Is TRS Enough? Presented at TASBO 2019 Schedule a Retirement - - PowerPoint PPT Presentation

Is TRS Enough?

Presented at TASBO 2019

Schedule a Retirement Readiness Checkup www.tcgservices.com/tasbo2019

2 Remember all investing involves risk.

About TCG

Remember all investing involves risk. 3

We are a fee-only investment advisor, financial planner, and retirement plan administrator.

About TCG

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Retirement Plan Administration Investment Management Financial Planning Consulting Solutions

• 400+ plans, 450,000+

participants

• Fee-only, low-cost

programs

• Administration of

403(b), 457(b), 401(a), 401(k), and 457(f) plans

• $1.7 Billion in assets

under management

• Solutions for
• individuals
• retirement plans
• school district funds
• other institutional needs
• Fee-only solutions
• Wealth management
• Asset management
• Fiduciary support
• Goals-based strategies

and planning

• Investments
• Compensation
• Benefits
• Employee contracts
• Enterprise

cybersecurity

Did you know…

5 Remember all investing involves risk.

Impact of Financial Stress

• Financial stress can impact a

person mentally and physically

• Such affects can be:
• Greater susceptibility to illness
• Anxiety
• High-blood pressure
• Muscle tension
• Back pain
• Trouble sleeping

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GOOD NEWS!

You can take steps to improve your financial situation and relieve financial stress!

Financial Stress

7 Remember all investing involves risk.

TRS Pension & the Income Gap

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TRS vs Corporate Retirement

Very different for educators than spouses and neighbors - and financial advisors

TRS Social Security Savings Social Security Savings

Source: Region 10 Education Service Center

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Neighbor Teacher

TRS Retirement Formula

Example

Years of Service: 30 State Multiplier (2.3%): 69 % Average Income: $60,000 Maximum Benefit: $41,400 Years of Service x State Factor 2.3%

x

Average 3/5 Highest Years of Income

=

Maximum Benefit $60,000 $41,400 31

Retire at Age 60

Gross Income

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Taking Aim at the Target Investment Needed to Replace Difference of $18,600 Annually (TRS Benefit vs. Pre-Retirement Income):

$300,224*

*Assumptions include a lump sum invested at 5% interest, with annual amount paid at beginning of each year for 30 years. This rate is assumed for illustration purposes only and is not guaranteed.

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Taking Aim at the Target

$0.00 $200.00 $400.00 $600.00 $800.00 $1,000.00 $1,200.00 $1,400.00 $1,600.00 $1,800.00 $2,000.00 Age 20-60 Age 30-60 Age 40-60 Age 50-60

Years of Savings Monthly Contribution 40 $150.01 30 $297.39 20 $646.55 10 $1,822.87

Assumes an 6% annual return after fees and expenses for illustration purposes only, not guaranteed.

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Ways to Maximize Your TRS

• Increase Salary — Good Luck!
• Increase Years of Service Credits
• Work longer
• Purchase Service Credits
• Types of Service Credits
• Withdrawn, Out-of-State, Military,

Unreported or Substitute, etc.

• Cost varies depending on type of

service

• Contact TRS for cost estimate

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Important TRS Rules You Need to Know

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Inflation vs TRS

$82,711 $135,531 $60,000 $70,000 $80,000 $90,000 $100,000 $110,000 $120,000 $130,000 $140,000 2017 2020 2030 2040 2050

Impact of Inflation

TRS Inflation

TRS does NOT have Cost of Living Adjustments (COLA) Inflation (2.5%) vs. TRS Income (0%)

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TRS Vesting – Key Dates

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AFTER August 31, 2014 — If you are not Vested (5 years) — Minimum age 62 to retire and receive unreduced benefits AFTER September 1, 2007 — Minimum age 60 to retire and receive unreduced benefits BEFORE September 1, 2007 AND had 5 Years of Service – Rule of 80

Became a TRS member:

3 Year vs 5 Year Avg

3 YEAR AVERAGE - Individuals who were members and met one of the following conditions by August 31, 2005, are considered to be Grandfathered:

• At least age 50;
• At least 25 years of service; or
• Met the Rule of 70.

