November 2004 
Volume 03, Issue 7 
Special Features

4 reasons to start saving today

Running errands? Remember to prepare for retirement

Still not convinced that saving for retirement is something you need to start doing today? Here are four more reasons.

1 Your retirement may last longer and cost more than you think

Retirement is all about relaxing, having fun, traveling—basically, doing all the things you never had time for when you were working.

That's the good stuff. But during your retirement years you may also find yourself taking care of an elderly parent or wanting to help your grown children with major costs such as buying a home or sending their children—your grandchildren—to college. These kinds of extra expenses could chip away at your retirement savings.

Also, keep in mind that life expectancies are increasing. That means your retirement income may need to last 20 years or more.

2 Much of the money you'll need for retirement will come from your personal savings

Your retirement income will likely come from several sources. Social Security may provide a small portion. A company pension may account for another part. But the largest portion will probably come from your personal savings and investments, including your Boeing Savings Plans and other savings accounts. So your first commitment is to save as much as you can, starting today.

3 Start saving early in your career for maximum moneymaking potential

How much to save?

The simple answer: As much as you can

So just how much should you save for retirement? The short answer is: Save as much as you can.

Remember that saving is a long-term process, so don't feel you need to get it all done in the next few years.

The Boeing Savings Plans (such as the Voluntary Investment Plan) allow you to change your contribution percentage at any time, so you can adjust your savings amount to fit changes in your lifestyle. For example, you could increase your contribution percentage during a part of the year when your extra expenses are lower, and then reduce your contribution when you're facing higher expenses and need additional cash on hand. (Plan and federal limits may restrict the amount you can contribute each year.)

To help boost your savings, think about ways to free up extra cash. If you saved just $5 a day by eating breakfast at home or brown bagging your lunch, and then invested the savings weekly at 8 percent tax-deferred for 25 years, you would end up with more than $145,000.

While saving as much as you can is sound advice, it doesn't make sense to give up everything now just so you can live better when you retire. The secret to saving is simple: Spend less than you make and invest a portion of the rest. With some careful budgeting and a little discipline, you can put aside enough for a comfortable retirement without feeling deprived while you're getting there.

The sooner you make a commitment to save, the more money you can make from your investments. This mostly has to do with the powerful money-building concept called tax-deferred compounding. Money invested in the Boeing Savings Plans grows tax-deferred. That means you don't pay taxes on investment earnings until you withdraw the money.

4 Inflation is eating away at your purchasing power

Even though inflation has been relatively low for the past decade, it shows no signs of going away completely. If inflation stayed at 4 percent per year, in 15 years you would need $180 to equal what $100 buys today. That's why you need to do more than just save money—you need to invest your money so that it keeps pace with or outpaces inflation over time.

Why pretax savings give you a boost

When you contribute to the Boeing Savings Plans, you can choose to save on either a pretax or after-tax basis, or a combination of the two. Generally, your combined pretax and after-tax contributions can't exceed 20 percent of your pay (you may be in a collectively bargained group that has not adopted the 20 percent maximum contribution limit; in that case, the maximum contribution limit is 15 percent).

Pretax savings means you're putting money into your plan account before U.S. federal and state income taxes are withheld. Your current tax bill is reduced because the amount you save lowers your taxable income dollar for dollar (federal tax laws require FICA to be withheld from earnings without regard to any pretax contribution you make). Plus, your money grows tax-deferred until it's withdrawn.

Let's say you make $40,000 a year. You choose to save 6 percent on a pretax basis, which means you're saving $2,400 a year. The U.S. government now figures you're making $37,600—$40,000 minus the $2,400 you're saving pretax. The result? Your income tax bill is less than it would have been if you hadn't contributed to the plan. Compared with saving the same amount on an after-tax basis, your take-home pay is actually higher.

After-tax savings means you're putting money into your plan account after your taxes have been withheld, so your contribution does not reduce your taxable income. But just like pretax savings, your after-tax investment gains grow tax-deferred until you withdraw them.

Pretax savings pay off

The tax benefits of pretax savings are so powerful that you could end up with more money in your pocket than you would if you saved the same amount on an after-tax basis. In the 6 percent pretax example, your $2,400 contribution only "costs" you $1,896 because you've paid $504 less to the government.



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