Update Your Retirement Plan to Succeed
It’s the beginning of the school year and we have made adjustments to our content, classroom management, and assessment techniques to have positive impacts on our craft of teaching. The beginning of the year is the best time to make these adjustments because with a fresh batch of students, we can take fresh approaches to implement our vision of having positive impacts on students. It’s just not just a great time for our academic plans, but also our financial plans.
Whether you are in your first year of teaching or retirement is fast approaching, there are steps we can all take to improve our financial landscape and be in control of our financial health. Here are a few strategies that you can implement now to get on the optimal financial path
Maximize your 403b (and 457!) Contributions
This action is especially important for educators early in your career. Many people ask, “Why start now now when I am so young”? There is a great saying I like to tell people and that’s drops of water will still make an ocean. The one thing young educators have is time (especially if you are a Tier II pensioner), so make time work for you. The longer you invest into your retirement, the bigger the payout will be. This occurs on a few levels.
First, ask your district what is the maximum you can contribute to each account and also if they match any contributions. At my school, I was on the union leadership executive council for many years, including a term as president. During my tenure, we negotiated with the district to introduce matching 403b contributions. This simple shift convinced a lot of educators (especially Tier II) to begin to contribute to their retirement. They instantly made a 100% rate of return of their initial contribution, and, depending on how one set up their investment strategies ( eg aggressive, moderate, conservative, etc…), gained even more over time.
Second, with compound interest, you allow your rates of return to earn as well, so over time, your accounts grows. There is a concept called the “Time Value of Money”. There are three basic variables, initial capital, rates of return, and time. The first two, we do not really have control over, but time is something we all have at the beginning of our career. Take advantage of time because is ANY of those three variables are large, then the final result is large. In other words if you begin to save for retirement in your early twenties, when retirement comes around, you have been investing in decades and your investment over time will have grown exponentially.
Third, the fluctuations in the market will average out over the long term. While it’s not guarantee, if one looks at almost timeframe in the US economy, there is positive growth… even through the financial crises. If you begin to invest in your retirement early in your career, when it comes time to retire, your long term investment will most likely show healthy, positive rate of return.
Research What Programs are Offered within Your District
When I began teaching in 2007, the financial investment opportunity landscape had changed dramatically and I had to do my own research to uncover best practices for my financial situation. Initially, our district offered 403b accounts from many companies and through the financial crises, consolidated to a single company and eliminated their flat contribution. While our district worked through those difficult times and came out on top, we used that time, via our union, to reimagine retirement savings. With the introduction of Tier II pensioners (anyone beginning teaching after January 1st, 2012), We highlighted the long term savings for the district if we created incentives for educators to save on top of pensions. It was a huge success and we continue to push for larger matching contributions. TRS also now provides a 403b option and their costs are dramatically lower and TRS has a proven successful investment track record. Reach out to your district’s HR department, business office, and even your union to find out what is offered and what could be improved. It’s also a great time to get involved with your union too! Finally, while I belong to the TRS pension, many of you belong to IMRF… did you know that they offer an investment account that you can contribute up to 10% of your salary? Your homework, no matter which pension program you belong to, is to find out what opportunities does your district offer, how the district contributes to various vehicles, and then begin contributing to your retirement… you future self will thank you!
Make Adaptive Conditions to Get the Most Out of Your Raises
When I first started investing, I was thinking too simply and just made static flat investments. My district gave everyone they same flat amount. On the surface it sounds great, but their is an additional step one should take when determining how much to contribute. Instead of thinking of a flat amount, change your approach to what percent of my income can I contribute? That way, when your school year starts and you received that well earned increase in pay, your retirement fund also wins by increasing the dollar amount contributed. It increases your contributions, but your don’t “feel it” in your paycheck because that increase occurs when your salary also increased. That mentality will add tens of thousands of saved money which will make retirement decisions much easier. Most districts will allow you to set a percentage of your salary for contributions, but if they don’t, simply decide what percent works best for your short and long term goals, and save away!
Talk with your Union and District, and Get Involved
Our district did not to where it is passively. We worked hard to advocate for long term investments that benefited everyone in the district. Districts do not want veteran teachers hanging around because they cant ‘afford’ to retire. A new teacher costs a third than that of a veteran at the top of the step/lane salary table. Work with your union (and the umbrella organizations above it—IEA/NEA for example) to see where one could make inroads to increased retirement savings activity. Everyone benefits, teachers, districts, and the community. The best way is to get involved. I was not a ‘union guy’ when I first started but quickly realized the power a union can a real impacts on educators, and so I got involved. First by volunteering to be on committees, running for executive positions, and then also leading our union as its president. At each of those steps I actively engaged with members and the district to find ways for both sides to win. There is more work to be done, but only by getting involved can you get the best opportunity to implement change for the good.
I hope this post gets you to begin thinking about how to invest into your future. As I mentioned before, teaching is my second career. My first career was mortgage brokerage back in 1993 and I was very successful. I used that financial knowledge when I became a teacher to advocate for better investment opportunities, I counseled and advised colleagues on how to invest in retirement and real estate, and currently I opened my company, GoAhead Finance LLC, to provide heavily discounted real estate loans for educators because, well, you have earned it and should keep your well earned income. I also created Thinking Ahead Newsletter to help educate educators think about their financial future and to be the best prepared.
The information contained in this post is for information purposes only to help educators think about all aspects of their career. Always talk to a professional for any decision making process, I hope that this information help your start thinking about your career and how to maximize all aspects of being an educator. I am a professional real estate expert, so if you have any questions about real estate, I can help. Click here for more information. If you find this information unhelpful, I apologize for filling up your inbox… you can always unsubscribe here or on the link below.