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  • Teacher Pension Problem

    Good morning, everyone! I'm sure some of you are aware that the primary retirement option for teachers is generally a pension plan.

    The payments are usually based off a 3-5 year highest average salary, years of service time, etc. My issue lies in the fact that these plans are not interstate. I currently have 5 years of service, rendering me vested, in TN, and after this year I will have 2 years of service in SC (not vested). I will probably be moving again Summer 2019 (my fiancee is military). SC requires 9 years to be vested in the pension program; however, they do offer a 403(b) alternative w/ 5% salary employer contributions in lieu of the pension program, so I decided to do that. It's through VALIC (which has some fees/ER's I'm not thrilled about, but I chose Vanguard funds). The following are several options about how I can handle this moving forward, but I wanted to pick y'alls brains since I value your feedback/input:

    1) Since I'm vested in TN I can technically draw off that pension later on when I'm retirement age (60 yrs). As it stands, though, the account is worth ~$12,500 with minimal growth in sight, OR I can roll that over into an IRA. I don't have any interest in keeping the pension to 60, but there is a chance we move back to TN next year and I can continue to contribute to that plan.
    2) After I leave SC I can roll my 2 yrs of investments (should be ~$12k when it's all said and done) into my IRA while my fiancee and I are in a lower tax bracket, OR I can keep it with VALIC and continue to invest it through there.
    3) You can purchase service credit in most states for years of experience served in other states, but cannot be benefiting from the retirement plans simultaneously, and some states allow you rollover retirement money from other systems to put toward the purchasing of these service years.

    Long-term I DO plan to purchase years of service in the state we settle in, but I won't know where that is for ~5 years probably. The part I'm stuck on is whether or not to hold on to the retirement plans in TN & SC now until we settle and then consider rolling the money over to buy service years, or to just go ahead and roll those accts over into my IRA while my spouse and I are at a lower income bracket (post-military commitment her income will go up 2-3x) and worry about purchasing service years when that time comes.

    What are your thoughts?

  • #2
    I would roll into IRA (and possibly on to Roth depending on income projections) given your description of options, for the reasons you enumerate and just the fact that you have better control.

    But I have an extremely dim view of government pensions.  To be fair, I've had a dim view of government pensions for the last decade and everything is still okey-dokey.

    Comment


    • #3
      As you stated, you don’t know where you will land.
      If your retirement plan is to continue teaching and rely on the pension plan, you certainly will have vesting and qualifying years of service.
      Why are you purchasing years of service? Years of service seem to impact eligibility, not the benefits.
      I would assume, any purchase of $10k would only up you vested balance by $10k.

      A common one is Rule of 80.
      “At least age 55 but less than age 62, have at least 20 years of service credit, and meet the Rule of 80 (combined age and years of service credit total at least 80), or. At least age 62, meet the Rule of 80, and have at least five years of service credit.”
      If you can roll in unvested balances and capture the vesting, but that’s not your situation. I see no benefit rolling into the state system or “buying” service.

      Your choice of IRA or Roth is purely the marginal tax rates now and in retirement. Depends on preference and where you are now and in retirement. Using a Roth should shelter you well in a Roth.



      Take the money and low fee invest. Whether y

      Comment


      • #4
        0n #1: don’t roll it over until you examine the future income stream. Growth doesn’t matter, what does matter is the cash-flow generated after 60. Of that 12,500 will generate 400 a month in retirement,it’s a great investment. Login and generate your benefit statement.
        On #2: rolling to an IRA will present problems if you want to do back-door Roth. You might be able to roll into your next 403B/457 if the options are decent.
        On #3: buying service credits are usually a good deal. We did it after some quick math and no regrets...

        One thing to investigate at you next stop: some employers allow you to contribute to both 457/403 so that you double defer. Others may also offer Roth options in each.

        Comment


        • #5




          0n #1: don’t roll it over until you examine the future income stream. Growth doesn’t matter, what does matter is the cash-flow generated after 60. Of that 12,500 will generate 400 a month in retirement,it’s a great investment. Login and generate your benefit statement.
          On #2: rolling to an IRA will present problems if you want to do back-door Roth. You might be able to roll into your next 403B/457 if the options are decent.
          On #3: buying service credits are usually a good deal. We did it after some quick math and no regrets…

          One thing to investigate at you next stop: some employers allow you to contribute to both 457/403 so that you double defer. Others may also offer Roth options in each.
          Click to expand...


