What a Texas School Employee Needs To Retire
Our tips can help you make a smart choice
As a Texas school employee, what does retirement mean to you? Opportunities for extensive travel or more time with family? A slow and leisurely day-to-day life or a new career? A focus on old hobbies or taking up new ones?
No matter how you envision your life after your days as a school employee, you’ll need a solid plan to build the financial future you desire. So, let’s take a closer look at practical financial considerations and how a financial advisor may help you make the most of your options.
Funding your retirement dreams
Naturally, how much money you will need largely depends on your goals for retirement. Travel and expensive hobbies, of course, will require more retirement income. And starting a business will likely involve significant start-up costs.
Even if you plan to maintain the life you have now, you’ll need to factor in possible increases in medical expenses and account for inflation.
The value of planning ahead
If you’re near the start of your career, it’s understandable that you may not yet have a clear sense of what you want in retirement. And it can be challenging to save money for your golden years when you’re focused on saving for a down payment on a house, buying a car and paying back student loans.
Yet if you create a budget that requires you to make savings a priority early on, healthy financial habits will begin to take shape that can set you up for a lifetime of financial success.
Motivation to be a disciplined saver can also come from knowing you want to keep your long-range options as broad as possible. An experienced financial advisor can help you not only with investment strategies, but also they understand the expenses school employees like you may tend to overlook.
For instance, many people are retiring at an earlier age than past generations. Yet, on average, we’re living longer. This means your retirement plans should extend at least well into your 80s or longer — especially if your family elders are prone to living to a ripe old age.
Supplementing your TRS benefits
For many school employees, the Teacher Retirement System of Texas (TRS) provides a solid foundation upon which to build a retirement plan. For instance, someone who works and contributes to TRS for 30 years should receive a pension that’s about two-thirds of their full-time salary.
While that’s a better retirement than many jobs guarantee these days, for many educators it still leaves a significant gap to fill, especially if they want to maintain the lifestyle to which they’ve grown accustomed. Having a well-planned investment portfolio can help you close the difference between what you will eventually receive from TRS and your previous salary as a full-time school employee.
Smart savings options
What’s one simple strategy for helping you meet your long-term goals? It’s important to set up a separate account for unexpected expenses so you are less tempted to dip into retirement accounts. And when your salary increases and are debts are paid, you can increase your monthly contributions to this account.
Another strategy is setting up a 403(b) that deducts a monthly amount from your paycheck. Don’t be deterred if you need to start with a small amount. Over time, compounded earnings have the potential to really add up.
An immediate benefit of a pre-tax 403(b) is a reduction in the income taxes you are paying now, making this option a particularly effective saving strategy. For example, if you contribute $200 a month to your 403(b), that’s $2,400 in annual income you will not pay taxes on until you withdraw the funds.*
Then there are Roth 403(b) plans, which may or may not be available in your school district. For this option, you pay income taxes on the amount contributed, but then all the earnings from that investment are generally tax free upon withdrawal when certain conditions are met.
Again, a financial advisor can be very helpful in determining which of these financial strategies — and others — make the most sense for your situation.
Cutting debt and other expenses make proper investing more manageable. For example, school employees may want to explore what student loan forgiveness options may be available to them.
One such program is Teacher Loan Forgiveness (TLF) for those who have taught for at least five years at a qualifying low-income school. Another one is the Public Service Loan Forgiveness (PSLF) program, which can eliminate remaining debt after 10 years (you’ll need to have made 120 payments to qualify). And the Perkins Loan Cancellation for Teachers can potentially forgive all Perkins Loan debt if you teach certain subjects or work in a low-income school.
Finally, Texas teachers may also be eligible for the Teach for Texas Loan Repayment Assistance Program (TFTLRAP) if they can teach in locations or fields for which the state has identified as a shortage.
Retirement concerns unique to Texas
In planning your retirement, it is critical to be cognizant of two laws that tend to negatively impact Texas school employees. Most Texas school districts do not participate in Social Security. Because of this, many school employees may not be eligible for Social Security benefits and, even if they have established eligibility through other employment, those benefits may be reduced due to a federal statute called the Windfall Elimination Provision (WEP).
The Government Pension Offset (GPO) significantly reduces government employees’ spousal or survivor benefits under Social Security. However, school employees who work in a position covered by both Social Security and a government pension for the last five years before retiring may be exempt from the GPO.
Again, to better understand how these complicated laws may impact you personally, talking with a financial advisor may be critical. Working together, you can improve your ability to build a more satisfying financial future.
To learn more about what the RBFCU Retirement Program offers school employees in Texas school districts — or to schedule an appointment in person, virtually or over the phone — visit RBFCU.org/retirement or call 1-833-291-1310.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial is not affiliated with the financial institution.
RBFCU Retirement Program, a financial advisory practice of Ameriprise Financial Services, LLC, is a division of RBFCU Investments Group LLC.
*Tax-deferred earnings and contributions are not taxed until withdrawn. Amounts withdrawn prior to age 59½ may also be subject to a 10% early withdrawal penalty.
A Roth IRA is tax free as long as investors leave the money in the account for at least 5 years and are 59½ or older when they take distributions or meet another qualifying event, such as death or disability.
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.