Building your financial future: What you need to know

April 5, 2017  //  FOUND IN: Updates & Resources,

It’s tax season, which means you’ve likely been spending some time thinking about your finances. As you do, remember that it’s never too early to start planning for retirement and your long-term financial future.

The university offers retirement plans through both Fidelity and TIAA. While both companies offer similar services, the goal is to provide faculty and staff with the freedom of choice when it comes to planning their financial future. Employees have the option of investing with either company when opening a retirement account.

Headlines recently caught up with experts from the two companies to answer questions about the plans and how you can save enough today to prepare for tomorrow. Here’s what Sarah Hall, communications consultant for Fidelity, and Theresa Serafimovski, financial consultant director for TIAA, had to say:

What is a retirement savings plan and why should employees participate?

Fidelity: A retirement savings plan is an investment plan made up of pre-tax contributions employees make from each paycheck to save for retirement. You pay no taxes on the growth within your retirement plan, so earning returns on funds that would have otherwise been paid in taxes helps your savings grow faster and to a potentially greater amount.

TIAA: A key benefit to opening a retirement savings plan is that your employer makes contributions to certain plans. For instance, Michigan Medicine provides a 2-for-1 match for the funds you contribute to your basic retirement plan once you reach a full year of employment. That contribution is generous, so take advantage of this benefit as early as possible to boost your long-term savings.

How does an employee enroll in the basic Michigan Medicine retirement plan and who is eligible?

Fidelity: You can enroll at any time, not just during the annual open enrollment period. The U-M Human Resources website offers step-by-step instructions on how to get started through Wolverine Access. We encourage you to begin contributing as soon as possible because the sooner you start, the more time your money has to grow.

TIAA: All regular faculty and staff members — except for house officers, research fellows, graduate students, professional specialists, temporary staff members and those with emeritus titles — can participate in the basic plan.

There are additional savings options for everyone — including those ineligible for the basic plan — such as a 403(b) Supplemental Retirement Account and the 457(b) Deferred Compensation Plan. In both a 403(b) and 457(b), employees contribute a fixed dollar amount with each paycheck but there is no university contribution. A 403(b) allows employees more options for accessing the funds while still employed than a 457(b). Employees should visit the U-M HR website to learn more and find out about their specific eligibility.

Is there a minimum or maximum amount an employee can contribute to the basic plan? Can employees commit more of their salary to retirement if they wish?

Fidelity: If you choose to participate in the basic retirement plan, you contribute:

  • 4.5 percent of eligible compensation if you are subject to the Paid Time Off (PTO) Leave Policy, excluding Medical School faculty and staff
  • 5 percent of eligible compensation for all other faculty and staff

While you can’t increase or decrease this amount in the basic plan, you can go ahead and open up a separate 403(b) Supplemental Retirement Account or 457(b) plan. Based on a $45,000 salary, setting aside just 1 percent more over 15 years with a 6 percent rate of return could grow to almost $11,000!

TIAA: You should consider giving more to a retirement fund when you can. Regular increases to the amount you contribute could lead to more potential income in retirement.

You can set aside up to $18,000 a year into both a 403(b) or 457(b) plan — and up to $24,000 annually if you are older than 50. Learn more about your plan options by visiting the U-M benefits website.

What other things should employees consider when deciding how much to save?

Fidelity: Some people are planning just for retirement, while others are paying for college and other major expenses. It may be helpful to use the 50/15/5 guideline: Spend no more than 50 percent of your income on essentials, set aside 15 percent for retirement and 5 percent for short-term savings.

If you’re unsure about your goals, set up a meeting with a financial planner to get on the right track.

TIAA: The primary objective of a retirement plan is offering a secure and steady stream of retirement income. When saving, think about how much you need each month to have the retirement you imagine.

Another thing to keep in mind, if you leave Michigan Medicine, your retirement savings will continue to accumulate. Resist the temptation to withdraw funds so you allow the contributions to grow over time.

How can your company help employees plan for the future?

Fidelity: You can meet one-on-one with a Fidelity expert or attend a group workshop to tap into the education, resources and support we can provide. The guidance is free as an employee benefit.

Lauren Chamberlain is dedicated to Michigan Medicine as a Fidelity Retirement Planner. She will be available on Thursday, April 13 in Mott Room 12-745B and on Friday, April 21 in UH Dining Room A. She is also in the UH Cafeteria every Monday from 11:45 a.m. – 12:45 p.m. to answer your questions.

TIAA: TIAA provides webinars, podcasts and online tools and calculators that make it easier to access advice whenever it’s convenient.

Experts are also on campus every week to meet with people individually or you can set up a meeting at one of our two Ann Arbor offices.

Want to learn more? Schedule an appointment online with either Fidelity or TIAA.