Financial Wellness Series: 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

 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 - Average of Highest Annual

. 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 - 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*

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 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 (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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