Teachers – Navigating the final year before retirement [VIDEO]

In this video we explore some of the things you need to do in the final year before retirement. By no means is it an exhaustive list, but it outlines some of the key things to do into transition in your retirement years.

Take a look, sit down with a pen and paper to make a to-do list, and let us know if you need any help. Good luck!

 

 

Today, we’re going to cover five things to do if you’re in the final year leading up to retirement.

So the first thing to do is to take your additional service credit that you may have earned through a number of different methods (and we’ll go through what they are), and to find out how much it could lead to an increase in service credit within the TRS system.

So what’s the optional service credit?

That could be out-of-state teaching; that could be substitute teaching, pregnancy leave, military service, and some other things, too. There’s quite a list.

You’re going to go to TRS and say, “I’ve got these things – I need to know (a) if I can convert it and (b) if it’ll be financially worthwhile to do so.”

So, how do you understand if it’s financially worthwhile?

Well, there’s going to be a cost associated with converting this optional service credit over. Let’s say that you did some substitute teaching five years ago and you wanted to convert that half year in to service credit today. They’re going to take a look at where you earned that and how much it would’ve cost if you earned it in the TRS system that many years ago. Then, they’re going to take that service credit, add 6% interest on that amount all the way up to the current day.

Now, you noticed I used an example five years ago, if you’re near retirement, that’s probably not going to have happened. It may have happened twenty-five years ago, thirty years ago. Now, chances are if you’ve had service from that far back and you add that six percent interest, it could be a lot of money to convert that service credit over. You may not be able to earn that money back through an increased pension for a long period of time. It may not be financially worthwhile to convert that credit.

 

The second thing that you’re going to do in the year before retirement is look at your pension and understand if all of it is being factored with the 2.2 factor.

Now a lot of people say, “Have you done your 2.2 conversion?” For teachers who aren’t in the Illinois TRS program, it doesn’t mean much, but for TRS teachers, it means a lot.

In this discussion, your magic year is 1998. All the years prior to 1998 had the pension calculated with a lower factor. That means it was less valuable earning your pension in the years before 1998. All the years after 1998, they got calculated with the 2.2 factor and now that means more dollar values for you as a teacher. You are able to convert those earlier years up to the 2.2 factor so your pension is worth more when you retire.

 

The third thing to do when you’re getting in to that final year in your retirement is understand your health insurance situation. You have paid all the way through your career into the program called TRIP. This is the Teacher’s Retirement Insurance Program, and that subsidizes the medical premiums when you get to retirement.

But, is that healthcare the best option for you?

Let me take you through some numbers.

So, in 2014, a teacher under the age of 65 (which means they’re not eligible for Medicare yet), has to pay $203 a month for an HMO policy, or $478 dollars per PPO. Now, that’s over $5700 per year for medical insurance, just for one person. With the average teacher’s pension being in the low $40,000’s, that’s a substantial amount of money.

Now, for teachers needing or wanting to add a dependent under the age of 65, it’s going to cost an additional $810 a month for an HMO, or it’s going to cost $957 a month for PPO. That’s almost $17,000 a year just for health insurance. For additional options, you may want to research additional job opportunities that give your health insurance until you are eligible for Medicare. Or, you may want to go to the open marketplace through Obamacare and look to see what other plans are available and see what the premiums are.

However, don’t just look at the premiums. Do look at the coverage as well and see if it’s in line with what you need and compare it to TRIP as well.

   

 

 

 

Onto the fourth step in that final year: here’s where you get to start to dream. What’s retirement going to look like for you? I hate the word retirement. It has negative connotations to it. It means that people just stop and they just exist.

I want you to look at it as: this is your next phase; this is where you get to do some fun things that you’ve been dreaming of. You can travel; you can start a new business. You can see family a lot more. Anything you want to, start dreaming about it, but start understanding what it’s going to cost. Understand what you need in terms of income, but also in terms of time. If you’re planning to work, maybe now is the time to start looking for jobs. Start seeing what’s out there; see what it’s going to pay; see what benefits are available, and see if that’s going to be worthwhile pursuing.

Now, if you want to travel, start off the next phase with a big bang. Take on those trips on your bucket list and go do it.

 

The fifth thing to do in your final year, and this almost goes without saying, talk to TRS. Make sure that you’re in communication with them throughout the year. Get pension estimates so you know what money you’re going to be working with. Understand if you’re going to be eligible for refunds from 2.2 upgrades, or early-retirement option and may get some money back. Understand where that money is going to go. Do you want them to cut a check to you (which is going to be taxable), or do you want it rolled to your 403(b) or an IRA. Start understanding all these things that are going to happen so you don’t make reactive decisions when you get to that retirement date.

Don’t assume that your district will take care of things. They won’t; it’s not their job. It’s your job to be on the same page with TRS and making sure that everything happens so you have a clean sailing path all the way through from teaching in to the next stage.

If anything discussed here raises any questions, please drop me a line. I’ll be happy take you through it. I take a lot of teachers through this retirement stage because it’s really one of the most important phases you’ll be in.