N.C. Department of Correction--Correction News--August 1997
My father was a personnel manager for the General Electric Company. He was always giving me advice about retirement and savings and I would listen with half an ear thinking that I would marry someone who would deal with all that complicated financial stuff later. Well, I never married, and I wish I had listened more to dear olí Dad. I listen a little closer now to stories about bag ladies.
Fortunately thereís hope, even for someone like me who withdrew my retirement funds when I left the Department of Correction in the 1980ís and bought a new car. Noone advised me on the seriousness of withdrawing that retirement money. I hope noone else makes that same mistake.
Whichever savings plan you choose, as one correction employee advised, put as much money into it you possibly can. If you have to give up drinking coffee and soft drinks to make those monthly deposits, you will be richly rewarded when you retire (and perhaps healthier, too).
The three savings options available to you through the Department of Correction personnel office are Deferred Compensation, Savings Bonds and the 401 (K) plan. Your payroll deduction is tax-free until retirement when you will most likely be in a lower tax bracket.
No taxes until retirement while your money multiplies? Who wouldnít want to invest now?
Since 1976, some state employees have opted to send part of their paycheck to the N.C. Public Employee Deferred Compensation Plan administered by the Public Employees Benefit Services Corporation, or PEBSCO.
You can start your savings plan by deferring as little as $20 per month but no more than $625 per month. The more money you put away, the less taxable income you have. For example, you could put $100 a month into deferred comp, yet your paycheck is reduced only by $79. Thatís because taking out the $100, puts you in a lower tax bracket, and less money is withheld for tax purposes.
You can choose to put your money in a fixed fund which will guarantee the going rate of interest, or you can play the stock market through 12 mutual fund options such as Templeton, Magellan, and Putnam Voyager, nationally-respected companies. The stock market may rise and fall over the course of your career, but generally, over time, your invested money will steadily increase.
If you must withdraw money for a serious emergency, there is no penalty as with other savings plans. If you leave state government you can withdraw your investment, but you will be taxed on it. However, even though you may change jobs, you may keep the funds with PEBSCO until retirement.
Your PEBSCO representative can meet with you to discuss your options.
Savings Bonds are dependable. "No one has ever lost a single penny from buying a savings bond," said Paul Heavener of the U.S. Dept. of Treasury.
Instead of maturing, (waiting for 30 years for a $50 savings bond to be worth $100), savings bonds are now earning interest every month. Heavener points out that a savings bond earns more than the current interest rate (5.68%) because the money invested in bonds is tax deferred.
Although savings bonds may not earn the kind of interest one can make through the stock market, a big advantage is that bonds can be cashed during emergencies without penalties to the holder. Also, bonds are not subject to probate taxes for recipients in your will.
"Itís a win-win-win situation," Heavener said. "You will always make money on your investment."
Savings bonds have always been considered the safest investment.
If you are not planning to spend your entire working career with the Dept. of Correction, the selling point with a 401(K) account is that you can take it with you to your next job if your new workplace offers a 401(K) plan. Right now, North Carolina has 111,000 people enrolled in a 401(K) retirement plan.
The 401(K) offers 13 investment options in companies such as Putnam, Fidelity Magellan, and BB&T. In addition to being portable, a 401(K) plan gives you a tax shelter, and the money can be taken out in dire emergencies. Some withdrawals prior to age 59.5 may be subject to a ten percent IRS excise tax.
The loan provision gives you access to funds while still working. The loan is considered non-taxable and you pay back yourself with interest.
Hereís what your money could earn for you:
These comparisons clearly show the importance of starting to save while you are young and your money will grow at a much greater rate over time.
Currently, the Savings Bonds and 401(K) are having campaign drives to reach all DOC staff members. Your benefit representatives will be distributing the information to you soon, or call the DOC Benefit Section, 919-733-4465. They have forms and information on all three programs.
So, if youíre not already in a savings plan, please heed the advice of those in the know like my sweet father, and plan for the future. It arrives much faster than you realize.
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