Welcome to Part II of our Teacher Retirement planning series! In Part I, we got a handle on exactly what type of retirement and pension fund we have so now we are ready to start considering the different options for diversifying our saving options for retirement.
In my view, only relying on your teacher retirement contributions will not yield the monetary foundation needed for a comfortable retirement. There are dependencies that influence your retirement savings – if you teach in one state for at least 20 years, you will see a greater return on your retirement. Ton the flip side, if you move states (few state retirements are portable across state lines) or teach for less than 20 years (50% of teachers leave within the first 5 years of teaching), you see virtually no return. It has been argued that teachers who stay in the profession longer deserve their retirement benefits (which they do!) but so do teachers who teach for any combination of years 1-19 or move states. If you leave the profession before 20 years or move states, it should not negate the incredible work done with children NOR the monthly contributions you made to retirement accounts.
But, wherever you fall on the spectrum of teaching time and location, research shows everyone is losing out. On average, of each $10 contributed, $7 goes to paying down amortization fees and only $3 go to benefits for teachers. Ugh. This can’t be our only plan.
So, let’s talk options. Most states have compulsory retirement contributions so that is automatically deducted – which is good to know something is going to retirement. Now here comes the hard part – finding MORE money from your take home to put away for retirement. Before that can happen, let’s take care of some money housekeeping.
- Step One: keep up on monthly payments. This can include student loan payments, phone, utilities, transportation, etc. Ensure that you can make on-time payments and do not fall behind or submit late payments. For me, this involves creating an Excel spreadsheet (love me an organized spreadsheet!) that lists all your monthly take-home pay, all monthly expenses, and due dates.
- Step Two: pay down all revolving debt. Revolving debt is basically lines of credit you take on (credit cards, etc.) and eat away at take-home income. Add up all your revolving debt, and come up with a monthly amount you can pay that will eliminate the debt – no matter how long it takes! Simultaneously, you want to get at least 3 months’ savings into your account (3-6 months is ideal but shoot for at least 3).
Honestly, I am simultaneously tackling Steps Two and Three right now. Paying down ALL my revolving debt AND putting any amount into savings (for me this is $100/month right now).
- Step Three: Now, determine what additional income (outside of $ needed for expenses, $ for savings, $ for debt payments) you can put toward other retirement investments? For a long time, my answer was nothing! There was almost no money left to do any kind of investing so I had to get creative. Money for investment doesn’t necessarily have to come from your paycheck. Ideally, this is about 15% of your monthly income – but don’t let that large amount deter you. Any amount you invest is a big step forward to taking control of your finances. I ended up selling some clothes and handbags online, creating a Teachers Pay Teachers account to sell teaching resources, and tutoring to generate some additional income.
In Part III, we’ll talk investment options!