State Retirement System
Many of our clients have dedicated their lives to the education profession. While planning for your retirement starts early in your career, the transition to being retired begins about a year before.There are many factors to consider when retiring and allowing yourself an adequate amount of time will help ensure that you make informed decisions. Your choices during the retirement process will affect you for the rest of your life. With over 30 years of experience in the 403(b) market, our advisors provide our clients with a full breadth of knowledge and expertise in various state retirement systems.
Every state retirement system is different in the types and extent of benefits that they offer. Below are some common benefits that are present in most state retirement systems.
Annuity Calculation Your monthly annuity payment depends on your age, years of service, and the annuity factor for your state. You shouldn’t plan on an increase in annuity payment. An increase due to cost of living (COLA) isn’t very common. It is important to consult a financial representative before retiring to see if it is the best option for your financial situation. Sometimes working for another couple years can make a substantial difference in your monthly annuity payment. There are also other things you can do during your final years to increase this payment: Summer School, Saturday School, Tutoring, and Purchasing Service Credit. Below is an example of Texas’ annuity calculation.
Purchasing Service Credit Most states allow employees to purchase service credit into their current system. Some common types of years that are available for purchasing include out-of-state, military, substitute, withdrawn, and state sick days. Purchasing service credit can be costly but make a huge impact on your monthly annuity check. It is important to consult a financial advisor when considering whether or not to purchase service credit. In Texas, as in many states, you can purchase service credit by transferring money from a retirement account, writing a check, or enrolling in a payment plan. The method that you choose will depend on your financial situation and the amount needed.
Partial Lump Sum Option (PLSO) Some states offer a partial lump sum option when retiring. Do not make a decision regarding your Partial Lump Sum Option without first speaking with a financial representative and your tax advisor. Taking the PLSO may result in serious tax consequences or other relevant matters that will hinder you in reaching your financial goals. When taking a PLSO, it is often more beneficial to roll it into a retirement account versus taking it as cash. The hypothetical example below depicts the tax implications of taking the PLSO as cash.
The above is a hypothetical example for illustrative purposes only.
Healthcare Most teacher retirement systems offer healthcare benefits to its members, spouses, and other dependents. This is often an additional expense to retirees that comes out of their monthly check.
Return to Work There are often restrictions on how long a person must stay out of the state retirement system before going back to work. Going back to work for a district that pays into the state retirement system early may result in a loss of annuity checks. Staying out for the required amount of time would allow a person to receive their annuity check in addition to the check they receive from their current employer. Before going back to work, it is important to contact a financial representative to see how this could impact your current and future cash flow.
Social Security and TRS Social Security is impacted by your Educator's Pension. The Social Security Windfall Provision (under links) allows you to see how many substantial years you have with social security. Once you know this number, you will be able to see what percentage of your social security you will receive.
To learn more about your state retirement system and the benefits that it entails, please contact a Creating & Managing Wealth Representative today.