Here on My Resource Center, you will find tips to help you start planning your financial strategy, educational articles and links to helpful websites.
Planning for Retirement
MaineSaves can be a vital part of your strategy to build the income you will need for a comfortable retirement. Here are five key questions to help you start thinking about how to plan your strategy and get the most out of MaineSaves.
To create an effective financial strategy, you need to have a clear goal. Your first step in creating your strategy is to figure out the total amount of income you will need to retire comfortably. How can you get a handle on that number?
Well, you can start with some popular wisdom: many experts say you will need between 75% and 90% of your pre-retirement income to live comfortably in retirement. For example, let’s consider Dave, a State of Maine employee getting ready to retire, with average final compensation of $45,000 a year. If he decides he needs 80% of that amount, then Dave will need $36,000 a year throughout his retirement. In your case, if your house will be paid off and you expect to live a relatively modest lifestyle, maybe you lean closer to 75%. But if you want to travel around the world or take up some other expensive hobby, then perhaps you lean closer to 90% or even 100%.
You’ll also want to consider expenses you’ll have in retirement, and whether you’re saving enough to cover those costs. Consider both regular costs, like buying weekly groceries, and one-time costs, like taking a vacation. Maybe you won’t have to spend money on dry cleaning your business clothes or commuting. But if you spend more time at home, your utility bills may go up and, as you grow older, you may have increased medical expenses. In fact, health care may be one of the biggest expenses you will face so plan carefully. Some employees may be eligible for the State’s retiree medical coverage. Call Employee Health & Benefits at (207) 624-7380 or 1-800-422-4503 to learn more about the benefits that are available to you after retirement.
Calculating the Amount You Need for Retirement
To get a rough estimate of how much money you will need for a comfortable retirement, try the CNNMoney calculator Will You Have Enough to Retire? This tool shows how much money you will need in retirement and how much you will have, based on the amount you’ve already saved and your current savings rate.
Voya’s MyRetirementOverview calculator, shown below, will ask you to input the amount you can expect from your pension. Many State employees can expect a pension benefit from MainePERS (Maine Public Employees Retirement System). How much should you expect? Since your MainePERS benefit is determined by a formula based on your average final compensation, creditable service and age at retirement, it’s hard to estimate without knowing the details of your personal situation. The MainePERS member handbook provides an example where a State employee who retires at his normal retirement age (for MainePERS this is usually age 60, 62 or 65) with 25 years of creditable service receives a pension equal to roughly half of his average final compensation. So if you will have a similar amount of creditable service when you retire, you could estimate that MainePERS will replace approximately 50% of your income.
Going back to our earlier example, if Dave’s average final compensation is $45,000, a rough estimate shows that he might expect an annual pension of around $22,500. If Dave is married and wants his spouse to continue receiving income after his death, that pension amount would decrease in order to last over the two lifetimes of Dave and his spouse.
The pension formula and normal retirement age under MainePERS vary. To get a better idea of how much you can expect from MainePERS, you should review the MainePERS member handbook. For more information about MainePERS, including the formula that applies to your benefits, visit http://www.mainepers.org.
Calculating the Amount You Need for Retirement
To get a rough estimate of how much money you will need for a comfortable retirement, try Voya’s MyRetirementOverview. This tool highlights the gap between what you are currently saving and the amount need to meet your retirement objective. Note: This calculator takes your MainePERS pension benefit into account.
What about Social Security?
As a general rule, State employees don’t contribute to Social Security so they cannot expect Social Security benefits based on their income and service as a State employee. However, if you worked elsewhere in employment that is covered by Social Security or if you’re married and your spouse will receive Social Security benefits, you should take that into account in planning for retirement. Any Social Security benefits you receive will reduce your retirement income gap. If you have a Social Security benefit, the Social Security administration will prepare estimates of the amount you can receive. If you think you will have a Social Security benefit, visit Social Security online where you can create a Social Security account and view your Social Security Statement, which estimates your benefits based on your actual earnings and the Social Security taxes you’ve paid.
Once you’ve answered the first two questions, this one is easier. You need to save enough money to cover the gap between the total amount of retirement income you will need (question 1) and the amount you can expect to receive from your pension and other sources (question 2). Let’s continue with our earlier example.
