Wes Moss: Teacher retirement deadline looming

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB.

Hey GA Teachers, Listen Up!

The deadline to make this call is fast approaching. I decided to re-post this today, because I’ve talked to three teachers this morning who are contemplating this very issue.

Work past 2012 and suffer a three percent tax on your pension income or pull the trigger now and be grandfathered in? Either way, here’s the situation, keep reading…

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.

While we’re on this topic, 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.

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– Wes Moss, for AJC Atlanta Bargain Hunter blog

6 comments Add your comment

Hoping for a job

November 1st, 2012
6:30 pm

I hope lots of teachers do retire…I graduated in May with my teaching certification. I am older(34). I waited until my kids started school before I went back to finish college. I graduate and cannot find a job. I live in Coweta County and I have applied in every county within 50 miles. It is frustrating to work so hard for a degree and get excited about having my own classroom and it’s not happening. Plus I have massive student loans. I have friends who graduated a year before me and still cannot find jobs. These days they are only hiring parapros who have their 4 year degree and teaching certification because so many teachers are out of work. Yes i interviewed for parapro positions.

Linda Harris

November 1st, 2012
6:35 pm

When you suggest to teachers that they work one more year, are you speaking of one more calendar year or one more school year?

Fulton Co.

November 1st, 2012
7:36 pm

I’ve heard from several Fulton Co. employees that if they work PAST NOVEMBER 30, they will lose the 3%. They can’t finish out the semester. These same people spent many months with Human Resources trying to understand pros/cons of retiring now versus retiring in a few years. They all come out better leaving now, although they don’t want to.

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Retired

November 2nd, 2012
1:33 am

To “Hoping for a job”: I began teaching when I was 21 years old. I knew when I was 8 years old that I wanted to teach. I am now retired and a 67 year-old woman took my position. I still love kids and substitute teach often. If you truly love kids and teaching is your passion then you don’t need to worry about getting a teaching position via teachers retiring. Either you have it, or you don’t!

Wes Moss

November 2nd, 2012
10:34 am

@Linda Harris – Most of the examples that I have looked at had the teacher working through a school year (retiring in June). But it is my belief that you don’t necessarily have to finish the school year to qualify for a higher benefit. Your benefits representative should be able to answer this question for your specific situation.

@Fulton Co. – The examples that I have looked at show me that you either want to retire now… or work at least through June 2014 to make up for the 3% provision. So, my takeaway from that is: If you’re nearing retirement, either get out before the end of the year or be prepared to teach a year or two more before retirement. Retiring in mid-2013 would be a raw deal from a pension perspective. But waiting to retire post June 2014 should only make your pension benefit higher. Again – everyone needs to run these numbers for their specific situation, but this is what I’m seeing in general.