Long-Term Financial Planning and Retirement

To many people, retirement means receiving a Social Security payment every month and trying to live on it. While Social Security payments certainly are part of retirement, they are not the whole picture.

A more thorough, three-pronged planning approach combines Social Security with employer-offered retirement plans, such as 401(k) and 403(b) plans, and personal savings accounts to create a more stable retirement, especially if these can be facilitated through a per capita trust payment and savings plan.

If your students are able to participate in a retirement plan through their employers, strongly encourage them to do so. Have them encourage the tribe, tribal programs, and business operations to add these programs.

The 401(k) plan is one of the most popular retirement plans used today. With such a plan, the employee instructs the employer to set aside a part of each paycheck, up to federally set limits, and put it into a special account.

Many employers also contribute money to the 401(k) fund in a practice known as an employer match. For example, an employer might contribute 50 cents for every dollar the employee puts into his or her retirement account, up to a certain percentage of pay. This is free money contributed to the employee! When an employer provides matching funds, encourage your students to put in as much money as they can afford. This will help them to maximize their employer’s matching contribution.

A 403(b) plan is very similar to a 401(k) plan, except it’s offered to nonprofit organizations.

If an employer doesn’t offer a retirement plan, your students can—and should—still save for retirement. Individual Retirement Accounts (IRAs) allow contributions of a certain amount of income each year. Like 401(k) and 403(b) plans, most IRAs are funded with pre-tax money and the amount contributed grows tax deferred until withdrawals are started at retirement.

Any self-employed individuals can establish Simplified Employee Pension (SEP) plans, SEP-IRA plans, Keogh plans, and other accounts designed for the self employed. This is important in Native communities as more small businesses and cottage industries become a greater part of the local economy. We can encourage these entrepreneurs to manage their own profits from the business as well as they are managing the business itself.

Once your students have contributed money to a retirement plan, they may be tempted to withdraw some of the savings for various future expenses. Unless the expense is to help remedy a true emergency, it’s best to treat retirement savings as untouchable. If your students withdraw funds from their retirement accounts before legal retirement age, they face large tax penalties for doing so.

There are a growing number of Native investment groups offering services to tribes and their related businesses, and it is important for your students to seek out whether these services are provided. They can also begin early to consult with the Native investment experts on such topics as trust accounts, per capita income, and creating a wise savings plan for the future. Many of these groups offer the same kind of retirement plans available in most organizations and they may encourage others within their peers and/or within the tribe to explore these possibilities.