June 29, 2008

Learning How to Start a 403(b)

Yesterday, I went to a large family gathering, and many people asked me about investing, the market, different financial questions, etc. While talking with several of my relatives, two of my favorite people (one of my cousins and his wife) asked me about what she needed to do to start planning for her retirement. Well, it just so happens that she is also an educator, so you see how this pertains to you.

The first thing to do is to estimate what you can afford to contribute. Remember if you are going to contribute to a 403(b), it will be a "pre-tax" contribution, thus you will pay less in taxes now. Simply put, a $100 contribution will cost you about $70 on your paycheck. For example, if you think you can afford $200 less a month in "net" pay, divide it by 0.70, and see what you get. The answer will be $285, but let's just round it up to an even $300 contribution. On to step 2...

Next, find out which 403(b) companies you have to choose from. These can vary greatly system by system, and the different companies can have a great impact on your account. Try to find one that does not charge "mortality" fees (insurance fees), has a very simple withdrawal policy that does not penalize you no matter how long you use the company, and lastly... ask questions. Fees do matter.

Once you have the list of companies, have all of your questions answered, and have figured out how much you can contribute, then you are ready to start. Contact your HR department and the company you have selected. You will need to fill out an application and sign up for monthly contributions directly from your paycheck.

I would suggest referring back to the 403(b) Investments blog and remember to diversify!

Congratulations! You are on your way to building a great retirement with your pension and 403(b) working hand in hand!

What more help? Just e-mail me at rschultz@rollinsfinancial.com.

June 26, 2008

Fed Holds Rates Steady

Yesterday, The Federal Reserve (The Fed) held short term interest rates steady at 2%. This is a move that most economists predicted, and where we move from here is a matter of discussion.

On one hand, the economy does not seem to be on the verge of recession as earlier in the year, but it has still not picked back up. The Federal Stimulus checks have gone out, but they have not shown up in much of the data thus far. Additionally, the June unemployment report surprised everyone with a jump to 5.5% versus the May 5.0% report. These items have more than a few economists predicting that we are currently pausing, but we may need more cuts.

On the other hand, we have seen inflation rise. The Fed's statement was focused on discussing the rise in inflationary pressures that usually means a rise in rates in the not too distant future. The vote today was 9-1 with the 1 being for a rise in rates. Most economists believe that we are currently pausing before a rise in rates some time between this fall and next spring.

The market responded favorably to the news of the steady rates, and commodities across the board dropped with oil giving up more than $2.50 to $134.50 prior to the closing.

Several mutual fund managers discussed inflation as being some thing that The Fed could not really target. They stated it is the growth from India and China that is really to blame for pushing up prices due to production not being able to keep up with demand. When the global economy starts to catch up, inflation will taper off.

June 25, 2008

403(b) Investments

By law, 403(b) accounts can only use mutual funds as investment vehicles. This means that you cannot owe a stock (Apple, Google, GE, etc.), but a mutual fund that owns stocks (usually 20-100 in one fund). Remember... DIVERSIFICATION! To try and help explain the various mutual funds categories, I came up with the following table:

Overview of Mutual Fund Categories

  • Bond – Fixed Income funds that vary by type and rate
    • Much less volatile, but reduced return as well
    • Contrary to belief, you CAN lose money in bond funds
  • Balanced – A mix of bonds and equities
    • Usually less volatile than equity only funds, but does not get same returns
  • International – Foreign Equity Investments
    • Developed and emerging markets – higher returns, but more risk
  • Large Cap – Largest US Companies – Dow Jones Industrial, S&P 500
    • 3M, American Express, Dupont, GE, Google, IBM, Microsoft, Starbucks, etc.
  • Mid/Small Cap – Mid to Small US Corporations
    • Mid - Barnes & Noble, CarMax, ManPower, McAfee, Williams-Sonoma, etc.
    • Small – Bassett Furniture, Crocs, Gymboree, LA-Z Boy, Shaw Group, etc.
  • Growth - Higher returns are possible, but greater risk
  • Value - Less volatile usually, but usually lower returns

June 23, 2008

Don't Forget Your Spouse

We have been discussing your retirement options on this blog, but don’t forget about your spouse! If your spouse is in the business sector then his/her retirement options (401(k), SEP-IRA, IRA, ESOP, etc.) could affect your retirement decisions.

