Retirement Planning for Teachers - YouTube

Teachers and others who work in education have some unique opportunities

and challenges when it comes to planning for retirement, so that's what

we're going to talk about in the next couple of minutes here.

We'll go over those retirement savings plans that are available, discuss

some important pros and cons there, we'll go over pension plans[guaranteed

income for life], and we will also discuss how Social Security might be

affected if you don't pay into the Social Security system. We'll start with

what your school district might call defined contribution plans, and these

are the ones where you choose how much goes in. So you select

an amount that comes out of your paycheck, there may also be an

obligatory amount that goes in, but you primarily choose how much is going

to go in there, and that affects your ultimate retirement benefit when you

stop working. You also typically choose the investments, so you select whether

you want to be on the high end of the risk spectrum or

the low end or somewhere middle of the road. So you have a

lot of choice and control over that, and finally, in many cases,

you can choose to contribute on a pre tax basis and reduce your

taxable income, or you can do the Roth afte tax contributions,

and that allows you to pre pay your taxes so that ideally,

if you meet all IRS requirements later, you don't have to pay income

taxes when you take that money out. And in fact, for many new

teachers, making Roth contributions might be a good idea because in your

early years, you might be in your lower earning years, and that would

be expected to improve over time. In most systems, your options are the

403 plan. A 401k, or a 457b, and you might have access to

several of these, or maybe even all of them, depending on your school

district. So which one is best? Well, how do you figure that out?

It's smart to compare costs, so look at the investment costs,

look at other costs that might be inside of those accounts,

and in some cases, it's not always true, but in a lot of

cases, those older 403b plans can sometimes be expensive, so you really

want to look at especially if it's an insurance product what kind of

costs are inside of that and can you possibly do better if you

look at the 457 or the 401k, for example? You would also want

to just look at the features available in each type of plan.

So what are the investments available? Are they the types of things you

want to put your money into, Is there going to be an early

withdrawal penalty if you take money out, for example? A 457b typically

would not have that, so that could be appealing for those who want

to retire before age 59.5. There may be some benefits to pulling money

out of that early. It's important to know about surrender charges,

so again, if it is an insurance product, you want to know if

that money needs to stay in there for a certain number of years

or if you'll have to pay extra as you pull those funds out.

You would also want to know about catch up contribution, so most of

these allow you to contribute more after age 50, but the 403B and

the 457 might have an additional catch up contribution available, so that

can allow you to sock away some extra money if you're getting near

the end of your working years. Now, just a friendly reminder that this

is just a short video, so I can't tell you everything you need

to know, I hope you'll do a lot more research and maybe speak

with a professional, certainly with a tax expert and tax preparer so that

you can get all of the information you need to make the right

decisions. So now let's get into those defined benefit plans. These provide

an income for the rest of your life after you stop working,

and it's typically dependent on how long you've worked for that organization

and how much you earned, so it might be a handful of years

at the end of your career or your highest earning years.

Those are the things that impact your ultimate benefit with this type of

plan, so you don't have to select investments, and it doesn't matter how

your investments perform, that's all for the pension provider to deal with.

It's your years and your income that add up. Now you are typically

funding this or you're helping to fund it, because they will often take

some money out of your pay to put the assets together that are

eventually going to create your retirement paycheck. These plans can be

simultaneously very simple because it's pretty easy: You just make a decision

and stop working and get your income. And at the same time,

they can be kind of complicated because you may not completely understand

what's going on behind the scenes. So I would suggest just contact your

human resources department, the benefits department, they often have representatives

who are very helpful and very eager to help you figure out how

exactly the pension plan is going to work for you, so how much

income you might get... What are the different options you can choose for

beneficiaries, for example, if you want the income to continue going to

somebody after your death? So you can have, let's say, a spouse or

partner who continues to receive 100% of what you were receiving if you

die first, and that way they're not without an income after you die.

Or you can choose to have them get 50%

of that, for example, they're just a variety of choices, and there are

trade offs for that because if you give them the full amount,

then your monthly amount is going to be a little bit lower,

but on the other hand, you know that they will be reasonably well

taken care of because that income continues. Social Security can also get

quite complicated. So if your school district does not pay into the Social

Security system than any Social Security, you get might be affected,

so that can get kind of complicated. If you used to work in

the private sector and you did contribute to Social Security for a number

of years, or if you're going to take a spousal benefit from somebody

who has Social Security income, these are where you really want to check

with your benefits department. Just a couple of things to be aware of

here: First is the Windfall Elimination Provision, and this can reduce your

Social Security benefit by up to half of your pension amount,

so you take your pension amount, cut it in half, and that's how

much they might reduce your Social Security by up to a maximum of

$480, and that number can change over time. But this can be a

reduction in the amount you get and losing $500 a month can be

significant when you're in retirement. The Windfall Elimination Provision

has some complicated rules though, so if you satisfy certain requirements,

there won't be any reduction when there otherwise might have been.

So these are things, again, where you want to look at your situation

very carefully, go through the Social Security rules and speak with your

system, your retirement system, and figure out whether or not you might

be affected. There is also the Government Pension Offset,

and this would apply to benefits that you're going to get on a

spouse's record, so that's on your own Social Security work record,

but if you are going to take a spousal benefit, let's say one

half of your spouse's retirement income, or even a survivor benefit,

the amount you get from Social Security might be reduced by up to

two thirds of your pension amount. So that can again be a significant

reduction. Remember that this does just apply to those who do not pay

into the Social Security system for whatever pension you're getting from

a school system. If you've found this helpful, please leave a quick thumbs

up. That gives me feedback that you would enjoy more information like this.

Thanks and take care!