American workers are living and working longer and retiring at later ages. A national survey found that 25 percent of workers in the United States expect to stay on the job after they reach age 70 because of financial pressures. Let’s face it, middle-class workers remain on the job for a longer period of time due to rising health care premiums, increased living expenses, and stagnant retirement savings.
Most workers who were surveyed said they rely on the retirement plans offered at their jobs as their primary method for saving for retirement. Many, however, found it difficult to save for retirement even when an employer offered a variety of plans and savings options.
State government is one of the largest employers in Louisiana and requires civil service employees to participate in a defined benefit plan through the Louisiana State Employee Retirement System (LASERS). Local government and other public employees likewise participate in defined benefit retirement systems.
However, retirement benefits for a rank and file career public employee are modest and usually average from 50 percent up to 75 percent of your highest earning years. Without additional savings in the bank and no guaranteed cost of living adjustments, a percentage of your salary simply may not be enough.
There is a way to beef up retirement savings that is available to public employees called the Louisiana Government Deferred Compensation (Deferred Comp) Plan. It’s an optional program and is strictly voluntary but can help employees supplement their retirement income by making small but consistent contributions over time. I personally participate in Deferred Comp, and it provides a variety of benefits to public employees.
Deferred Comp is a 457 plan under IRS rules, which is another way of saying it provides some terrific tax advantages. There are both state and federal tax benefits for participating in the program, and some participants may qualify for a federal income tax credit (called the Retirement Savings Contributions Credit or Saver’s Credit) depending on their income and how much they contribute to the plan.
There are also a variety of investment options available in Deferred Comp. Participants can choose between a Traditional 457 plan or a Roth 457 plan, and earnings for both plans grow tax-free.
One of the program’s biggest benefits, in my opinion, is it offers payroll deductions to help make saving for retirement easy and automatic. According to the AARP, payroll deductions are one of the easiest ways for workers to put money away for retirement savings on a regular basis.
A little over a quarter of state employees participate in the Deferred Comp program. I encourage more to take a look to see if the program is right for them. Even though starting early can make a huge difference in the amount of money available for retirement, there are special catch-up provisions available to older workers who are closer to retirement.
I recommend taking a good look at your projected retirement savings today to see if it will be enough or if supplemental savings will be needed. The tax and investment advantages of participating in Deferred Comp make it a perfect supplement to LASERS. For more information, visit www.louisianadcp.com.