RETIREMENT PLANNING MAY NOT BE FOR THE FAINT OF HEART,
PARTICULARLY FOR PUBLIC SCHOOL STAFF AND TEACHERS
Referred to me by a client, Maria, called with an edge of panic in her voice. “I think I messed up. Until recently, my retirement seemed to like a distant horizon, not something that needed my immediate attention,” she said. “My husband and I began looking out the next 10 years and realized that we are farther along than we anticipated. We thought our TRS pensions would be enough, but the online calculator says probably not. We thought about what we could do to fix it ourselves but realized we weren’t sure where to start or how much we needed. The whole process is terribly confusing.”
Maria and her husband’s situation are not the exception. The top questions educators should be asking themselves and their advisors as they make plans for later life is, “Will my TRS retirement be enough to live on?” Because most public school educators will not receive Social Security, or will receive a reduced federal benefit, this is a particularly crucial question.
IS IT ENOUGH?…
Educators are inclined to believe that their Teacher Retirement System of Texas annuity will be enough to carry them through their retirement years. Because the education profession has become more complex and educators seek to retire earlier with fewer years of TRS credit, it is increasingly untrue that the plan is sufficient on its own. TRS is a good system but it is not intended to be a complete solution, particularly if the retiree wants to maintain a quality of life in retirement.
Fortunately the Federal and State governments have allowed for supplemental savings plans which can be an excellent way to augment savings for retirement. These are voluntary plans where contributions and investment earnings can grow tax deferred* until withdrawal at which time they are taxed as ordinary income. These are 403(b), Roth 403(b) and 457(b), named after the section of the IRS code where found. Sometimes navigating the muddle of these plans, however, can be daunting.
TOO MANY, TOO MUCH, TOO HARD…
Because there are so many providers of retirement plans and multiple plans in the education space, educators can find setting up a plan to be complex and hard to do without solid, experienced help. One solution is to DIY, self-fund or self-direct your plan just like Maria. Sounds simple enough and there are services that allow you to do that. What they do not help you do, however, is navigate the maze of multiple plan types, products, a long state list of providers, multiple third party administrators, the universe of investment portfolio options, payroll departments, and more. I’m all for self-sufficiency, but, whew!
RUN, FORREST, RUN…
Another snag for educators is bad prior experience with inexperienced or overly aggressive sales advisors, limited and expensive product, or even fear tactics. Funny now but not so much then, another client Richard, tells me about being literally chased down the school hallway by an overly aggressive insurance person.
Product is important. Educators may be encouraged to invest in products like variable annuities. These are generally older style vehicles that have been displaced by more open and flexible style investments. Annuities tend to have higher fees, very poor liquidity, high hidden costs masquerading as benefits, and can be very baffling in their construction and function. These are usually insurance product sold by sales representatives who are captive to a particular insurance company. My struggle is daily as I attempt to overcome the unfortunate image created by overly aggressive sales people with restrictive products. From prior experience for some it is easy to paint with a broad brush, and the retirement advice teachers receive over time may seem poor and costly at best or even nonexistent.
OK. THEN, WHAT DO I DO?…
I am an independent advisor working in the education market. My mom is retired on TRS and hopefully my 5th grade teacher wife will be one day. The investment firm I searched out and affiliated myself with, Dearborn & Creggs, has had an almost 30 year history with some of the local school districts. Our investment approach is more holistic and we have grown away from products such as annuities for some of the same reasons mentioned above.
When we present, our approach is always consultative with the intent to inform you, the client, about the advantages of your TRS, what the timeline could be on your retirement timing, and how to potentially accommodate a more robust retirement. There is such a jumble of false and misleading information to overcome that the teachers have collected from unknowledgeable presenters that it sometimes is difficult to get past the credibility gap.
I wanted to let you know that the advice teachers need is not nonexistent but rather it is masked by the abundance of hype and inexperienced providers. We have as a stated goal the education of our client, giving educators flexibility in their choices rather than a one size fits all. Our approach also gives teachers complete control of their contributions- raise, lower, turn on, turn off- as finances dictate.
In short, we help. And we are serious about the quality, duration, and recurring nature of our services as we negotiate the labyrinth of Third Party Administrators, payroll offices, and product providers. It can be done and it can be done well with the right assistance. With our solutions comes the personal advice that has literally made the difference between a comfortable and enjoyable retirement and scrimping just to get by.
THERE IS A SOLUTION…
As an Independent Advisor, I am a professional who offers independent assessment of the financial needs of individuals and help them with investments, tax laws, and insurance decisions, recommending suitable financial products from the whole of the market rather than a single provider. Maria and her husband sat down with me and worked out a plan based on their goals and preferences. Her husband may retire earlier that he thought possible depending on when the kids graduate college. Maria plans to keep working for at least another 10 years, possibly longer because now she feels she can choose to work and not because she doesn’t have a choice. We took the time to plan for lifelong income, keeping timeline and goals realistic with a greater appreciation and understanding of what it will take to get “there”.