By Nino Pavan, J.D., CFP®
The way you manage your SCE retirement plan can make the difference between a relaxing retirement and one plagued by financial uncertainty. Many people don’t take the time to understand how their retirement plans work or create a plan to make the most of their contributions.
Our financial advisors work with hundreds of Southern California Edison employees and retirees. The importance of maximizing your SCE retirement plan can’t be overstated. Here’s a look at a few key considerations.
Contribute All That You Can
SCE retirement plans set an annual contribution cap, although the cap depends on your age. These are the contribution caps for 2025:
- Under 50: $23,500
- Age 50+: $31,000
Your exact contribution goals may vary depending on your financial situation and goals. However, we generally suggest that our clients aim to put 15% of their pay into their retirement accounts.
Don’t Miss Out on Matching
Many employers offer some level of contribution matching, with a common match up to 3%. Edison’s matching is well above average; it matches your contributions dollar-for-dollar up to 6% of your eligible pay.
This means you can effectively double your retirement plan contributions (at least up to 6%). It’s a rare opportunity, and it’s one you should take advantage of if at all possible.
Allocate Contributions Between Traditional and Roth 401(k)s
When you have an SCE retirement plan, you can allocate each contribution to a traditional 401(k), Roth 401(k), or a mix of both. There’s one key difference between the two:
- Traditional 401(k): Contribute pre-tax dollars and pay tax on distributions.
- Roth 401(k): Contribute post-tax dollars and don’t pay tax on distributions.
In general, the younger you are, the more you should focus on contributing to the Roth 401(k). Paying tax on your income now means you won’t have to worry about taxes when you withdraw it. Additionally, given the climbing national debt, tax rates may be higher when you’re retired.
Understand the 3 Investment Tiers
When you contribute money to your SCE retirement plan, you can choose between three investment types (or “tiers”):
Tier 1: Target Date Funds
The U.S. Department of Labor notes that target date funds are the most popular investment choice for people with 401(k) plans. That’s probably because they are straightforward and easy to understand. With target date funds, you set a specific date (usually the date when you retire), and the fund automatically allocates assets to maximize your returns by that date.
This might sound like an easy way to get the most out of your SCE retirement plan, but often, target date funds don’t maximize your return potential.
Tier 2: Core Funds
This tier allows you to individualize your investment choices by choosing specific funds. However, SCE retirement plans let you choose from only 10 options.
Tier 3: Self-Directed Brokerage
With this option, you have a self-directed brokerage account with Schwab within your 401(k). You can choose among thousands of investment options.
Tier 3 investments maximize your return potential, but they take significant time, knowledge, and research compared to Tier 1 and Tier 2. When we work with Edison employees, our financial advisors typically make Tier 3 investments on their behalf.
Let Us Help You Make the Most of Your SCE Retirement Plan
The SCE retirement plan is one of the best in the industry, offering you an opportunity to build robust retirement savings. Financial Designs can help you create an investment strategy that maximizes your contributions and puts you on the road to a peaceful, rewarding retirement. Contact us today to get started.
To schedule a no-obligation consultation, call (909) 626 1642 or email fdc@fdcadvisors.com today!
About Nino
Nino Pavan is President and a CERTIFIED FINANCIAL PLANNER® professional at Financial Designs, a retirement planning firm in Claremont, California, with the mission of enabling individuals and families to financially prepare for and confidently enjoy their retirement years through goal-centered planning. With more than 30 years in the financial services industry, Nino is thankful for the opportunity to serve his clients by making the retirement process a stress-free one; he worries about their money so they don’t have to!
Nino holds a law degree from the University of Southern California, a Bachelor of Science in Telecommunications Management from DeVry Institute of Technology and has been a contributing advisor to Kiplinger. In addition to being a CERTIFIED FINANCIAL PLANNER® professional and Investment Advisor Representative, Nino has passed the Series 7, 24, and 63 securities exams and holds life and disability insurance licenses. He also conducts retirement and estate planning workshops for employees of major California companies. Outside of the office, Nino enjoys sports (regular and fantasy), traveling (specifically tropical destinations), walking, pickleball, church activities, and spending time with his wife Sherry and their two children, Derek and Sara. To learn more about Nino, connect with him on LinkedIn.