Dave, State Employee
- Pre-retirement income: $45,000
- Desired retirement income: $36,000 (80% of $45,000)
- Amount from pension and other sources: $22,500
(assuming MainePERS replaces 50% of pre-retirement income and is his only source of retirement income)
As noted above, Dave makes $45,000 a year and thinks he will need 80% of that, or $36,000 per year, in retirement. And he expects to receive about 50% of his pre-retirement income, or $22,500 per year, from MainePERS. Where does that leave him? He has a gap between how much he needs to live on ($36,000) and the amount he will actually receive ($22,500), so he needs to cover the retirement income gap—$13,500 per year ($36,000 – $22,500).
To find his savings goal, Dave should multiply $13,500 (his annual retirement income gap) by the number of years he expects to live in retirement. How long did grandpa live? Age 85? Well, if Dave retires at 65 and expects that he, too, will live 20 years in retirement, then he can set a savings goal.
Dave’s Savings Goal
$13,500 x 20 years = $270,000
OK. Pick yourself up off the floor. Yes, it’s a big number. And if you adjust for inflation, it’s even bigger. This is why MaineSaves is vital to meeting your retirement income needs. To reach a goal like that, you need a strategy and you need regular, disciplined saving and investing. MaineSaves automatically sets up disciplined saving for you. You just need to figure out if you’re contributing enough and investing wisely enough to meet your goal.
Calculating the Amount You Need to Save
For help figuring out how much you should contribute, try these calculators:
This calculator helps you estimate how much your current savings will be worth in the future or find out if you’re on track to meet a specific savings goal.
Are you on track for retirement? This tool estimates the income you might expect in retirement based on your how much you have already saved and the amount you’re saving now. You can include pension and Social Security (if applicable) benefits you will receive for a more complete picture.
Use this tool if you think of your retirement goal as an annual income during retirement (for example, $40,000 a year). Note: Although this tool mentions 401(k) plans, it will work for MaineSaves. Just ignore item #6, which asks about employer contributions. Also, if you will not have Social Security benefits, be sure to uncheck item #15.
Use this tool if you think of your retirement goal a percentage of your pre-retirement income (for example, 80% of my pre-retirement salary). Note: This tool assumes you will receive Social Security benefits.
Some experts say that aside from putting enough aside in savings, the way you allocate your assets—that is, divide them among different asset classes like cash, bonds and stocks—is the key to having enough to meet your needs.
To decide how to invest, consider how much time you have until you retire (your time horizon), how much you currently have in savings and how comfortable you feel taking risks in order to achieve your savings goals (your risk tolerance).
Are you almost there? Just about ready to retire? If your answer is yes, congratulations! See the Guide to Preparing for Retirement to get tips on how to best use MaineSaves as you prepare for retirement. Anyone 50 or older can benefit from reading this guide.
If you need help working through your financial strategy, contact your local representative for assistance.
The articles below are intended to help you learn more about putting together a financial strategy you can feel confident in. So take a look. Then contact your local representative to help you iron out the details of your strategy.
- Guide to Preparing for Retirement
- 2018 Saver’s Credit Limits
- 2018 Contribution Limits
- What Is a Mutual Fund?
- Building Retirement Confidence
- Tips to Help You Reach Your Goals
- Max Out Your Retirement Savings With Catch-Up Contributions
The MaineSaves Bulletin
As a State of Maine employee, you have access to great, State-sponsored retirement programs. This eNewsletter is designed to help you prepare for retirement and take advantage of resources available to you from the State, as well as reputable online sources.
- October 2018: Don’t Fear the Future. (PDF)
- October 2018: Don’t Fear the Future. (Word)
- August 2018: Future You Is Due for a Raise. (PDF)
- August 2018: Future You Is Due for a Raise. (Word)
- April 2018: Don’t let the stock market keep you up at night. (PDF)
- April 2018: Don’t let the stock market keep you up at night. (Word)
- February 2018: Make a Resolution That Will Last. (PDF)
- February 2018: Make a Resolution That Will Last. (Word)
- July 2017: Small Things Grow Big. (PDF)
- July 2017: Small Things Grow Big. (Word)
Helpful Tools / Links
Each of the three local providers for MaineSaves has a wealth of tools available to you.
Additional resources from providers include:
- MassMutual: The power of compound interest
- VALIC: FutureFIT financial education
- Voya: Appropriate insurance coverage
These sites may provide additional help with your overall retirement planning strategy.