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TRS Computation Year

To earn a year of service credit, you must work in a TRS-eligible position for:

• A minimum of 90 days; or
• The full fall semester in the last year before you retire
• TRS compensation is computed on the same basis
• Exception for 7/1 12 month employee in last year of

employment – look back to 7/1 of previous year

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Returning to Work After Retirement

• Return to work in TRS covered position with no penalty
• If retired and out of TRS covered work for 12 consecutive months from retirement date
• Surcharge for hiring retirees still must be paid
• Can also return to work and not lose annuity if work ½ time
• This will result in you having to restart the 12-month waiting period to qualify for the

permanent 12-month exception

• Don’t Forget - Check Your TRS Statement!
• Unreported service credit can only be corrected if pointed out to TRS within 5 years
• Correction of Compensation and/or Service Records
• No correcting information will be accepted by TRS after the member has retired and received

the first annuity check

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Remember all investing involves risk.

TRS Annuity Options

• Standard Annuity
• Maximum benefit for retiree’s life only
• Option 1: 100% Joint Survivor
• Reduced annuity, payable for retiree’s life with continuous payments for beneficiary’s life. If beneficiary pre-

deceases, retiree’s annuity is increased to standard annuity amount

• Most common, typically 8-13% reduction from Standard Annuity
• Option 2: 50% Joint Survivor
• Reductions range from 4-8% based on same age beneficiary
• Option 3: 60 Month Period Certain
• Reduced annuity, payable for retiree’s life with annuity payments guaranteed for a minimum of 60 months
• If retiree dies before 60th payment, beneficiary will receive the remaining payments
• Typically 1-2% reduction from Standard Annuity
• Option 4: 120 Month Period Certain
• Typically 1-4% reduction from Standard Annuity
• Option 5: 75% Joint Survivor
• Reductions range from 6-12% based on same age beneficiary

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Partial Lump Sum Option (PLSO)

üPossible Reasons to Do

qPoor Health qEstate and Critical Need for Heirs (e.g., disabled child) qOther Estate Needs — Guarantees money to heirs instead of reversion to retirement system at death qNo Savings Going into Retirement qHigh Debt

• Reasons Not to Do

q You will not be able to invest the money and beat the Retirement System

q Pay Actuarial Cost for funds; Usually have to earn minimum Net 11.00% if try to match State — Can you do this with no risk??

q You have not planned for inflation and budget in retirement, so your income runs short later q You will be tempted (and give in) to spend the money you planned to save

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Note Partial Lump Sum (PLSO) Eligibility

• 5 Year Average — Rule of 90
• 3 Year Average — Rule of 80

A Word About Divorce and TRS

• Be very careful—get expert help
• QDROs
• Must be approved by TRS
• Should run by TRS before finalized
• TRS Rule that can change the QDRO
• Texas Government Code Sec. 804.005
• Designed to provide retirement income for spouse once member can retire
• Can significantly reduce growth in member’s future TRS benefit increases

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TRS Stability

2018 Statistics

• Market Value - $1.545 Billion
• Funded Ratio – 77.2%
• Down from 81.1%

System is mandated and governed by the Texas Constitution

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Social Security Issues

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Remember your TRS Annuity is never reduced by Social Security!

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Social Security Considerations

• 2 Regulations
• Government Pension Offset (GPO)
• Applies to member’s SPOUSAL Social Security benefits
• (SSA Pub No. 05-1007)
• Windfall Elimination Provision (WEP)
• Applies to member’s OWN Social Security benefits
• (SSA Pub No. 05-10045)
• www.ssa.gov
• Periodically bills are filed to repeal GPO and WEP at Federal level — very costly to

repeal

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Remember your TRS Annuity is never reduced by Social Security!

