Maximize Your Retirement: The Power of a 457(b) Plan
As we step into the New Year, it’s the perfect time to reassess your financial goals and set yourself up for success. Retirement should be a time to relax, enjoy life, and celebrate all the hard work you’ve put in over the years. But let’s face it, your pension and Social Security alone may not be enough to cover everything. Rising costs, unexpected expenses, and a longer lifespan mean you’ll need more than just the basics. That’s where a 457(b) Deferred Compensation plan comes in.
What Is a 457(b) Plan?
A 457(b) plan is a tax-advantaged retirement savings option available to the employees of SLO County and other local agencies. Contributions are made through payroll deductions, and you can choose between traditional pre-tax contributions or after-tax Roth contributions. Both options provide incredible flexibility and benefits, making the 457(b) an essential supplement to your pension and Social Security.
Reasons to Contribute to a 457(b) Plan
1. You’ll *Potentially* Need More Than Your Pension
Your pension and Social Security are designed to provide a baseline income, but they might not stretch far enough to cover travel, hobbies, healthcare, or other surprises. A 457(b) plan helps you bridge the gap and ensures you’re not just getting by but thriving in retirement.
2. Tax Advantages
The standard contribution limit is set annually by the IRS. For 2025, the maximum deferred amount, whether traditional or Roth, is $23,500.
With traditional 457(b) contributions, you reduce your taxable income today, allowing your investments to grow tax-deferred until you withdraw them in retirement.
The Roth 457(b) option lets you pay taxes upfront on contributions, enabling tax-free withdrawals in retirement. This can be especially beneficial if you expect to be in a higher tax bracket later in life.
3. Catch-Up Contributions
If you’re getting a late start on saving or want to accelerate your progress, take advantage of the catch-up provision. It allows you to maximize your contributions during your peak earning years and gives your retirement savings a significant boost. Below are the IRS maximum contribution limits set for 2025.
Why the 457(b) Is a Smart Investment Choice
A 457(b) plan isn't just a savings account. It's an investment tool designed to grow your wealth over time. By contributing regularly, you allow your money to benefit from compound growth, potentially turning small contributions into a substantial nest egg. The 457(b) plan offers a variety of investment options, from conservative bonds to more aggressive stock funds, allowing you to tailor your portfolio to your risk tolerance and retirement timeline. Making the right investment choices now ensures your savings will be there when you need them most.
How to Start Contributing
Starting is easy. SLO County has a straightforward enrollment process, and contributions are automatically deducted from your paycheck. Visit www.sanluisobispo457.com or call (877) 677-3678 to enroll, explore your plan’s investment options, and decide whether traditional, Roth, or a mix of both suits your financial goals.
The Bottom Line: Don’t Wait
While your pension and Social Security will hopefully cover your essential retirement needs, it’s always better to be prepared for the unexpected. To truly enjoy your retirement years without financial stress, you need to take action now. By contributing to a 457(b) plan, you’re not just saving money, you’re investing in your peace of mind and future happiness. Whether you’re dreaming of traveling the world, starting a new hobby, or simply feeling secure, a 457(b) plan can help you get there.
For questions regarding your pension, please call us at 805-781-5465 or email us at slocpt@co.slo.ca.us. Many of your questions may be answered by logging in to MemberDirect!
Katie Girardi
Executive Director, SLOCPT