22 Feb Four things Texas teachers should know about their retirement benefits
As a teacher in Texas, it is important to be aware of everything about your retirement benefits in order to make sound financial planning decisions for the future. It is never too early to start learning about your retirement benefits and pension plan in Texas. Here are four things you should know about retiring as a teacher in Texas:
1. The Texas Teachers’ Retirement System, or TRS, is back-loaded, leaving the majority of teachers without adequate retirement benefits.
To calculate the retirement benefits for a teacher in Texas, you can multiply 2.3% by years of service, then multiply that by your final average salary. While this may seem like a typical teacher retirement plan, the fact that it is calculated using “final average salary” complicates the situation, because it is calculated based on the years in which the salary was earned.
For example, if you began your career at age 30 and served 15 years, your pension would be based on their salary at age 45. However, you would not be able to collect your pension until age 65, and by that time, inflation would severely decrease the value of your pension, making it inadequate to live on at the time of retirement.
2. The TRS plan is arguably one of the worst retirement plans in the country.
On average, Texas teachers receive much less money toward their retirement than many of their peers who are employed in private sector careers. Legislators in Texas created a pension plan that is lacking. Teachers in Texas personally contribute 7.7% of their salary while their employers only contribute around 2.4% towards retirement benefits for teachers.
In private sector 401k plans, almost all employers contribute at least a 3, 4, or 5% salary match each month. The TRS retirement plan is also less than the teacher retirement plans in other states.
3. Texas allows school districts to decide whether teachers are enrolled in Social Security.
Because each individual school district is permitted to choose whether or not its teachers are enrolled in Social Security, a patchwork of coverage is available across the state, worsening financial headaches for both teachers and employers.
Seventeen districts in Texas, including the major cities of Austin and San Antonio, provide Social Security coverage to all of their employees, while another 31 districts only offer coverage to some employees. There are an estimated 1,200 school districts in Texas that do not provide any Social Security benefits to their workers.
This is especially bad for teachers, as they lose access to the portable and increasingly progressive benefits that Social Security is able to provide. Teachers may not even know at the time they are hired that their employer does not offer Social Security benefits.
4. TRS Benefits Are Only Getting Worse
Thanks to increasing salary and pension costs across the state, Texas legislators have been slowly reducing benefits for years. These changes primarily impact new teachers. Educators who enter the teaching profession in the Texas school system today are receiving benefits much worse than those who came even 10 years before them.
Financial Planning Assistance for Teachers in Texas
The good news is that if you are a teacher in Texas (or anywhere!), we can help you make the most out of your money. At Appreciation Financial, we strive to help educators and public servants make their money work for them, instead of the other way around. With financial planning services ranging from getting out of debt to planning for retirement, our agents at Appreciation Financial have your back. Give us a call to schedule an appointment with our representatives today.