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Government Pension Offset: Spousal Benefit

• You are eligible to receive a benefit in an amount equal to 50% of your

spouse’s benefit

• Former spouse is eligible if married at least 10 years
• Subject to a Two-Thirds offset
• This further reduces or offsets entirely your eligible SS payment

Grandfathering

• Current Law: You have to be employed by, and retire from, a SS-covered

District for your last 60 months to be eligible

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GPO Example: Spousal Benefit

¨ TRS Pension — $2,100 ¨ Spousal SS Benefit — $1,000 ¨ Subtract 2/3 of TRS benefit from eligible SS benefit SS Benefit $1,000 — (2/3 of $2,100)

• $1,400

= - $ 400

TRS Member is not eligible for spousal benefit, but receives full TRS annuity

¨ TRS Pension — $2,100 ¨ Spousal SS Benefit — $1,600 ¨ Subtract 2/3 of TRS benefit from eligible SS benefit SS Benefit $1,600 — (2/3 of $2,100)

• $1,400

= $ 200

TRS Member is eligible for spousal benefit

• f $200 plus full TRS annuity

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Remember your TRS Annuity is never reduced by Social Security!

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Windfall Elimination Provision

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Qualify

• Service Credits under Social

Security (SS)

• Eligible for 4 credits per year
• Total of 40 credits to qualify for

a benefit

• For 2019, received 4 credits if

earned $5,440

Reduce

• Impacts employees eligible

for their OWN SS and government/state pension

• Uses a factor to calculate

your SS benefit income based

• n ‘Years of Substantial

Earnings’

Qualify then Reduce

Windfall Elimination Provision: Your Benefit

Year Substantial earnings

1968–1971 $1,950 1972 $2,250 1973 $2,700 1974 $3,300 1975 $3,525 1976 $3,825 1977 $4,125 1978 $4,425 1979 $4,725 1980 $5,100 1981 $5,550 1982 $6,075 1983 $6,675 1984 $7,050 1985 $7,425 1986 $7,875 1987 $8,175 1988 $8,400 1989 $8,925 1990 $9,525 1991 $9,900 1992 $10,350 1993 $10,725 1994 $11,250 1995 $11,325 1996 $11,625 1997 $12,150 1998 $12,675 1999 $13,425 2000 $14,175 2001 $14,925 2002 $15,750 2003 $16,125 2004 $16,275 2005 $16,725 2006 $17,475 2007 $18,150 2008 $18,975 2009 $19,800 2010 $19,800 2011 $19,800 2012 $20,475 2013 $21,075 2014 $21,750 2015 $22,050 2016 $22,050 2017 $23,625 2018 $23,850 2019 $24,675

Years of substantial earnings Percentage

30 or more 90 percent 29 - 85 percent 28 - 80 percent 27 - 75 percent 26 - 70 percent 25 - 65 percent 24 - 60 percent 23 - 55 percent 22 - 50 percent 21 - 45 percent 20 or less 40 percent*

*Actual Reduction cannot be greater than 50%. With 20 or less years, the maximum reduction for 2019 is $428.00

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Savings, Investments, and Options for Teachers

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_____% of Americans have less than $1,000 in savings. a) 20% b) 34% c) 57% d) 69%

Savings/Investments for Teachers

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Savings in America

Planning for Your Future Should be a Priority!

69% of Americans have less than $1,000 in Savings

Remember all investing involves risk. Source: 2016 GoBanking Rates Survey 35

Savings vs Investing Savings

• Usually put in a safe place
• High liquidity
• Source for emergencies
• Typically 3-6 months of reserves

Investing

• Stocks, bonds, other vehicles
• Less liquid
• Aiming for long-term gains to help

with retirement

Source: Securities and Exchange Commission, Saving and Investing: A Roadmap to Your Financial Security Through Saving and Investing (2011). 36 Remember all investing involves risk.

Don’t Confuse the Shield with Investments

• 403(b)
• 457
• 401(k)
• IRA

Important Note: There is no total escape from taxes. No matter which plan you use, you will eventually pay some taxes. However, the impact of taxes is usually much less with a tax deferred plan.

