Retirement Planning for Teacher and Public School Workers
Many public school workers in different positions devote their lives to furthering the education of young people. The ability to enjoy a secure retirement is an objective that many teachers and their colleagues pursue years before they leave their jobs. Eventually, each must consider life beyond their career and the benefits they may receive through and outside the public school retirement system.
Not everyone qualifies
Concerning the pensions offered in the teaching profession, each state is unique in its requirements for service. Eligibility requirements vary per state; for example, in Missouri, you must be age 60 with five years of service, any age with 30 years of service, or when the sum of your age and years of service equal 80 or more[i]. In Tennessee, you must be 65 years of age and have accrued at least five years of service, or when your age and years of service combine to at least 90[ii]. So it is essential to research the requirements in the state where you work. Only a small percentage of newly employed teachers will see a full career pension upon retirement, while the majority will only receive a small amount. In Maryland, for example, the average pension for new teachers is $35,000. But the median pension for new retirees is just $20,544, meaning half of all new retirees earn less than that amount[iii]. Keep in mind that this figure only reflects a teacher’s retirement earnings, not what they contributed to the public school retirement system while employed. In most cases, the retirement benefits paid exceed the funds the teacher’s contributed to the system while working[iv].
Whether you are a teacher or a union employee in another position, a defined-contribution retirement plan such as a 403(b) is probably available to you. Similar to a 401(k) in the private sector, the 403(b) plan (tax-sheltered annuity plan or TSA) offered by public school and certain charities allows you to defer some of your salary into individual accounts. This is usually a tax-deductible contribution and the earnings on your investment are tax-deferred. Your employer may match your contribution, but if no match is forthcoming, you do have other options, such as contributing to a designated Roth account, which may provide you with more investment options[v].
The bottom line is that you should not expect your pension to serve as your sole source of income in the retirement years. Remember that the pension amount will vary depending on your length of service to the school system and your earnings history. In any case, you will need more of a cushion than what those pension funds can provide. But the task of creating new income streams can seem overwhelming. You may consider asset diversification, researching tax consequences, and even healthcare costs in your later years. In short, when you are planning for retirement from the public school system, the path to a flexible financial future may seem like a long and winding road. However, you can work with an experienced financial professional to help you make sense of it and create a personalized retirement picture appropriate for your needs.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by BKA.
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