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Financial Literacy and Retirement

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April is National Financial Capability Month, but it’s better known as Financial Literacy Month. It’s dedicated to helping people understand how to make informed financial decisions and manage money effectively.

A recent report from the TIAA Institute finds that “adults with greater financial literacy tend to have better financial well-being.” In addition:

  • Participants who had more financial knowledge were more likely to be saving for retirement.
  • Retirement readiness tends to be better among those with greater financial literacy.
  • For retirees, 88 percent of those who were the most familiar with financial literacy concepts said that their retirement has met or exceeded their expectations.
financial literacy

Financial literacy encompasses a variety of skills, but we’ll focus on some basics that are relevant to planning for a successful retirement. Whether you’re just starting your career or planning on retiring soon, mastering these skills will help you improve your future financial security.

Financial Literacy Begins With the Basics

A good way to start building your financial literacy is by understanding your current financial situation. Ask yourself some basic questions:

  • How much do you earn and spend each month? 
  • How much debt do you have?
  • Do you have any major expenses on the horizon?

If you know where you stand, you’ll be in a better position to plan.

You can estimate your pension by using the benefit calculator in Retirement Online to get an idea of what you’ll earn in retirement. (You can also check your future Social Security benefit online.)

Creating a Budget

Tracking your income and expenses can help you make better financial decisions, avoid debt, prepare for emergencies and save money.

If you don’t know how to get started, here are some tips on creating a budget. If you plan to retire soon, you can use our worksheet to create a post-retirement budget. 

Debt and Interest Rates

Debt is not necessarily bad, but it can easily derail your financial plans if you’re not careful. Credit cards pose a risk because they are easy to use and may have very high interest rates. The average interest rate is about 21 percent.

If you have credit card debt and only pay the minimum each month, you’ll make little progress on reducing the balance while the interest you accrue every month adds up. For example, if you owed $1,000 on a credit card with a 21 percent interest rate and made payments of $40 a month, it would take you 34 months to pay off, and your total interest cost would be more than $300. On the other hand, if you paid $100 a month, it would be paid off in 12 months and your total interest would be just over $100.

Saving

As a NYSLRS member, you’ll receive a lifetime pension that will be based on your years of service and earnings. Building a retirement savings to supplement your pension and Social Security can create more financial security. It’s never too early or too late to start saving for retirement. To learn more about building your savings, read our recent blog post, The Right Time to Start Saving for Retirement is Now.

Follow our blog for future posts on retirement savings and related topics.

National Retirement Security Week 2016

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This year’s National Retirement Security Week runs from October 16 through 22. It’s a good time to reflect on your personal financial goals and see if you’re on target to meet them. You can ask yourself questions like, “Will I have enough income when I’m retired?” If the answer isn’t clear, you can start taking steps to improve your retirement security.

The Three-Legged Stool: An Example of Retirement Security

Think of your future retirement as a three-legged stool. Each leg represents a different income source that can support you in retirement. The first leg of the stool is your NYSLRS defined benefit pension. Your NYSLRS pension will provide you with a monthly benefit for life based on your service credit and final average salary. The second leg on the stool is your Social Security benefit. Your Social Security benefit is based on how much you earned during your working career. For more details about your Social Security benefit, please visit the Social Security Administration’s website.

The third leg is your own personal savings, such as your own bank or investment accounts. Your personal savings can bridge the gap between what your NYSLRS pension and Social Security will provide. All together, these three legs can support you over the course of your retirement.
Retirement Security in 5 Steps

Ways to Save for Retirement

If you haven’t been maintaining your personal savings, you should start saving as early as possible. The best way to get into the savings habit is to just do it. Here are some suggestions to get into the saving habit:

Also consider looking into accounts that use compound interest. When your money is compounded, it increases in value by earning interest on both the principal and accumulated interest. That way, the more time your money has to grow, the better off you’ll be.

Remember, retirement security just doesn’t happen – it takes planning. You can learn more about retirement planning and our 5 Step Plan for achieving your financial goals on our website.