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Comparison: 403(b) and 457(b)

Feature 403(b) 457(b)

Individual vs. Group Plan Most have higher fees, pay commission/sales

• loads. Limited number of no commission
• ptions

Low fees relative to most 403(b) plans; no commissions, full disclosure of fees Penalty to withdraw fund (+ income tax) 10% (goes away at age 59½ or age 55 and retired) None Investment Options Fixed/Variable Interest Annuities or Mutual Funds/Custodial Accounts Fixed Annuity or Self-Directed Mutual Funds Access to Funds Termination of Employment, Death, Disability, Retirement, Age 59½ (even if still employed), Hardship

• r Loans

Termination of Employment, Death, Disability, Retirement, Unforeseeable Emergency (no access at age 59½ )

• r Loans

Investment Committee/Advisor Oversight No Yes Contribution Limits (can contribute to both plans) 2019: $19,000; $25,000 age 50+ 2018: $19,000; $25,000 age 50+ Roth Accounts Available Available

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Beware of Educator Abuses

• Excessive hidden fees
• Inappropriate types of investments
• Lack of monitoring of investments
• Life insurance as an investment
• Pension “maximization”
• Annuity riders
• Investing the lump sum to “beat” TRS
• “Shadow Marketing” and

Endorsements

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The Fee Effect

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Balance based on 6% earning net of fees with $200 monthly contributions for 20 years at the beginning of the month. Actual rate of return is not guaranteed and is for illustration purposes only. Remember that all investing involves risk.

Annual Fee Balance

1% $82,549.26 2% $73,599.44 3% $65,824.55 4% $59,057.63 5% $53,156.51 6% $48,000.00

$0.00 $10,000.00 $20,000.00 $30,000.00 $40,000.00 $50,000.00 $60,000.00 $70,000.00 $80,000.00 $90,000.00 1% 2% 3% 4% 5% 6%

Excessive Fees

• 12b-1 Fee
• Generally allows distributors to compensate broker/dealers and representatives for selling

their funds. It also can be a charge to cover marketing and distribution costs of the investment.

• Withdrawal Charge (a.k.a. Surrender Charge)
• A fee charged by some annuities and funds when an investor takes money out of his or

her account.

• Mortality and Expense Fee (M&E)
• This applies to some types of annuities and covers insurance related costs.
• Transfer Fee
• This is an amount charged by a fund to transfer either within the fund family or to another

company.

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Excessive Fees

• Expense Deductions
• Charges for investment management, administration and distribution services
• Management Fee
• Also called the investment advisory fee, this represents the company’s cost for

managing the money in the fund

• Wrap Account Fee
• Charged by some types of funds for fund management, this is an annual percentage
• f the investor’s assets in the account
• Custodial Fee
• The charge for safekeeping or physically holding the securities in the fund

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Key to Success: Diversification

Source: Determinants of Portfolio Performance (Brinson, Hood, Beebower, 1986)

Asset Class Selection, 94% Market Timing, 2% Asset Selection, 4%

Asset Class Selection Market Timing Asset Selection

The figure shows a breakdown of factors that account for variations in portfolio returns.

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Remember all investing involves risk.

Budgeting

Very few people stumble into financial security.

44

Budgeting

• A budget tells you where you are

and how you can start to improve your financial position.

• Having a monthly budget makes it

easier to achieve your savings goals.

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Tips to Paying Off Debt

Remember all investing involves risk.

Identify all your debt and order it from smallest total pay

• ff to largest.

STEP 1:

Pay as much as you can on the smallest payoff balance until it is paid off.

STEP 2: STEP 3:

Once something is paid off, move the entire payment to the next item on the list.

STEP 4:

Continue until items are paid off, or until you are comfortable financially.

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Steps to Success

• Know your goals!
• How much will I need?
• Who do I need to provide for?
• Spouse, Children, Parents, Charities, etc.
• Any other quantifiable goals?
• Choose portfolio allocation designed to achieve investment return needed
• Only take the risk you need to meet the goal
• Monitor your investments—are they performing?
• Financial planning is a process not an event!

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48 Remember all investing involves risk.

Go online to schedule your

RETIREMENT READINESS CHECKUP

Visit: www.tcgservices.com/tasbo19

D O N ’ T F O R G E T !

