Will Underfunded Pension Funds Impact My Retirement as a Teacher?

10 Sep - Posted at 22:40h in Pension Plan

Underfunded Teacher Pension Plans

Here is a hard fact: traditional teacher pensions are getting riskier. Even so, that does not mean that they are a poor retirement investment. At Appreciation Financial, we think you should understand the risk of all your retirement fund options to help you decide the best strategy for you.

In this article, we explore the risks of underfunded pension funds and how they could impact your retirement as a teacher. We also explore some additional retirement plan options available for teachers to supplement their traditional pension.

Why do underfunded pension funds matter?

90% of teachers are enrolled in a defined-benefit plan, also known as a traditional pension. Because these plans are tied to your years of service and salary, many educators believe they involve very little risk. Unfortunately, that is far from the case.

How pensions acquire liabilities

Essentially, pensions acquire liabilities as they promise future benefits to teachers. The professionals planning the pensions need to make estimates as to future teacher salaries along with how many people will stay in the profession. Other factors include how long teachers live after retirement and how the pension fund's investments perform.

When the expected assets do not match the liabilities, the pension account is no longer fully funded. Unfortunately, most teacher pensions have not been fully funded for the last 20 years. One of the reasons is because teacher pension funds are assuming too high a percentage on returns on their investments. Others include that people are living longer than ever before, therefore collecting pension annuities for much longer than in past generations.

Will underfunded pension funds impact my retirement?

There is no easy answer to this question. In many cases, it depends on your state and the kind of pension plans each state offers. While pensions are guaranteed to the teachers that have paid into them, if the under-funded gap grows too large, who knows what could happen.

But here is something we know for sure:

New teachers' pensions are impacted

Pensions for new teachers involve longer vesting periods and lower payouts than teachers of prior generations. Unfortunately, this is unknown to many new teachers, and many do not take the time to explore the details of their plans.

That is why our team at Appreciation Financial recommends that all new teachers take part in one of our free pension reviews, so you will know exactly what you are offered and if you need to supplement your pension with other investments.

What can I do to protect my retirement?

Now that you know the risk of teacher pensions and their underfunded liabilities, you are probably wondering what you can do to protect your retirement dreams. Here are some suggestions provided by our retirement experts at Appreciation Financial.

Pension Review

As we mentioned briefly above, our pension reviews are completely free. They give you the opportunity to learn about your pension and whether it is a traditional defined-benefit plan or a hybrid option.

After your review, you might find that the annuity your pension offers after your retirement is too low. If that is the case, we offer solutions to help you supplement it.

Other aspects of pension reviews include:

Where your pension is being invested
How your pension is performing
If you are being charged for your pension management and if those fees are too high

403(B) Plans

A 403(B) plan is a great way to supplement your pension plan with little risk. Available to educators and other public officials, these investments are similar to the 403(k). They offer these benefits:

Tax-deferred earnings until withdrawals are made
Shorter vesting periods than 401(k) plans
Same maximum contribution allowance as a 401(k) plan
Contributions are often matched by your employer

Interested in learning more about 403(B) plans to see if it is the right investment to add to your portfolio? Call our retirement experts to schedule a consultation today.

Educate Yourself

Taking some time to educate yourself about your financial situation can do wonders for taking control of your retirement. Our website provides exceptional resources, including:

Planning calculators
Educational videos
In-depth articles
A helpful blog

Call our office and our retirement experts can direct you to even more content so you can continue improving your financial literacy.

Make a Retirement Plan and Budget

Creating a retirement plan and a budget to achieve your goals gives you control over your finances. To help with the process, our team at Appreciation Financial offers retirement planning for teachers. During the process, we will help you navigate all the aspects of your retirement investments and offer suggestions to reach your financial goals.

Explore Your Retirement Plan Options Today

At Appreciation Financial, we appreciate that you chose the teaching profession to serve and educate the youth of our country. Now, we want to serve your retirement needs. Contact our office to schedule your consultation or reach out to our team of experts online. Take steps to be proactive about your retirement today.