Jeff Pabst, CRC
There are several special sales and discounts during this holiday season in preparation for the next holiday season. One that I’m sure you are familiar with is Black Friday. This day gives me some nightmares from my time when I worked in retail. Anyway, Black Friday certainly has some opportunities for you to save a significant amount of money on some of your holiday spending. On the other hand, Black Friday does present you with the challenges of waiting in line and dealing with the crowds. So, as long as you’re willing to wait in lines and deal with crowds, it may make some sense for you to save some money on a large purchase during Black Friday.
For example, maybe you need a new TV and you plan to wait until Black Friday to purchase it when TVs are significantly discounted. That makes a lot of sense. However, have you thought about what you are going to do with money you saved by waiting to purchase the TV? I have a couple of ideas for you:
Pay down debt. One incredibly important part of retirement planning is knowing the cost of your monthly expenses in retirement. While you are currently working and earning more income than you will have in retirement, you should work to lower your monthly expenses by paying off your debt. This lowers your monthly expenses and also leaves your loved ones with less obligations after you have passed away. One way that LAGERS can help you with this after retirement is through the Partial Lump Sum. If you are looking to pay of the remainder of your mortgage or other debts, you could use the partial lump sum to pay it off. Of course, the partial lump sum will reduce your monthly benefit and it is taxable, so it comes at a cost. It would be best however, if you can find a way to pay off your debt before you even apply for retirement.
Save for retirement. Yes, I said save for retirement. Your LAGERS pension will not be enough to provide your entire retirement income needs. In the retirement planning industry, it is commonly said that to be comfortable in retirement, you need to replace at least 80 cents of every dollar you are currently earning. In other words, you need to replace at least 80% of your pre-retirement income. For example, an employee with 25 years of service with the 1.50% benefit program will replace 38.5% of their pre-retirement income with their LAGERS benefit. That’s a difference of 62.5% that will need be replaced in part by Social Security, but primarily through your personal savings. The only way a person can earn 80% of their pre-retirement income with LAGERS is by working a substantial amount of time with their LAGERS employer.
It makes sense to save money on a major purchase on Black Friday. But, when saving such a significant amount of money, start thinking about what you are going to do with the money you have saved. What a great opportunity to build your financial independence by investing in your future retired self and reducing your future expenses in retirement.
Jeff Pabst, CRC Senior Communications Specialist