It is always smart to make sure that any “free” money from an employer is received by way of a company match or discretionary contribution. You automatically get 9.28% “free money” from your Georgia Public School System just by contributing to your TRS account. Try to have your spouse receive all of their “free” money too. This can go a long way to securing your retirement.

Also, make your life simpler by “rolling over” any old 401(k) or 403(b) accounts into IRA accounts when possible. The easier it is to keep up with everything the easier it will be to make decisions and know where you stand.

If you or your spouse need or want help in understanding your current position, send me an e-mail, and let’s figure it out. You can e-mail me at rschultz@rollinsfinancial.com.

This summer is a perfect time to start planning your financial future!

June 21, 2008

Investing for the Long Term

All of us look at situations every day and make decisions. Some times they are easy, and some times they are tough. There is unfortunately no “guide book” that comes with life.

Investing for your retirement is almost always a very smart decision. How to invest for your retirement though can be a bit tricky.

First, the market does not go up every day, but the decision to invest should not be a daily decision. These contributions are for 10, 20, 30, or more years down the line, and any short term loss will have plenty of opportunity to increase dramatically.

The main thing to do is simply stay diversified. Read any book on investing, and it will say it. Talk to any advisor, and they will hopefully say it.

There are very few times that one day can make or break you. Whether the market is up or down, continue investing. Never try to time the market.

Do not stop your 403(b) contributions or any other automatic investments. Watch your allocations and stay diversified.

Someone is always making money in the market… up or down. The right move is to stay the course, be deliberate in your decisions, and get help when needed.

Need some help? E-mail me at rschultz@rollinsfinancial.com with your questions.

June 19, 2008

Clean Up Your Financial House

I am asked a hundred questions every week, and some of the ones I receive over and over are the easiest to solve.

“How do I keep track of all my accounts?”

Consolidate them and use on-line bill pay. That’s it.

Okay, maybe that is not the whole story, but consolidate where and when you can. I try to have my clients that are worried about missing something do the following:
  • Have one checking account and one savings account

  • Manage your time and your money more efficiently by using your bank’s on-line bill pay service. It is a quick way to setup reminders and pay bills.

  • Setup automatic payments for recurring bills.

  • Have one IRA and/or Roth IRA - it is okay to have one of each

  • Have only your current 403(b)/401(k) Plan - rollover previous 403(b) and/or 401(k) plans to your IRA - one client “forgot” about $150,000 at a previous employer until we asked about any former plans.

  • Have one brokerage (taxable) account. It helps to cut down on errors at tax time. Stop looking for multiple reports, and only look for one account.
These are simple things, but the more spread out you are, the more time it takes for you to know and understand where you stand financially.

June 17, 2008

Your TRS Pension

October 9, 2008 - UPDATE - The Georgia TRS has proposed a change to the Cost of Living Adjustment (COLA). I have posted some information about it along with a letter that I wrote to TRS. Please click here to view the new post.

June 17, 2008

I have dealt with public school educators from all over Georgia and other states, but right now, I'll focus just on Georgia...

While most business sector employees have a 401(k) or similar company retirement plan that offers contributions with no set payout amount, educators are quite different. As an educator in Georgia employee, you contribute to a very nice pension plan that will help fund your retirement.

This is your Teachers Retirement System of Georgia (TRS) pension… this is “the big one”. You contribute 5% of your pre-tax salary every month. Did you know your employer contributes an additional 9.28% of your salary on your behalf to TRS?

With TRS, you will have a guaranteed income based on your salary, years of service, and possibly age. Under the current guidelines, you will potentially receive a 1.5% increase every January and July as a cost of living adjustment.

