There are few things quite as exciting as receiving a regular paycheck with great benefits. And if you are in your 20s, the last thing on your mind is to prepare for retirement. What you will soon realize is that the years will pass quickly and you may end in a place with little to your name and possibly living paycheck to paycheck.
Fortunately, school districts assist their employees in various ways and will arrange for financial advisors that specialize in catering to public employees to visit their schools, pitch their products, and offer basic education about their services.
Seek Expert Help
The financial firms that visit your school are the experts you will need to seek out. They specialize in assisting education professionals to help plan for retirement. Your teaching association may also lend help and advice. An outside financial advisor is always an excellent option as well. Whatever your choices are, you need to make sure of one thing: That an expert can assist you in managing your money in order to invest it and grow the capital you will need for a secure retirement.
Save Beyond Your Pension
Contributions for your pension automatically come out of your paycheck, so this is not something you have to worry about putting money aside for. But do not stop there. Make sure you are saving and investing far beyond your pension. If you have trouble with financial discipline, I strongly recommend a plan that has money being taken out of each paycheck. For teachers, this will usually come in the form of a tax-sheltered annuity, also known as a 403 (b) plan. If you do not have an overwhelming amount of debt and expenses, contribute as much as you possibly can. Your financial advisor will typically give you a range of anywhere from $100 to $300 per paycheck.
Consider Defined Contribution Plans
The 403 (b) or tax-sheltered annuity plan is what I referenced in the last paragraph, and it falls under the umbrella of a “Defined Contribution Plan”. “Defined Contribution Plan” is a type of retirement plan in which contributions are made regularly by the employer, employee, or both. Individual accounts are set up for participants, and benefits are based on the amounts credited to these accounts as well as any investment earnings on the money in the account (Cornell Law School).
A “tax-sheltered annuity” specifically is a type of investment vehicle that lets an employee make pretax contributions into a retirement account from income. Because the contributions are pre- tax, the IRS does not tax the contributions and related benefits until the employee withdraws them from the plan,” (Investopedia).
One of the main advantages to this, as I referenced earlier, is that the discipline you need is built within the process. Once you have this set up, you do not have to take money out for each paycheck. It’s done for you. For myself, who likes to spend money on everything from baseball hats to guitars, this is a great gift.
Investing Beyond a Pension, Social Security, and Defined Contribution Plan
If you have the advantage of being able to invest beyond a pension, social security, and a defined contribution plan, I strongly recommend it. There are a myriad of directions you can go with, and you should be consulting an expert when exercising these options.
This can encompass everything from stocks to mutual funds to Roth IRA Plans. Let your advisor know what levels of risk you are willing to take and he or she should be able to tailor your plan according to your assets and your risk level. Just make sure you are only doing this after you have a safe and established foundational plan of your pension, social security, and defined contribution plan.
Weigh Working After You Retire
I know quite a few educators that do this. Mostly this includes substitute teaching (or filing in long-term for counselors, administrators), educational consulting, college or university level teaching, or starting their own business.
I personally have no idea of where I’ll be when I retire. These options are nice to have. What you should avoid is the need to have to work after retirement. If you are going to work, it should be something you want and enjoy doing, not something you should be required to do because you failed to properly manage and invest your money.
Ensure You’ll Have Enough Insurance
This usually entails disability and life insurance, and I would recommend having both. If bad fortune visits you and you can no longer work, you need a backup plan. Disability insurance will cover this for you. If you have a spouse and/or children, life insurance is a must. There are plenty of plans out there for you to peruse and shop for. Again, rely on experts for this advice.
For this article, I wanted to detail the basics for educators when it comes to saving and investing. I only have a layman’s understanding of the core principles here, but you don’t need anything more than that. Know the basic principles and then seek out expert help to assist you in putting together a financial plan that is tailored for your needs. Enjoy today, but always keep an eye on what is coming along in your future and heed the warning of Benjamin Franklin: “By failing to prepare, you are preparing to fail.”