July 27, 2008

How Much Should You Contribute To Your Retirement? - Part 1

First, most people in the business world are usually told to make sure that their total contribution is at least 10% of their annual income (hopefully the employer chips in on top of this). Thus, if I contribute 10% to retirement plus 6.2% to Social Security, I have actually taken out 16.2% of my salary before I receive a dime. Remember this is pre-tax though, so it really only costs me about 11.3% in take home pay. It sounds tough, but if you are vigilant and want to have a secure retirement it is necessary. Once you become used to it, it is not quite as bad.

As educators, the 10% mantra is a bit different though. The problem is in Georgia 5.2% of your income is already going to the Georgia Teachers Retirement System (TRS). So how much should you really contribute? Well, there are additional factors to think about.

Different counties in Georgia have different additional retirement plans (some a discussed below). So we need to think about them first. Some counties do not contribute to Social Security (check your county and/or pay stub to find out), so you will need to factor that in when contemplating how much to contribute. By the way, Social Security is a 6.2% payment (set by law).

In Gwinnett County, educators do not contribute to Social Security, so they have setup an additional pension for them called the Gwinnett Retirement System (GRS). If you are a Gwinnett educator, I suggest clicking on this link to the "About GRS" webpage. The basics of the contribution part of the plan is that 1% of your salary goes to the plan. That's it. You have 5.2% of "extra" income because you do not contribute to Social Security. That would make a tidy sum to use towards your 403(b).

In Rockdale County, educators do not contribute to Social Security, so they setup a mandatory 403(b) plan for their employees. Each employee must setup two mandatory 403(b) accounts when hired. The first will be funded by the county with 4% of your salary being contributed (100% vested on day one). The second is an employee funded 403(b) with 2% of your salary being contributed. Since you do not contribute to Social Security, this means you have 4.2% of "extra" income. This is also a nice sum to contribute towards your own 403(b) plan (you would have to setup an additional plan - I know it sounds stupid to me too). Click the link to see the Rockdale Website - "Additional Benefits".

In Henry County, educators DO contribute to Social Security. This sounds like you would be doing more than everyone else, but remember, you will get Social Security benefits, and the others will not.

Your homework is to find out whether you contribute to Social Security or not.

In the next section, we will continue with the discussion.

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