Update Your Retirement Plan to Succeed

As the new school year commences, we have implemented modifications to our instructional content, classroom management strategies, and assessment methodologies to foster positive outcomes in our teaching endeavors. The commencement of the academic year presents an opportune moment for these adjustments, as it allows us to adopt novel approaches to realize our vision of positively impacting students. This transition extends beyond academic planning, encompassing financial considerations as well.

Whether you are embarking on your initial teaching career or nearing retirement, there are proactive steps we can collectively take to enhance our financial well-being and achieve financial independence. Here are several strategies that can be implemented promptly to chart an optimal financial trajectory:

Maximize Your 403(b) and 457(b) Contributions

This action holds particular significance for educators in their early career stages. Many individuals question the rationale behind commencing contributions at a young age. However, a pertinent adage asserts that even the smallest drops of water can collectively form an ocean. As young educators, we possess a valuable asset: time, particularly if you are a Tier II pensioner. Therefore, it is imperative to leverage this time effectively. The longer you invest in your retirement savings, the greater the potential return. This principle manifests in several ways:

Firstly, inquire with your respective district regarding the maximum contribution limits for each account and whether they offer any matching contributions. During my tenure as a member of the union leadership executive council, including a term as president, we successfully negotiated with the district to implement matching 403(b) contributions. This simple change significantly encouraged a substantial number of educators, particularly Tier II members, to initiate retirement savings. They experienced an immediate 100% return on their initial contributions, and, contingent upon their investment strategies (e.g., aggressive, moderate, conservative, etc.), they accumulated even greater returns over time.

Second, compound interest enables your rates of return to generate additional returns over time, resulting in the growth of your accounts. The concept of the “Time Value of Money” is fundamental to this principle. It encompasses three key variables: initial capital, rates of return, and time. While the initial capital and rates of return are beyond our direct control, time is a variable we all possess at the outset of our careers. Therefore, it is crucial to capitalize on time, as any of these three variables can significantly impact the final outcome. In essence, if you commence saving for retirement in your early twenties, you will have invested for decades by the time you retire. Consequently, your investment will have experienced exponential growth over time.

Third, market fluctuations tend to average out over the long term. Although it is not a guarantee, historical data from the US economy demonstrates positive growth, even during financial crises. By investing in your retirement early in your career, you can anticipate a healthy and positive rate of return when you retire.

Research the Programs Offered within Your District

Upon commencing my teaching career in 2007, the financial investment landscape underwent a significant transformation, necessitating my independent research to identify optimal practices tailored to my financial circumstances. Initially, our district provided 403(b) accounts from various companies, which were subsequently consolidated into a single entity and eliminated their flat contribution structure. While our district navigated through these challenging periods and emerged victorious, we leveraged this opportunity, through our union, to reevaluate retirement savings strategies.

The introduction of Tier II pensioners (individuals commencing teaching after January 1, 2012) prompted us to emphasize the long-term financial security for the district by incentivizing educators to supplement their pensions with additional savings. This initiative achieved remarkable success, and we continue to advocate for increased matching contributions.

Additionally, TRS now offers a 403(b) option, which presents a more cost-effective alternative compared to the previous system. Furthermore, TRS boasts a proven track record of successful investments.

I encourage you to reach out to your district’s Human Resources department, business office, and union representatives to inquire about the available options and identify areas for improvement. This is also an opportune time to actively engage with your union.

Lastly, while I am a member of the TRS pension plan, many of you are part of the IMRF plan. Did you know that IMRF offers an investment account that allows you to contribute up to 10% of your salary? Regardless of which pension program you are affiliated with, it is imperative that you research the opportunities offered by your district, understand the district’s contributions to various investment vehicles, and commence contributing to your retirement. Your future self will undoubtedly appreciate your proactive approach.

Upon commencing my investment journey, I adopted a simplistic approach, opting for static, flat investments. While this strategy may appear advantageous on the surface, it overlooks an essential step in determining the appropriate contribution amount. Instead of fixating on a fixed dollar figure, consider the percentage of your income that can be allocated to investments. This approach ensures that when your school year commences and you receive a well-deserved salary increase, your retirement fund benefits from the corresponding increase in the dollar amount contributed. Although the impact on your paycheck may not be immediately noticeable, this mindset will accumulate tens of thousands of saved funds, simplifying retirement decision-making.

Most districts permit individuals to set a percentage of their salary for contributions. However, if this option is not available, it is advisable to determine the most suitable percentage that aligns with your short-term and long-term financial goals. By adhering to this strategy, you can effectively save and secure your future.

Engage with your union and district to gain insights and actively participate in the investment process.

Our district did not achieve its current status passively. We diligently advocated for long-term investments that would benefit all stakeholders within the district. Districts are not inclined to retain veteran teachers solely because they lack the financial means to retire. In contrast, a new teacher’s salary is significantly lower than that of a veteran teacher at the top of the salary scale.