TRS, Young Teachers, and Saving for Retirement
A recent 2020 survey of members of TRS showed that younger active TRS members are less confident that they will have enough money saved for their retirement.1 There is an even split of members that are not confident they will have enough saved for retirement. In addition, the survey showed that all age groups are concerned about the ability of TRS to meet their retirement goals, but it is especially pronounced for younger teachers.
The good news is that about half of active members are saving outside of TRS. The bad news is that survey also showed that 60% of members have not estimated what they need for retirement. There was 53% that saved outside on TRS in a 403(b) plan. There was 47% currently saving in an IRA. The survey also showed that nearly half of young active members under 30 were not knowledgeable about saving for retirement outside of TRS. But only one-third asked for help from a financial advisor.
These results show that there is a major issue with age and TRS retirement income. It appears that younger teachers feel much more confused about how TRS fits into funding their retirement plan. As a result, younger teachers are generally less confident that TRS will help them succeed in retirement. This is especially problematic since the secure funding and viability of current, and future retirees' pensions depend upon the satisfaction with TRS as a viable retirement option for their members. So what can teachers do about this to secure a better retirement?
One option for younger teachers is to save outside of TRS, preferably in a 403(b) or 457 plan. Most districts offer these plans. These plans represent a unique opportunity to supplement TRS and, at the same time, save on income taxes. You can save up to $19,500 in 2021 if you are younger than 50. You could also save in an IRA. These are the most common options, according to the TRS survey.1
Saving in a 403(b) plan is especially critical since most school districts in Texas don’t pay into Social Security. Therefore the retirement benefit might not exist for them or be significantly reduced. Starting to save early in a 403(b) plan can create compounding growth of your investment portfolio. The good news is that if you decide to take on a new job that TRS does not cover, you can roll the 403(b) into your new retirement plan. With TRS, you are more restricted on what money you can transfer depending upon years of service and vesting.
The second critical option is to talk to a financial planner. Again, the survey shows especially younger members need some help with planning for retirement. There are many options available through financial planners that can work hourly or project-based. Fee-only financial planners are an excellent option since they provide advice and do not sell any commission-based products. A financial planner will be able to use what you currently save and provide a prediction on whether you should be saving more outside of TRS and the amount per paycheck to reach your retirement goals.
As a financial planner, I work a lot with teachers to help them reach their financial goals. So reach out to me and the contact button below, and we can figure out how TRS fits into your retirement goals.
1. https://www.trs.texas.gov/TRS%20Documents/member_satisfaction_survey_2020.pdf
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.