          Logged on to TCRS and was able to access my last statement:
          Your Current Average Final Compensation (AFC) is: ($216,467.26/5) = $43,293.45
          Your Earned Benefit
          This benefit estimate only considers your service and salary as of June 30, 2017. No additional service or salary is
          projected.
          Group I
          Eligibility Criteria Date Maximum Monthly Benefit
          Service Retirement (Unreduced) Year 2049 $284.11

          So looks like I could draw $284.11/month starting at age 60 (I'm 29 now). With that in mind, assuming I never go back to TN, what do you all think?

          Comment


          • #6
            Is the benefit indexed for inflation?  If it is then it is very valuable.

            Comment


            • #7
              The indexing to inflation typically starts at retirement date, and due to funding the increases can typically be less than inflation. That said, it’s nice to know you have an annuity as another source of income. You should be able to determine your total contribution (from you, not the district) and this is a nice way of looking at ROI. My wife has a pension from 1 year as a paraprofessional-she contributed 360 total and will collect 100/month at 66. While inflation will erode that purchasing power, it’s still a good roi and should buy us dinner out once a month. If she collects for 25 years she will get 30,000 on original investment of 360. If you collect 284/month for 20 years, you will get 68,260.

              Comment


              • #8
                When you move again, shop carefully for your new district as while the pension may be at the state level, the benefits are at the district level. For example, wife’s district matches 2% on 403b...neighboring district matches 1% and only for your first 10 years. Over time, the difference in benefits can run into 6 figures when you consider all the contract variations. Finally, remember to also calculate pension when looking at the education required to get lane changes. MA plus 60 is usually the “far right” of the scale and it has two value calculations: pay while working + increased retirement benefit! That extra education will pay you an ice dividend every year you are retired....

                Comment


                • #9




                  The indexing to inflation typically starts at retirement date, and due to funding the increases can typically be less than inflation. That said, it’s nice to know you have an annuity as another source of income. You should be able to determine your total contribution (from you, not the district) and this is a nice way of looking at ROI. My wife has a pension from 1 year as a paraprofessional-she contributed 360 total and will collect 100/month at 66. While inflation will erode that purchasing power, it’s still a good roi and should buy us dinner out once a month. If she collects for 25 years she will get 30,000 on original investment of 360. If you collect 284/month for 20 years, you will get 68,260.
                  Click to expand...


                  $10,823 is my contribution over the 5years. The acct is ~$12,500 at the moment with interest.

                  Comment


                  • #10
                    As tempting as it might be to take the $12,500 and roll to an IRA, I would leave it alone. When you are older (I’m 48) the “peace-of-mind” value of your teaching and other pension income like military will be higher than it is today. A happy retirement requires replacing your current income stream, and you might find that 2 SS plus 2 pensions could provide a large portion of your income needs.

                    Comment


                    • #11


                      the “peace-of-mind” value of your teaching and other pension income
                      Click to expand...


                      I take the same data and come to the opposite conclusion!  

                      Comment


                      • #12
                        G-how so?

                        Comment


                        • #13




                          G-how so?
                          Click to expand...


                          I can't speak for G, but some of my concerns would be, off the top of my head:

                          1) will XYZ state pension be there/be solvent when it comes time to pay benefits

                          2) will you still be eligible for benefits in 20+ years living in another state

                          3) will XYZ pension allow for you to take your social security or other pensions simultaneously

                          4) will rules/laws/politics change in XYZ state over the next 20+ years and jeopardize your benefit

                          5) will XYZ pension offer a decent rate of return comparable to what you'd get with your own investments

                           

                          Obviously if it's one of these gravy train huge taxpayer loss state deals where your pension is "worth" $12.5k today but will magically pay you some much larger, heavily subsidized amount in perpetuity, then it might be worth going for, but from a peace of mind perspective I always choose the cash in my pocket vs someone else's.

                          Comment


                          • #14
                            Each person with a pension should be able to answer those questions; however, few can. We have planned and saved assuming zero SS and zero pension. In our case the answers are 1) fine - factor it by 50% and then calculate ROI. Pension stills beats SS. 2) Yes. 3) Yes 4) Yes, everything changes and you can discount your return 5) Depends. See #1.

                            Right now my wife’s initial year $360 investment is worth around $600 as a refund value. But why would I want $600 now when it will pay out $100/month in 20 years? Let’s say I earn 7% return and I get “2 doubles” in 20 years...I’ll have $2,400 at that time. Doubt I can buy a SPIA at that time and generate $1,200 annually. As she has a good record of longevity in her family, letting this $600 sit out of my control results in a nice longevity insurance policy.

                            Comment


                            • #15
                              Cannot figure out how to edit on my phone. I’m not saying that these models are good and/or sustainable. Just making a case to let these smaller amounts ride until retirement and plan for it to be reduced by some percentage.

                              Comment

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