..Teachers often have defined benefit pension plans, but similar to other industries, states are ending the use of pension plans requiring teachers to set up their retirement savings plans themselves. In this article, we explore why teachers need financial planning.
Another factor for some teachers is that they may not qualify for Social Security retirement benefits either, according to a study by Bellweather Education Partners.
The study indicates that approximately 1.2 million active teachers (about 40 percent of all public K-12 teachers) nationwide are not covered since they do not pay into Social Security. Those teachers are in 15 states (Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, and Texas) and the District of Columbia.
All teachers must consider financial planning to help develop strategies to make up for the retirement savings shortfall. Here, we examine what options may be available to teachers through their employer, and other self-funded retirement plans that may be appropriate:
457(b) plans are non-qualified, deferred compensation retirement plans offered by state governments, local governments, and some nonprofit employers. Eligible participants can make tax-deferred contributions into investments within the plan that is allowed to compound.
403(b )plans allow employees to contribute some of their salary to the plan. The employer may also contribute to the plan for employees but is not required to do. A 403(b) plan is a defined contribution plan, which is similar to a 401(k).
Roth IRAs are self-funded retirement savings accounts with after-tax contributions, and the earnings are tax free.
Traditional IRAs are self-funded retirement savings accounts appropriate for you if your employer doesn’t provide a match. So, if you do contribute to a 457 (b) or 401(b) retirement savings plan with no employer match, you may be eligible. However, note that between the traditional IRA and other tax-deferred plans you may have, you cannot exceed the 2022 limit between all accounts.
The 2022 Roth IRA contribution limit is $6,000, and taxpayers over age 50 can contribute $7000.
Permanent life insurance offers the protection of life insurance and income that can be a source of retirement savings income. Permanent life insurance offers both a death and a savings benefit funded by premiums. These policies are more expensive than term life because of this cash value portion.
Teachers to research their employer’s retirement savings options. Take the actions to help ensure they have enough retirement savings to last their lifetime. Through financial planning, teachers can gather insights into how all retirement savings contributions will impact their retirement savings. In addition what other strategies can help close their retirement savings gap.
A financial professional can help you determine an appropriate retirement savings strategy for your situation. They can help you fill any gaps in your plan.
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In addition, JP Williams is the Founder of Pillar Wealth Group who lives and works near Columbus, Ohio. JP founded Pillar Wealth Group with over 17 years of experience and specializes in financial planning, retirement planning, investment management, risk management, college planning, and estate planning. Contact us today to get started with your financial wellness journey. Contact us today to schedule an introductory meeting!