When you prioritize saving money today, you may achieve your financial goals sooner. And UC gives you the tools you need to help maximize your savings.
Understanding your UC benefits—and making the most of them—can help you build a healthy financial future.
First, get to know what UC offers
For starters, you might be eligible for a pension benefit from the UC Retirement Plan (UCRP). The amount your pension benefit will be worth depends on your years of service, your highest average pay, and other factors. In addition to your UCRP benefit, you may need to save some of your own money to maintain the standard of living you’re used to.
While it may seem like UC’s pension benefit can meet all of your needs, keep in mind that the average UC retiree has roughly 20 years of service. For most employees, that equates to a UCRP pension benefit at age 60 of 50% of their highest average pay. If you’re like many people, you’ll work for several employers during your career, and you might not stay at UC long enough to build your UCRP pension benefits to a level that can meet your needs.
That’s where the UC Retirement Savings Program (UCRSP)—your UC 403(b), 457(b), and DC Plans—comes in. Together, UCRP and the UCRSP give you the best chance for financial security when you retire.
Here's an example of how it works:
- Chris joined UC five years ago and rolled over $40,000 from a previous employer’s 403(b) plan into the UC 403(b). Chris also chose not to make monthly payroll contributions.
- Now, Chris is age 47 earning $93,000 and wants to retire at age 65. Chris wants to have retirement income of about 80% of current pay.
|This is Chris' potential UC pension benefit at age 65, assuming Chris retires from UC at age 65 with 23 years of service.
|However, this is the income Chris may need in retirement
|So, this is Chris’ potential annual shortfall in retirement income
|To make up the shortfall, Chris needs to make monthly UC 403(b) contributions of this amount from now until age 65
|This hypothetical example is based on contributions as shown to the tax-deferred UC Retirement Savings Program, earning a hypothetical 5.25% annual rate of return compounded monthly. We assume contributions are made monthly at the beginning of the month from age 47 to age 65 with no loans, withdrawals or breaks in service. All earnings are reinvested, and all current Plan and IRS limits are applied. The potential 403(b) Plan account balance is calculated by converting a hypothetical fixed income annuity from age 65 to age 88 (assuming a hypothetical discount rate of 4.25%) into a lump-sum value at the retirement ages shown. Your own plan account may earn more or less than this example, and income taxes will be due when you withdraw from your account. Investing in this manner does not ensure a profit or guarantee against list in declining markets. This example does not include Social Security.
The UC pension benefit was provided by The University of California based on UCRP provisions as of March 2020 and the age, years of UCRP service, and salary assumptions shown. The estimates assume that the individual continues working for UC and earning UCRP service credit until the retirement age shown. The hypothetical estimates are not a guarantee of eligibility or benefit amounts.
Use the UC Retirement Savings Program to develope these three healthy savings habits
1. Start to save now to take advantage of the power of compounding
Most people are aware that the longer you save, the more you’ll potentially accumulate.
What you might not know is that saving steadily over the years is especially powerful when you do it in a tax-advantaged retirement savings plan, such as the UC 403(b) and/or 457(b) Plans. That’s because you pay no taxes on your contributions or any investment earnings until you withdraw them, giving your money the chance to grow more than it would in a taxable savings account.
Year over year, that means more of your money works for you. It’s called “compounding,” and it can make a substantial difference over time.
2. Save as much as you can
You don’t have to make a lot of money to have a healthy retirement savings balance by the time you retire. How much—and how long—you save is key. What’s more, the UC 403(b) and UC 457(b) Plans offer convenient pretax and Roth contribution options.
- Pretax Contributions. With pretax contributions, you make pretax salary contributions now, and pay taxes when you withdraw your money in retirement. Your UC 403(b) and/or 457(b) Plan pretax contributions are made before taxes, which can lower your tax liability. And that means it costs you less to save more.
- Roth Contributions. With Roth contributions, you make after-tax Roth contributions now, and you have the potential for tax-free withdrawals of contributions and earnings in retirement.*
Experts suggest you may need to put away at least 10%–15% of your income each year to have a good chance of meeting your retirement income needs. The earlier you start saving, the less you may have to save to help reach your goal.
Of course, we’re not suggesting that everyone can save 10%–15% of their pay. But you can start pretax and/or Roth contributions with as little as 1%. And, increase it over time. What’s important is to start saving what you can now.
For more information about Roth contributions, read "A Roth option is now available."
3. Consider funds that can help you meet your goals
Finally, look for ways to help your savings pull part of the load toward your retirement goal through investment gains. This is particularly important if you haven’t chosen investments for your UCRSP account. Until recently, the default fund for the UC 403(b), 457(b), and DC Plans was the UC Savings Fund. This means contributions may be invested in one of the most conservative options available in the UCRSP fund menu.
In general, stocks typically offer more potential for growth over the long term, so too low an allocation to stock funds can limit how much money you may have when you retire. Of course, how much stock is right for you is a personal decision. Stocks can be more volatile and carry higher risks than bonds, especially in the short term. How you invest your savings depends on your personal risk tolerance, your investment horizon, and your financial situation.
The UC 403(b) and 457(b) Plans offer a range of funds so you can create a diversified mix of investments that can help spread out your risk. If you prefer, you can select a UC Pathway Fund, which automatically adjusts the percentage of stocks based on a target retirement date.
How $100 grew over 50 years (1973-2022)
10.2%2 average annual return
6.6%2 average annual return
4.4%2 average annual return
|1 Source: Fidelity Investments and Morningstar Inc, 2023. Hypothetical value of assets held in untaxed portfolios invested in US stocks, bonds, or short-term investments. Actual historical data were used to compute the growth of $100 invested in these portfolios for the 50-year period ending in December 2022. Stocks, bonds, and short-term investments are represented by total returns of the IA SBBI US Large Stock Total Return from 1/1926-1/1987, Dow Jones Total Market from 1/1973 - 12/2022, US Intermediate-Term Government Bond Index from 1/1973 - 12/1975; Barclays Aggregate Bond from 1/1976 - 12/2022, and 30-Day T-Bills. Past performance is no guarantee of future results.
2 Source: Fidelity Investments and Morningstar Inc, 2023. This chart represents the average annual return percentage for the investment categories shown for the 50-year period of 1973–2022. Past performance is no guarantee of future results. Returns include the reinvestment of dividends and other earnings. This chart is for illustrative purposes only and does not represent actual or implied performance of any investment option. Stocks are tracked by the IA SBBI US Large Stock Total Return index, which tracks the monthly return of S&P 500. The history data from 1926 to 1969 is calculated by Ibbotson. DJ US Total Stock Market Total Return index measures the performance of all US equity securities with readily available prices. It represents the top 95% of the US stock market based on market capitalization. The index is float-adjusted market capitalization weighted. Bonds are represented by the US Intermediate-Term Government Bond Index from 1/1973 - 12/1975 and the Barclays Aggregate Bond from 1/1976 - 12/2022. Short-term instruments are represented by U.S. Treasury bills, which are backed by the full faith and credit of the U.S. government. Inflation is represented by the Consumer Price Index, (CPI) is a widely recognized measure of inflation, calculated by the U.S. government. Stock prices are more volatile than those of other securities. Government bonds and corporate bonds have more moderate short-term price fluctuation than stocks but provide lower potential long-term returns. U.S. Treasury bills maintain a stable value (if held to maturity), but returns are generally only slightly above the inflation rate. You cannot invest directly in an index.