into this special account, which has various tax implications. You can read about the tax benefits and contribution limits associated with the two types of IRAs, Traditional and Roth, here (http://www.irs.gov/Retirement-Plans/Individual-Retirement-Arrangements-(IRAs)-1). IRAs are especially important if you are working in a position where you do not have access to an employer-sponsored 401K or 403(b) retirement plan. This may happen if you are a project archivist and are not entitled to full benefits or if you work at an organization that may not be able to afford to offer such a benefit. Even if you do have access to an employer-sponsored plan, you can still contribute to an IRA. Why have an IRA if your employer offers a plan? It may be a good idea to have an IRA in the event that you can contribute more than the yearly allowable contribution amount for an employer-sponsored plan. In the event you leave an employer, you can also roll over your account with that employer into your IRA until you find new employment, and you’ll still be able to continue contributing between jobs.
If your employer does offer a plan, by all means, make sure you start contributing into that account, because most employers offer matching contributions. This is free money! Who doesn’t want free money? Here is one example of how matching works: your employer plan says that it will match 100% up to 5% of your contributions, then 50% from 6% to 10% of your contributions. What does this mean for you, making $50,000 per year? You decide to contribute 10%, or $5,000, of your income per year. That means your employer would deposit $2,500 (100% of the first 5%) plus $1,250 (50% of the next 5%) into your retirement account on top of what you are already contributing. That is an extra 7.5% of your income, an impressive $3,750, going into that account, free and clear. Employers vary their matching contribution policies, and it is crucial that you find out what and how they match your contributions so that you can make sure you maximize that free money. Also when setting up your account, make sure to find out what the vesting period is. Once you are vested into the plan, the employer cannot take back any of the money they have matched in your account when you made contributions, even if you leave that employer.
Be sure to find out when and how you can start contributing to your employer-sponsored plan. Some employers will allow you to join the plan on day one, but they will not start matching your contributions until after a certain period of time (usually 6 to 12 months). In that case, it’s best to open your account and start getting into the habit of saving, and by the time you are vested, you are already on an automatic savings streak and will be ready for that injection of extra funds from employer matching. Other employers will not allow an employee to join the plan at all until a certain period of time has passed. Don’t fall into the trap of not contributing to your retirement in that period. Remember, that is what your IRA is for.
This all may seem very complicated, but there are plenty of online resources available out there to guide you in the right direction. The ins and outs of saving for retirement are much more nuanced and complex than this little blog post, but the first step towards your future is starting to save. Once you have somewhere to put your money, you will need to start investing that money, but that is another discussion. Always make sure to look at all of the resources your employer provides you with on your plan. If you don’t have an employer or an employer plan, be your own advocate and use those sharp research skills to make sure your future will be waiting for you.
Disclaimer: I am not a financial advisor and nor do I purport to be one. This blog article is for educational and informational purposes only. The information presented is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice.