Shifting Gears

By Richard Collins, Financial Advisor, Horizon Financial

Should we be using the word “retirement”? It’s a question I’ve been asking myself lately. The word itself implies some distant dream of faraway destinations, or finally retiring to the family farm to chase our true ambitions. It also signals the end of a passion, the influence, and sense of belonging we’ve enjoyed for many decades.

Let’s be honest, the word itself is intimidating and can be very confusing. I prefer to describe retirement as “shifting gears.” As my 15 year old daughter’s driving coach, I often remind her that it’s all about timing. “You’ll know when it’s the right time,” is some of the wisdom I’ve been handed from retired clients. For more than two decades we’ve been devoted to giving specialized financial advice to Oklahoma Educators in their journey to and beyond retirement.

These are the top 3 things we teach in our retirement education:

1. Are you eligible to retire?

The basic FORMULA for your future pension is 2% x Years x Final Average Salary = Pension Amount. You’re eligibility to retire and draw your formula UNREDUCED depends on the Rule of 80, Rule of 90, or Rule of 90+; however, you can also qualify based on the age of 62 for rule of 80 and 90, or age 65 for rule of 90+. Knowing when you are eligible is critical because we begin calculating that as lost income while you continue working. If you continue to work, deferring your pension, you have to ask yourself if the larger future value of the pension is enough to overcome what you gave up in benefits continuing to work. It’s all about life expectancy. Register for the OTRS Portal and start the exercise of calculating your pension value over life expectancy. Do this annually to see if it makes sense to shift gears and draw your pension.

2. Can you afford to retire?

We set the goal to retire on 100% of your current take home pay. It’s typical for Oklahoma Educators to reach unreduced benefits in their early to mid 50’s, resulting in 60% of their average income for life. Can you afford a 40% pay cut to retire in your early to mid 50’s? For most, the answer is No. So now we are faced with a real life math word problem. Should we continue working in the same profession deferring your pension for a later date, or should we shift gears and go to another profession? This is a difficult decision given the circumstances described above. Many of our clients prefer to continue working because of the passion, the influence, and sense of belonging. Others choose to turn on the pension income and shift gears. Consider increasing your retirement savings annually to artificially lower your take home pay and build a nest egg to combat future inflation. This simple exercise, over time, could help make the transition a little easier.

3. Has your salary stagnated?

Let’s assume you are eligible to retire and you can afford to retire. We should evaluate one other key factor, your FINAL AVERAGE SALARY (FAS). Your salary figures are normally posted to the OTRS Portal around November from the previous year’s salary. This means your estimate can lag behind a year until you have those numbers. Why is this important? Your FAS is a key factor in your pension formula. A rising average salary gives you a multiple in your calculation over all your years. If you decide to retire before this figure has stagnated you could be leaving money on the table. Go to the OTRS Portal and download your Annual Member Statement to watch this FAS, and review your calculation annually.

These important concepts are different for every individual so we encourage you to take a close look at your individual situation, and evaluate when the appropriate time is to shift gears. Thank you to all the Educators out there! Your contributions will pay dividends for generations to come. ■

Richard J. Collins, Financial Professional. www.horizonok.net. Securities & Registered Investment Advisory Services offered through GWN Securities, Inc., 11440 N. Jog Road, Palm Beach Gardens, FL 33418 Member FINRA & SIPC. Horizon Financial Services, Inc., GWN Securities, Inc., and CCOSA are non-affiliated companies. Horizon Financial Services does not represent nor are they affiliated with OTRS. For the most up to date information please visit the OTRS website at https://oklahoma.gov/trs.html.