Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
Georgia teachers are among the state’s richest citizens. If you’re an educator, you may chuckle at that notion, but it’s true. First, teachers derive great emotional wealth from their work, which shapes our young people and, as a result, our future.
Second, they have a killer dual-engine retirement program.
Georgia’s Teacher Retirement System (TRS) requires educators to contribute approximately 5.5 percent of their annual salary and provides a match of nearly 10 percent, meaning teachers are socking away 15 percent of their pay toward retirement without even noticing. TRS then gives teachers the opportunity to participate in their school system’s 403(b) program, which is like a 401(k). While participation in the 403(b) is not mandatory, teachers generally contribute to them pretty aggressively. No surprise there. In my extensive professional interaction with teachers, I’ve found them to be financially astute and responsible.
As the school year comes to an end, allow me to thank our local teachers by offering them a lesson regarding an upcoming change to this wonderful retirement system.
Earlier this year TRS decided to repeal a 3 percent tax offset adjustment to teacher pensions that has been in place since 1990. In short, this means educators who retire after 2012 will see their pensions reduced by 3 percent on the first $37,500 of benefits. So a teacher who has earned a $3,500 per month pension will lose $93.75 per month if she retires after Dec. 31, 2012.
This new policy has many teachers considering an earlier-than-planned retirement. But is that prudent? A close examination shows that teachers who work for just one more year will earn enough additional pension benefit to just barely overcome the loss of the tax offset. And, by working just two more years an educator can accrue enough pension benefit to far outstrip that 3 percent loss.
Bottom line: Don’t let a few seemingly scary numbers still your life’s passion. If you love teaching, stick with it. You will absolutely come out ahead — both emotionally and financially.
I’d like to thank my 11th grade math and physics teachers Mrs. Dibiase and Mr. Zamitees. They deserve a lot of credit for helping me get to where I am today.
– By Wes Moss, for Atlanta Bargain Hunter