We recently kicked off of our Let’s Talk Finances professional development with a session on retirement planning led by Boston Security Analysts Society (BSAS) members Firoza Panthaki and Daniel O’Neill. We brought you part one of our favorite tips last week. Now, here’s part two, with the disclaimer that we are not financial professionals and are not offering endorsement or other opinions on this advice.
Explore your options
Employer-based plans (401(k), 403(b), and 457 plans)
Your company or organization likely has a 401(k) (for for-profit), a 403(b) (for non-profit), or a 457 plan (for state and local government employees) which you can enroll in—and benefit from your employer’s matching contributions. The downside is that you will be limited to what the employer is offering, and some plans are better than others.
Other options, available to anyone earning an income, are IRAs (Individual Retirement Accounts). Roth IRAs and Traditional IRAs each allow up to a $5,500 annual contribution. The difference? For a Traditional IRA, you’ll pay the tax when you withdraw the money in retirement. This is a good option for those of us who need the money now, as it can result in a higher tax refund now. For a Roth IRA, you pay tax as you contribute. Assuming taxes increase over time, it’s better to pay tax in 2016 than 2050!
In thinking about which type of retirement account to use, we also need to think about which form our savings will take. There are three major asset classes in retirement:
- Cash and cash investments (also known as liquidity) is helpful if you know you’ll need this money in the next six months or so.
- Bonds are loans you provide to a business or government with interest. These come with no guarantees on the return and depend on the success of that business, or the tax revenue of the government. Bonds are less risky than stocks but have less growth, so these are a good option if you know you’ll need the cash within the next two years or so.
Stocks and stock funds (also known as equities) represent your ownership of a percentage of a business. Stocks fluctuate and are more volatile than bonds, but have more growth and tend to do better long term. You only want to put money in stocks if you know you won’t need it for more than five years.
Socially responsible investments
As nonprofit professionals, many of us are concerned with doing good not only in our careers, but also with our money. Some index fund managers, such as Vanguard, offer socially responsible investments. Many socially responsible investments produce similar returns to other investments. The only challenge is that a socially responsible index fund is less diversified, as the fund manager is picking and choosing what to invest in. BSAS recommends using both regular index funds and the socially responsible options to balance it out.
Ask for help from a professional you can trust
Retirement planning is a lot to navigate on your own. But who can you trust? BSAS warned us about working with brokers, who don’t have a legal responsibility of putting your interest before their own. Before working with someone on your financial future, you can look them up on the US Securities and Exchange Commission (SEC) website.
In general, you should look for someone with a CFA or CFP certification. They’ll put you first!
Become a financial planning pro
What other financial woes make you worry about your future with a nonprofit career? Want to work on budgeting and planning? Insurance? Investing? Banking? Let us know what you are interested in for our next events in this series.
We’re here to help you have your nonprofit career and finance your future, too!
Jackie Lewis is an Events and Programming Ambassador with YNPN Boston. She works in nonprofit development and communications in Boston and worked previously in Kigali, Rwanda.