Once you are vested (10 years of service), you become eligible to receive a pension. If you leave before 10 years, then at the very least, roll your contributions into an IRA. If you take a distribution, big tax penalties, and if you come back, you have to buy those years back. Look into everything before you leap!

If you achieve 30 years of service, no matter how old you are, you will receive approximately 60% of the highest two consecutive years’ average salary during your lifetime.

This is a great deal for only 5% per year from you. It is mandatory, but it is better for you to know where your money is going.

June 15, 2008

Retirement Check Up?

We go to the mechanic’s probably four or more times a year for our cars, the dentist at least twice for our teeth, and who knows how many times we hit the mall for a fashion check, but do you ever get your retirement checked? Think about it.

One of the most important parts of our life, and we usually just glaze over it.
I know it can be difficult to look at the figures, understand the investment options, and then make your best guess as to what you should do, but this is your future.

At least once a year, review your 401(k), 403(b), and other retirement accounts to make sure they are on track for you.

  • While your 403(b) is probably not eligible for a match, it does help your current tax situation. You receive a 20-30% break on your current taxes to contribute. Every $100 only costs you $70 - $80 off your net paycheck.

  • Are your investments diversified? Are you sure?

  • Do you have old 401(k) or 403(b) plans at a previous employer? Did you know that you are most likely paying fees for administration of that company’s 401(k) plan. Help yourself… Roll it over to an IRA!

June 13, 2008

Plan Your Retirement

Everyone eventually begins to look forward to that day that they can say, “I am retired!” While all of us have different views of what we will do in retirement, each of us have basic needs that must be met.

First, as educators in the State of Georgia, there is the Teachers Retirement System of Georgia pension. This is the foundation on which your retirement income will be based. I will discuss it in greater detail later in a future blog, but for now, just know it is of great importance.

OK, so you now have a foundation on which to live the rest of your life with a guaranteed income, but what about all the “extra” things you want to do? Travel, clubs, golf, tennis, arts, events, etc. All of these will take money, and is your pension big enough to cover the basics and your wants? For most, the answer will be no. There is a solution though…


Essentially, there are three things that must be done to get you on your way:

  1. Live within your means and control debt. Sounds simple, but it is hard for so many.
  2. Start investing now with a 403(b). New to education or a few years from retiring, the main thing is to start.
  3. Make goals. See how long it takes you to get to $10,000, $50,000, etc.

I know some of you are thinking that you cannot afford it now, but you will later… when will that be?

Let me give you a couple of examples that illustrate waiting:

  • A new teacher, Sally, starts investing $100 per month for 30 years with a 9% annual return. At 30 years, Sally has $184,447. Total investment - $36,000.
  • Another new teacher, Jane, decides that she has more important things to do, and she waits 10 years. Jane from year 11-30 contributes $200 per month with a 9% annual return. At Sally’s retirement, she has $134,579. Total investment - $48,000.

Funny huh? $50,000 more simply by starting earlier, and Sally contributed less. It is simply the power of compound interest. The longer it is invested, the more it has a chance to grow and grow.

Are you ready to start?

June 11, 2008


Hello and welcome to the Educator's Retirement Blog.

My wife, an educator, and her current and former colleagues frequently ask me for advice about the stock market, investments, their retirement, pension, and pretty much just about everything else related to financial matters. In response to their repeated questions and to try to help them and other educators, I started this blog.

It is my hope that this blog will help many, many educators outside of just the ones at my wife's school and her former colleagues. If you have a specific question, just e-mail me and ask away. If it is one that can help others, I will almost assuredly write a quick post about it. In any event, I promise to try and answer as many questions as possible.

To give you a bit of background on me, I am a partner and financial advisor in a financial advisory firm, Rollins Financial Counseling, Inc., located in Atlanta, Georgia. I have been an advisor for over 10 years. During those years, I have helped several family members, friends, and clients navigate their way through the various challenges associated with preparing to retire as an educator. From pension options to buying years of service to retirement accounts, I have dealt with all of them.