SRAs are an easy way to stretch retirement savings

"I was raising four kids, just getting by from month to month and thought I couldn’t spare a dime…" she says.

"As a dad with a kid in college, making tuition payments, I know that it seems like you can’t afford anything extra…" he says.

These kinds of statements aren’t unusual. But it’s what these two said next that makes them the exception, rather than the rule, at the University.

"…so now I’m working hard to catch up on saving," she says.

"…but I’ve actually chosen to increase my savings, because I know how important it is," he says.

Granted, the "she" and "he" in this conversation are Barbara Bennett and Gary Pierce, benefits specialists for the University. They know from firsthand experience that saving can seem out-of-reach for the average University of Iowa employee.

But they also know it can be done, and they’re concerned, because only 3,000 of the approximately 12,500 eligible employees are taking advantage of supplemental retirement annuities (SRAs)—retirement savings plans. Bennett and Pierce want to make the point that by setting aside a little money now, it’s possible to ensure that Ramen noodles are a meal of choice and not of necessity during the retirement years.

fyi sat down with Bennett and Pierce last week to discuss the ins and outs of SRAs.

fyi: The University already has a great retirement program. Why would someone need to put additional money into retirement savings?

Bennett: People are living longer, healthier lives now and they need to have more put aside for retirement than ever before. An SRA is a pretty painless way to increase retirement savings.

Pierce: These days people live up to one-third of their lives in retirement, and they need to have enough money saved so that it can continue to grow in retirement. A person should be able to replace 85 to 90 percent of their pre-retirement earnings when they retire, in the form of pensions, savings, investments, and social security.

fyi: Who can participate in the University’s SRA plan, and what are the minimum and maximum contributions?

Pierce: Any employee with a monthly taxable paycheck may participate. They can even be temporary employees, but they must be paid monthly. The minimum monthly contribution is $25, and the maximum per year is $10,500. The amount each employee may contribute to an SRA is calculated based on length of service, salary, and prior contributions to retirement plans. The amount changes yearly, as years of service change.

fyi: What is the best way to get started on an SRA?

Pierce: One of the best ways is to sign up for an SRA when you start a new job. If that money comes out of your paycheck from the very beginning you’ll never miss it. It’s important to remember that SRA contributions are tax-deferred, which means that a $25 contribution, for someone in the middle tax bracket, will result in only an $18 decrease in take-home pay. I tell people that’s the cost of a large pizza and a pitcher of pop. And because the money is automatically withdrawn at the beginning of the month, it’s painless—you don’t even know you’re doing it.

Bennett: People can start out saving the minimum amount, if they’re unsure how far their paycheck will go, and change the amount as their financial circumstances change. We hear from a lot of people around tax time about changing their contribution—contributions come from gross salaries and reduce taxable income. We also encourage people who get a pay raise to start putting some or all of that money into an SRA right away. If you’ve never had it, you won’t feel that you’re missing it. It’s possible to start and stop an SRA at any time, or to change your contribution, as your financial circumstances change.

fyi: What are some of the other benefits of an SRA?

Bennett: It’s possible to put away more money with an SRA than with an IRA—with an IRA you’re limited to a maximum of $2,000 per year. With a TIAA-CREF SRA, it’s possible to allocate your contributions among 10 different funds, and to change those allocations if you wish. You also can allocate your SRA money differently than your basic retirement funds. And you can handle a lot of your account changes to both your SRA and your basic retirement account, over the Internet, by logging onto the TIAA-CREF site and using a personal pin number. The option to make changes over the Internet gives people more control.

Pierce: The Group SRA also offers a loan provision—it’s possible to borrow up to 45 percent of the TIAA portion of your SRA. There are a number of pay-out options when you’re ready to use your SRA savings. TIAA-CREF counselors visit the University once a month, and you’re welcome to make an appointment with them to discuss your accounts. The University also has approved 12 other companies to sell SRAs to staff members. We send the list of those companies to anyone who contacts us to set up an SRA.

fyi: Any final words of wisdom?

Pierce: Although it might seem tough to save money if you don’t make a lot, an SRA is even more important for people earning smaller salaries. Their contributions to the basic retirement plan are less than for people at higher salary levels, so they’ll have a smaller nest egg when they retire, and expenses, such as health insurance, may actually be greater. And of course, the earlier you start saving, the longer your savings have to grow.

Bennett: At the same time that it’s important to start saving early, if you didn’t, remember it’s never too late. For women especially, saving for retirement can be critical since statistically women earn less. Women also may have a staggered accumulation history—they may stop out of the work force to have children or may work part time. So an SRA can really be important for building retirement savings.

Article by Linzee Kull McCray

If you’re interested in starting an SRA, contact Barbara Bennett (33)5-2623, or Gary Pierce (33)5-2674. They’ll make the calculations to determine the maximum amount you can contribute, and send you the paperwork necessary to sign up for a TIAA-CREF SRA. They’ll also include a list of other companies approved to sell SRAs to staff and faculty members.