RETIREMENT PLANNING FOR TEACHERS
Understanding your retirement program:
The Washington Teachers Retirement System Plan 3 (TRS3) is a hybrid plan. It includes a defined benefit plan, a defined contribution plan, and an optional deferred compensation program.
Defined Benefit: Most people know this part of their retirement program as a pension. Once you have qualified by working at least 5 years of service credits (including 12 months earned after age 44), then you are eligible to receive this benefit at age 65. The benefit is calculated by taking the number of years of service, multiplying that number by 1%, and then multiplying it by your average final compensation (AFC), which is the monthly average of your 60 consecutive highest-paid service credit months.
Example: 30 years of service with an AFC of $8,500/mo.
The benefit would then be 30x1% or 0.3 x $8,500 = $2,550/month or $30,600/year*
*Estimate is before tax assuming age 65 at retirement and no survivor benefit
Defined Contribution: When you started working for the school district, you chose a contribution option. The default option is Option A which means you are contributing 5% of your gross monthly paycheck until you retire. Other options are available but this is most common. If you are a part of the TRS3 plan, they will automatically deduct this for you. But you do have a choice about how the money is invested. The plan has a default option which is chosen by the Washington State Investment Board (WSIB). This may or may not be the correct investment for you depending on your risk tolerance and time horizon. We suggest that you review this with an advisor to make sure that these funds are correctly invested.
Deferred Compensation: The third part of your retirement plan that not all teachers take advantage of is the Deferred Compensation Plan (DCP). The DCP allows plan participants to save and invest additional funds for retirement in a tax-favored manner.
Can I retire before age 65? Yes, but there are some special requirements that must be met so that you do not have your defined benefit (pension) significantly impacted. (See ERF table here)
How should I choose my survivor benefit? Each situation is different. Your survivor benefit should be selected after you have calculated the financial need of your spouse.
How do I know if I am vested? You can always contact the WA DRS program to determine eligibility and benefit estimates. In general, you are vested in the plan when you have:
• Ten service credit years
• Five years of service credit with at least 12 of those months being earned after age 44
• Five service credit years earned before July 1, 1996
How should my defined contribution be invested? Each investor should consult their plan documents and investment options to decide how to invest their retirement funds. We work with each client to develop a customized investment plan to optimize their investments.
Should I contribute to a 403b plan or another deferred compensation plan? Each investor should review their financial plan and make sure they are investing the proper amount to reach their goals. These optional savings plans are available to teachers and can be great tools in helping to attain the desired outcomes.
Information from https://www.drs.wa.gov/publications/member/multisystem/p23earlyretirement/
See TRS Plan 3 Guide https://www.drs.wa.gov/wp-content/uploads/2019/07/T3hbk.pdf
*The information provided on this page is for illustrative purposes only. Actual performance and results will vary. This information does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted”
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