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

Remember all investing involves risk. 2

About TCG We are a fee-only investment advisor, financial planner, and retirement plan administrator . Remember all investing involves risk. 3

About TCG Retirement Plan Investment Financial Consulting Administration Management Planning Solutions • 400+ plans, 450,000+ • $1.7 Billion in assets • Fee-only solutions • Investments participants under management • Wealth management • Compensation • Fee-only, low-cost • Solutions for • Asset management • Benefits programs • individuals • Fiduciary support • Employee contracts • retirement plans • Administration of • Goals-based strategies • Enterprise • school district funds 403(b), 457(b), 401(a), and planning cybersecurity • other institutional needs 401(k), and 457(f) plans Remember all investing involves risk. 4

Did you know… Remember all investing involves risk. 5

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 Remember all investing involves risk. 6

Financial Stress GOOD NEWS! You can take steps to improve your financial situation and relieve financial stress! Remember all investing involves risk. 7

TRS Pension & the Income Gap Remember all investing involves risk. 8

TRS vs Corporate Retirement Very different for educators than spouses and neighbors - and financial advisors Teacher Neighbor TRS Social Security Savings Social Security Savings Source: Region 10 Education Service Center Remember all investing involves risk. 9

TRS Retirement Formula x Service x = Years of State Factor Average 3/5 Highest Maximum 2.3% Years of Income Benefit $60,000 Example 31 Gross Income Years of Service: 30 State Multiplier (2.3%): 69 % $41,400 Average Income: $60,000 Maximum Benefit: $41,400 Retire at Age 60 Remember all investing involves risk. 10

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. Remember all investing involves risk. 11

Taking Aim at the Target $2,000.00 Years of Monthly $1,800.00 Savings Contribution $1,600.00 40 $150.01 $1,400.00 $1,200.00 30 $297.39 $1,000.00 $800.00 20 $646.55 $600.00 $400.00 10 $1,822.87 $200.00 $0.00 Age 20-60 Age 30-60 Age 40-60 Age 50-60 Assumes an 6% annual return after fees and expenses for illustration purposes only, not guaranteed. Remember all investing involves risk. 12

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 Remember all investing involves risk. 13

Important TRS Rules You Need to Know Remember all investing involves risk. 14

Inflation vs TRS TRS does NOT have Cost of Living Adjustments (COLA) Inflation (2.5%) vs. TRS Income (0%) Impact of Inflation $140,000 $135,531 $130,000 $120,000 $110,000 $100,000 $82,711 $90,000 $80,000 $70,000 $60,000 2017 2020 2030 2040 2050 TRS Inflation Remember all investing involves risk. 15

TRS Vesting – Key Dates Became a TRS member: BEFORE September 1, 2007 AND had 5 Years of Service – Rule of 80 AFTER September 1, 2007 — Minimum age 60 to retire and receive unreduced benefits AFTER August 31, 2014 — If you are not Vested (5 years) — Minimum age 62 to retire and receive unreduced benefits Remember all investing involves risk. 16

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. Remember all investing involves risk. 17

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 Remember all investing involves risk. 18

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 Remember all investing involves risk. 19

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 Remember all investing involves risk. 20

Partial Lump Sum Option (PLSO) o Reasons Not to Do ü Possible Reasons to Do q You will not be able to invest the money q Poor Health and beat the Retirement System q Estate and Critical Need for Heirs q Pay Actuarial Cost for funds; Usually (e.g., disabled child) have to earn minimum Net 11.00% if try q Other Estate Needs — to match State — Can you do this with no risk?? Guarantees money to heirs q You have not planned for inflation and instead of reversion to retirement budget in retirement, so your income system at death runs short later q No Savings Going into q You will be tempted (and give in) to Retirement spend the money you planned to save q High Debt Note Partial Lump Sum (PLSO) Eligibility o 5 Year Average — Rule of 90 o 3 Year Average — Rule of 80 Remember all investing involves risk. 21

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 Remember all investing involves risk. 22

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 Remember all investing involves risk. 23

Social Security Issues Remember all investing involves risk. 24

Remember your TRS Annuity is never reduced by Social Security! Remember all investing involves risk. 25

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 Remember all investing involves risk. 26

Remember your TRS Annuity is never reduced by Social Security! Remember all investing involves risk. 27

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 Remember all investing involves risk. 28