Tackling Southwest Pilot Retirement: Where to Start

Why should you, as a Southwest Pilot, do so much planning and saving for retirement? A successful retirement can come from years of careful retirement savings through the Southwest 401(k) Plan. Knowing how to start the financial planning process can be challenging, but the importance cannot be stressed enough. No one wants to hit mandatory retirement age with inadequate savings. But where to start? This post will review some essential retirement planning and savings tips specific to being a Southwest Pilot.

Determining retirement needs can be a complex process involving various factors. Here are some key factors that can affect retirement needs:

1. Lifestyle and Expenses:

   One primary factor determining retirement needs is an individual’s desired lifestyle. This can include factors such as where they want to live and what activities they want to engage in. What will your expenses be in retirement? This can consist of fixed expenses such as housing costs, utilities, insurance and variable expenses such as travel, entertainment, and hobbies. One way to simplify your living needs and budget is taking distributions within a specific withdraw rate.

2. Healthcare Costs:

   Healthcare costs are another important factor to consider in retirement planning. As people age, healthcare expenses tend to increase, which can be significant. It is important to consider the cost of health insurance and out-of-pocket expenses such as deductibles and copays.

3. Social Security Benefits:

   Social Security can be an important source of retirement income for many individuals. It is important to consider how much income will be provided and how that income will be affected by factors such as inflation, changes in the Social Security program and the age at which an individual files for benefits

4. Inflation:

   Inflation is the rate at which the cost of goods and services increases over time. It is important to plan for inflation by investing in assets that have the potential to outpace inflation, such as stocks and real estate. It is important to consider the impact of inflation on retirement savings, as it can erode the purchasing power of those savings over time.

Retirement needs will vary depending on an individual’s unique circumstances and goals. It is important to consider all these factors when planning for retirement to help ensure that retirement savings are sufficient to meet individual needs and goals.

The most significant retirement savings vehicle for Southwest Pilots is the Southwest 401(k) Plan. Within this plan, participants have access to invest in core funds, but they also have access to a Personal Choice Retirement Account or PCRA. The PCRA is a brokerage option within the Southwest 401(k) to allow access to the broader market but also to have professional management. Maxing out contributions every year is an important step to formulating a successful retirement and retirement plan. Below is the contribution limit breakdown:

• Pilots can defer up to $22,500 for 2023
• If 50 or older, pilots can defer $30,000 for 2023
• Southwest contributes 16% of pay
• Pilots and company total contributions cannot exceed $66,000 for 2023
• If 50 or older, pilot and company contributions cannot exceed $73,500 for 2023

Southwest has created several other retirement savings vehicles which include the Profit Sharing Plan, Top Hat Plan, Excess Benefit Plan and the 401(a)(17). The Profit Sharing plan can also be a valuable tool for retirement planning. Contributions to a profit-sharing plan are tax-deductible for employers, and the money grows tax deferred until it is withdrawn. This can help Southwest Pilots build an additional retirement nest egg over time. The Top Hat Plan, Excess Benefit Plan and the 401(a)(17) are plans offered to pilots who wish to have more taxed deferred savings for retirement. These plans are distributed between 1 to 5 years in retirement. These plans are subject to creditors should the company become insolvent.

The earlier you start the process of saving and planning for your retirement the better. The importance of financial planning cannot be understated. However, we realize that the topic of retirement can be intimidating. If you still have questions on where and how to begin financial planning for retirement or how to utilize all your options within the Southwest 401(k) plan, please contact us. We would be happy to help you with starting your financial planning.