Planning Ahead

The Classroom Teacher, spring 2014

Even though your salary as a teacher is likely modest, you probably feel secure knowing you have the stability of the Texas Teacher Retirement System to support you when you retire. But the decisions you make now and at retirement will be important determining factors in your financial security.

TRS is stable, and it provides a good benefit to Texas school employees. But unlike Social Security benefits, TRS benefits do not increase with the cost of living each year. As current retirees know all too well, the Texas Legislature did not approve any permanent benefit increases between 2001 and 2013 — only a one-time “13th check” bonus paid in 2008.

Retirement experts recommend a retirement income equaling at least 70 to 80 percent of salary. A school employee would need to work for 35 years to reach the 80 percent threshold. The average TRS pensioner, with about 25 years of service credit, will receive benefits of less than 58 percent of final average salary (the highest three or five years of salary), before deductions for health insurance premiums, beneficiary options, etc. And with no annual increases, the value of that check will decline every year.

If you’re counting on your spouse’s Social Security benefits, or benefits you’ve earned yourself prior to school employment, be aware of the federal laws that severely reduce or eliminate your entitlement to Social Security. There’s enough material there for another column — but it suffices to say that most school employees can’t rely on Social Security to bolster pension benefits. (These federal laws generally don’t apply to school employees who DO participate in Social Security.)

Tips for a more stable retirement:

Maximize your TRS benefits.

Work as long as you can. Each year of service credit and each pay raise will increase your retirement check.

Choose your beneficiary options carefully. This doesn’t necessarily mean choosing the option that results in the largest check to you, but you’ll need to be aware of how certain options can reduce your monthly income.

Think hard about whether the Partial Lump Sum Option is for you. The PLSO allows you to take part of your retirement in a lump sum distribution, while lowering your monthly checks. The potential of a large lump sum can be tempting, but it’s not always the wisest financial move.

Set aside additional money from every paycheck to supplement your retirement.

Through your school district, you can set aside money from each paycheck, pre-tax, for retirement savings. School employees have access to tax-free investment opportunities called 403(b) programs, which offer some advantages over other tax-free programs (higher contribution limits, for example).

But beware — many 403(b) plans come with high fees, and you can’t necessarily rely on your school district to steer you toward the best deal. The expense is even greater if you choose an annuity (an option to receive a monthly check, like your TRS benefit) — and many financial experts would advise against choosing an annuity when you already have your TRS annuity to count on.

But regardless of the vehicle you choose, additional retirement savings are crucial.

Look into disability insurance.

“Based on my experience, the threat of becoming disabled is the biggest danger to a secure retirement,” says Tom Clark, a retired longtime Social Security employee who makes presentations to current and future retirees about their TRS, Social Security, and other retirement benefits. (He will present a session on Social Security and TRS at the 2014 TCTA Convention.) “I have seen far more people living in poverty in retirement because they became disabled in their 50s and 60s than any other reason.”

He notes that disability benefits are available only to a person who has worked long enough (generally 40 quarters, though requirements vary by age), and recently, at a job covered by Social Security, “So, please check your disability protection from your employer and determine if it is sufficient or if you need more.”

Because teachers’ financial situations can get complicated, consulting with a financial advisor may be worth the expense. (Find someone who is familiar with how TRS and Social Security interact for school employees.) An advisor can walk you through your options and help you plan for a more secure future, so that you can actually enjoy those well-deserved retirement years.

See TRS Topics for details on how to calculate your TRS benefits, the PLSO, and more.

Read about the federal laws impacting educators’ retirement.