August 24, 2014

Do You Know What to Expect in Retirement? Part 1 - Retirement Income

Today's post is the first in a series discussing the various parts of retirement. My hope is to discuss the many issues facing today's retirees to make sure that those individuals that are close to retirement are prepared.

For today's topic, let's start with the most basic issue - retirement income.

First, let me say that everyone and his/her situation is different. While the majority of the people reading this will be an educator (or spouse of an educator), your age, degree, number of years of service, marital status, position, school system, state, retirement account(s) - or lack of retirement accounts - and a plethora of other variables will determine what your income during your retirement will be.

Educators generally have very good pensions to rely on, but unfortunately, educators sometimes put too much faith in the school systems to educate them on what to expect. On something this important, that is a big problem.

In Georgia, the Teachers Retirement System of Georgia (TRS) does a fairly good job of trying to keep its members informed, but even the annual statements and projections for retirement can be confusing. I have had numerous educators ask about rolling over "their part" of the annual TRS statement since they thought that this was separate from their pension or not really understanding that once "their part" is gone, their beneficiaries will receive nothing. On the retirement projections, I had one educator recently question me about the benefit I said she was going to receive versus the benefit she calculated online. Essentially, she thought she was going to be receiving more pension than her current salary. She was looking at the "projected salary" to base her pension from and thought that was her "projected benefit." She went from thinking she was set and happy to starting to worry about her retirement income. Luckily, she was still 8 years away, but imagine if she had not talked to someone...

To further complicate the TRS issue, numerous people do not understand the lifelong impact and tax ramifications of taking a lump sum payment. They are generally thinking of paying off debts and simplifying their life. TRS certainly tries to disclose and explain the issue, but sometimes, it really takes a one-on-one discussion to gets to the nuts and bolts the issue at hand.

Also, choosing a payout option is sometimes a tough decision to make. If you take the max option and something happens to you, your spouse may be left with nothing but the plans that together y'all had made... Not a great feeling trying to explain to someone that just lost their spouse that the deceased spouse's pension benefit is also going away. Income from both spouses, life insurance, Social Security, etc. should all be factored into deciding the best pension distribution option.

After TRS, each school system potentially does something different. Some counties - like Cobb and Henry - are part of Social Security, so their retirees will have that benefit. Other counties do their own thing - like Gwinnett County with GRS and Rockdale County that has mandatory 403(b) accounts with matching. Finally, other counties "recommend" contributing to 403(b) accounts, but they never really explain the current benefit of not contributing to Social Security and the future impact of this decision - Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). I am guessing that you are starting to understand my point.

Now, let's talk about having or not having a retirement account - usually a 403(b) and/or IRA. These accounts will be over and above the pension benefit and can be used as needed by the retirees. Yes, their income is taxable at ordinary income rates (unless it is a Roth), but the accounts are flexible and can fill in gaps when/if necessary. I have preached and preached about the benefit of having a 403(b) especially to those that are not paying into Social Security, but I know that the vast majority of educators do not. It is really hard to imagine how even a small amount over 30 years can be something substantial, but it really, really can.

I have seen numerous educators finish their 30 years in the public system only to then go to the private schools for numerous years to help bridge the gaps in their retirement planning. This is a viable option if you figure out the issue early, but seeing the problem years later may make getting a job in private schools tough. Many educators after retiring for a few years honestly cannot begin to get back into the swing of things and simply try to make do... This is something I do not want to see.

Far too many educators and their spouses still do not understand what their income will be in retirement, and they may be at or very near retirement. They have focused on "30 years" for so long that when they get there, they just imagine that it will all work out for the best. Unfortunately, whatever plans that they are envisioning may or may not come true because their retirement income was never fully understood.

So, have you fully analyzed your family's potential retirement income? If not, I beg you to do so especially if you are in 10 years or less from retirement. This is the last window to make changes to set yourself up for your dream retirement.

Do you need a full Retirement Income Analysis? If the answer is yes, then I would like to help. First, let me say that the analysis and any meeting/discussion are absolutely free with ZERO costs or future obligations.

Through my firm, we have come up with a pretty robust yet understandable retirement income analysis tool that can help to predict your family's retirement income. We look at the individual (or both spouses') pensions, Social Security, outside investments, and any other potential income streams to predict where we see your income at retirement and beyond. The cost to you is zero with the ultimate goal being to help.

The offer is out there... now, will you make sure you know/understand what your family's potential retirement income is? If you want to get started, simply send me an email -

Whether I help you or not, the goal here is for you to be ready at retirement. Do not think that this is something that you can simply handle later... There are very, very few things more important than knowing your retirement income for the rest of your life.

1 comment:

Anonymous said...

You baby boomers are the most selfish generation to ever exist. You destroyed your own children's and grandchildren's future with your short-sighted selfishness and immaturity. And then you expect them to pay for your retirement????

Can you baby boomers just hurry up and drop dead, please?