Important Disclosures

TCG Advisors is a registered investment advisor regulated by the U.S. Securities and Exchange Commission (SEC) and registered municipal advisor, subject to the Rules and Regulations of the Investment Advisor Act of 1940 and the rules of the Municipal Securities Rulemaking Board (MSRB), and is a part of TCG Group Holdings, LLP. Registration does not imply a certain level of skill or training. TCG Advisors’ parent company, TCG Group Holdings, LLP, owns and operates several other entities which provide various services to employers across the U. S. Those affiliates (wholly-owned subsidiaries of TCG Group Holdings, LLP) sometimes provide services to TCG Advisors’ Clients. These affiliates are Total Compensation Group Consulting, LP; TCG Administrators, LP (f/k/a JEM Resource Partners, LP); TCG Benefits (f/k/a The Paragon Group, LP; Paragon National, LP; and Paragon Benefits, LP, collectively). The business activities of these companies are discussed in its ADV Part 2A. TCG Advisors is located in Austin, Texas, and a copy of its Form ADV Part 2 is available upon request. This presentation is not authorized for use as an offer of sale or a solicitation of an offer to purchase investments. This presentation is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, or as an offer to provide advisory or other services in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Past performance may not be indicative of any future results. No current or prospective client should assume that the future performance of any investment or investment strategy referenced directly or indirectly in this presentation will perform in the same manner in the future. Different types

• f investments and investment strategies involve varying degrees of risk—all investing involves risk—and may experience positive or negative
• growth. Nothing in this presentation should be construed as guaranteeing any investment performance.

49 Remember all investing involves risk.

Important Disclosures (continued)

50

An investment in the plans discussed will involve a significant degree of risk, and there can be no assurance that the investment objectives will be achieved or that an investment therein will be profitable. Investors will experience individual returns that vary materially from those illustrated in this presentation depending on various factors, including but not limited to, the timing of their investment, the level of fees, and the effects of additions and withdrawals from their capital accounts. Past performance is not necessarily indicative of the future performance or the profitability of an investment in a plan. This presentation includes forward-looking statements. All statements that are not historical facts are forward-looking statements, including any statements that relate to future market conditions, results, operations, strategies or other future conditions or developments and any statements regarding objectives, opportunities, positioning or prospects. Forward-looking statements are necessarily based upon speculation, expectations, estimates and assumptions that are inherently unreliable and subject to significant business, economic and competitive uncertainties and contingencies. Forward-looking statements are not a promise or guaranty about future events. Any discussion of liquid or illiquid investments is qualified by the fact that the liquidity of an investment depends largely on market conditions, which change from time to time. An investment that is currently liquid could prove to be completely or substantially illiquid at any time in the future. No assurances can be given regarding the time at which it may be possible or reasonably practical to sell any investment, regardless of the degree

• f liquidity or illiquidity currently associated with the investment. Any statements about the likely timing for the future disposition or maturity of any

investment or group of investments are forward-looking statements that are inherently unreliable and should not be relied upon for any purpose. The projections or other information generated herein regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Hypothetical performance results have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There are frequently substantial differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.

Remember all investing involves risk.

Sources

1Stress in America: Paying with our health. (n.d.). Retrieved from http://www.apa.org/news/press/releases/stress/2014/highlights.aspx 2Mitchell, J. (2016, April 07). More Than 40% of Student Borrowers Aren't Making Payments. Retrieved from

https://www.wsj.com/articles/more-than-40-of-student-borrowers-arent-making-payments-1459971348

3Millennials and Retirement: Already Falling Short. (2018, March 07). Retrieved from https://www.nirsonline.org/reports/millennials-

andretirement-already-falling-short/

4McCarthy, N. (2016, September 23). Survey: Americans Have Less Than $1,000 In Savings [Infographic]. Retrieved from

https://www.forbes.com/sites/niallmccarthy/2016/09/23/survey-69-of-americans-have-less-than-1000-in-savings-infographic/#256771751ae6

5New Research Finds Millennials Not Saving Adequately For Retirement. (2018, February 27). Retrieved from

https://www.nirsonline.org/2018/02/new-research-finds-95-percent-of-millennials-not-saving-adequately-for-retirement/

6Underestimating Expenses. (n.d.). Retrieved from http://longevity.stanford.edu/6921-2/ 7Frankel, M. (2017, January 24). Here's the average American's credit card debt -- and how to get yours under control. Retrieved from

https://www.usatoday.com/story/money/personalfinance/2017/01/24/heres-the-average-americans-credit-card-debt-and-how-to-get-yours- under-control/96611546/

51 Remember all investing involves risk.

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