Financial Wellness Series: Retirement Planning
Presented By: Brady Scott, CFP® Agenda
Today we will review and discuss:
. TRS System
. How to estimate retirement benefits
. Benefits of a 403(b) Retirement Plan
. Process required to establish 403(b)
. Resources to help with planning process
There is no such thing as a bad question.
2 TRS Pension
Mandatory Contribution for all eligible TRS members
Current Contribution Rate
Employee/Participant – 7.7%
State - 7.5%
District - 1.5%
Defined Benefit Pension
Contributions/Investment perfomance does not determine benefits
3 Texas TRS Pension
4 How To Estimate TRS Benefit
. Average Salary - Average of Highest Annual Salaries
. Benefit Percentage - Total Years of Service Credit X 2.3%
. Annual Benefit - Benefit Percentage X Average Salary
. Monthly Benefit - Annual Annuity ÷ 12
5 TRS Retirement Benefit Example
Marble Falls ISD Teacher with 31 Years of Service
Average Annual Salary (3 or 5 Year) $56,025
Benefit Percentage (31 X 2.3) 71.3%
Annual TRS Benefit (Standard Annuity) $38,658
Initial Income Gap (Pre vs Post Retirement) -$19,367
6 Points To Consider
Benefits are guaranteed for life but are not adjusted annually for inflation
Final benefit will vary based on payout method:
Standard Annuity (Highest Benefit Amount)
Option 1 – 100% Joint Survivor
Option 2 – 50% Joint Survivor
Option 3 – 60 Months Period Certain
Option 4 – 120 Months Period Certain
Option 5 – 75% Joint Survivor
7 How to Supplement TRS Benefits
Non-Qualifed Plans (Accessible but no tax benefits)
. Savings Account (Bank/Credit Union)
. CD’s
Qualified Plans (Tax Benefits/Deferral)
. IRA (Traditional and Roth)
. 403(b) (Traditional and Roth)
. 457(b)
8 Increase Retirement Savings
After-Tax Before-Tax Savings Savings $2,000 Gross Salary (per pay) $2,000 - 0 Tax-deferred Savings - 185 2,000 Taxable Salary 1,815 - 226 Federal Income Tax - 191 - 153 TRS - 153 - 150 After-Tax Savings - 0 $1,471 Take-Home Pay $1,471
This example illustrates 2015 FICA and federal income tax withholding for a single person who claims 2 withholding allowances.
9 Accumulation Illustration
After-Tax Savings ($100($150 PerPer Pay) Pay) Before-Tax Savings $344,825 vs. $279,588 ($118($185 PerPer Pay) Pay)
Year 20 Year 30 Year 40 Year: Year 5 Year 10 Year 15
Before-Tax Savings ($185 per pay): $24,280 $52,427 $85,057 $122,884 $217,572 $344,825 After-Tax Savings ($150 per pay): $19,686 $42,508 $68,965 $ 99,635 $176,410 $279,588
This example illustrates a hypothetical 3% annual return on both savings plans. This is NOT a projection or illustration of any investment option. A retirement plan distribution may be subject to ordinary income taxes. A distribution before age 59½ may incur an additional 10% penalty tax.
10 403(b) and 457 Plans
Contributions reduce federal income tax (pay tax when funds are distributed)
Earnings grow tax-deferred until withdrawn*
Payroll deduction (Pay yourself first!)
Increase/Decrease/Stop as needed
Employee controls investments
Portable if you leave or retire
*A distribution is taxed as ordinary income when received. (A Roth-qualified distribution has no income tax.) A distribution before age 59½ may incur additional “penalty” 10% federal and extra state income taxes.
11 403(b) and 457 Plan Rules
Contribution limit* up to $18,500 (or $24,500 if you are over 50) for 2018
Pre-retirement withdrawal restrictions
Financial hardship withdrawals
Penalty taxes on pre-retirement withdrawal (not applicable on 457 plans)
Loan provisions (no tax ramifications if repaid)
* Contributions cannot exceed 100% of compensation after allowing for wage and withholding taxes, pension contributions, and health and welfare benefits contributions. Your employer’s plan may impose a lower limit.
12 Withdrawal Restrictions
Cannot withdraw your retirement savings without penalty unless you:
Reach age 59½ (doesn’t apply to 457 plan)
Have a severance from employment (457 plan only)
Become disabled
Death
In the case of salary reduction contributions, encounter financial hardship, or
Have a qualified reservist distribution
13 Required Payout Rules
Must begin receiving a payout (required minimum distribution) by:
April 1 of the year following the year in which you turn age 70 ½ or retire, whichever is later.
This explanation is a simplification of the Internal Revenue Code’s complex minimum-distribution and incidental-benefit rules. Ask for more details.
14 How To Setup a Plan
2 Simple Steps:
Step 1:
o 403(b) - Setup an account with a financial advisor of your choice
o 457 – Visit www.planmember.com/enroll/bscott Step 2:
o Complete a salary reduction agreement with U.S. Omni by visiting www.omni403b.com
15 Key Takeaways
o TRS primary source of retirement o Benefit will replace most but not all of your pre- retirement salary o TRS benefits not adjusted for inflation o Supplement with employer sponsored plan o Pay yourself first o Visit www.omni403b.com for a list of current investment providers o Visit www.usrbpfinancialwellness.com for additional resources
16 Questions?
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