The Pension Dilema
By: David Gourley, CSLP®
One of the most frustrating things in the teachersphere…
Is that each state has a very unique pension system.
Some take 14.5% of your salary, others take 3%.
Some have pensions only, while others are a hybrid model.
Some teachers pay into Social Security,
See what I mean!!!
PS. If you don’t have any clue about your state’s pension,
You should see if Karl Fisch has written a book on your state pension yet!
If it isn’t written yet, hopefully it will come at some point down the road.
These books are incredibly helpful and are packed with great information.
This week, I had a conversation with a financial planning client.
Based on her age, years of service, highest average salary, and the multiplier on her pension…
She is anticipating about $29,000 per year from her pension.
We also looked at her expected Social Security benefit.
Currently, she is on track to receive about $33,600 (give or take) each year from Social Security.
Doing some quick math…
This means she will make about $62,600 in retirement!
That’s not bad.
We also have a plan where she will have her house paid off,
So, this is one last monthly bill that she will have to worry about.
During our meeting, I brought up the importance of getting more money invested.
This can be done through a variety of investment vehicles.
Teachers (usually) have access to a Roth IRA, a 403(b), a 457(b), maybe a 401(a), and a brokerage account.
She went on to tell me that making $62,000 in retirement is fine for her lifestyle.
She doesn’t spend a ton of money…
She isn’t doing anything too crazy…
She can stay within those confines!
But…
There was a big problem in this plan that I had to expose!
$62,600 is definitely a good amount of money to live on each year…
But the Social Security benefits don’t kick in until at least age 62…
And full retirement age isn’t until 67!
Basically, if you take Social Security early,
You get penalized and your benefits are reduced (pretty substantially).
To add to this,
She will be eligible to receive her full pension at age 55!
I asked what her plan was from retiring at age 55 (making $29,000 per year),
Until she started taking her Social Security benefit (hopefully at age 67)?
This got the wheels spinning!
Here’s the deal,
Every state’s pension is different,
But one thing I can guarantee is that saving money when you are young…
Will put you in a better position than having saved nothing.
Maybe she will decide to teach longer…
Maybe she will decide to retire and find another job.
(Supplementing the $30,000 or so she will need).
Or maybe she can save enough money before she retires…
That she won’t need to work another day at that point!
Money is a tool.
Money creates options.
Having more money will give you more options (until a certain point).
This week, I will challenge you to take a look at your state pension.
Determine what you expect to receive at retirement age!
Find out if you will receive any Social Security benefits!
And then figure out if those numbers will be enough for you to survive (or thrive) on for the rest of your life.
If not, it’s time to get to saving some money!
And of course, if you need help with any of the financial planning…
We are always here to help!
Financial Planning Application
As always, You Teach, We’ll Plan, You Retire
David Gourley
Financial Planner
David Gourley, CSLP® is a Financial Planner with Teach Plan Retire, an independent financial planning firm specializing in finance for teachers. He served for eight years as a high school mathematics teacher before transitioning into the financial services industry. He joined Teach Plan Retire in 2022 and his passion for serving as a fiduciary for teachers and a student loan planning expert runs deep, as his wife and several other family members have served as educators for years. He's a proud member of the Financial Planning Association of Greater Kansas City.