Echelon Financial Pre-Retirement Guide

PRE-RETIREMENT GUIDE

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PRE-RETIREMENT GUIDE

Contents Introduction ............................................................................................................................................................... 4 Quantitative Decisions: .......................................................................................................................................... 5

The Challenge ..................................................................................................................................................... 5 Why It’s Important ............................................................................................................................................ 5 Recommendation .............................................................................................................................................. 5 Teacher Retirement System (TRS) ...................................................................................................................... 6

The Challenge ..................................................................................................................................................... 6 Why It’s important ............................................................................................................................................ 6 Recommendation .............................................................................................................................................. 6 Social Security and TRS ......................................................................................................................................... 7

The Challenge ..................................................................................................................................................... 7 Why It’s Important ............................................................................................................................................ 7 Recommendation .............................................................................................................................................. 7 Review All of Your Retirement Accounts ........................................................................................................... 8

The Challenge ..................................................................................................................................................... 8 Why It’s Important ............................................................................................................................................ 8 Recommendation .............................................................................................................................................. 8 Qualitative Decisions: ............................................................................................................................................. 9

Working After Retirement ............................................................................................................................. 9 Inflation ................................................................................................................................................................. 9 The Challenge ................................................................................................................................................ 9 Why It’s Important........................................................................................................................................ 9 Recommendation .......................................................................................................................................... 9 Housekeeping ......................................................................................................................................................... 10

Where There’s a Will, There’s A Way! ................................................................................................... 10 The Challenge ............................................................................................................................................. 10 Why It’s Important..................................................................................................................................... 10 Recommendation ....................................................................................................................................... 10

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PRE-RETIREMENT GUIDE

Will....................................................................................................................................................................... 11 Financial or Durable Power of Attorney ................................................................................................ 11 Medical Power of Attorney ......................................................................................................................... 11 Housekeeping you can do on your own ........................................................................................................... 12

Beneficiaries ..................................................................................................................................................... 12 The Challenge ............................................................................................................................................. 12 Why It’s Important..................................................................................................................................... 12 Recommendation ....................................................................................................................................... 12 Account Titling ................................................................................................................................................ 13 The Challenge ............................................................................................................................................. 13 Why It’s Important..................................................................................................................................... 13 Recommendation ....................................................................................................................................... 13 A Survivors Guide........................................................................................................................................... 14 The Challenge ............................................................................................................................................. 14 Why It’s Important..................................................................................................................................... 14 Recommendation ....................................................................................................................................... 14 Our Strategy ........................................................................................................................................................... 15

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PRE-RETIREMENT GUIDE

Introduction Transitioning into retirement can be stressful because you are leaving your career for a new life in retirement. Up until now, major life decisions came one at a time - where to go to college, your first job, getting married, having children, or buying a house. It can feel overwhelming when Retirement forces you to make so many irreversible decisions all at once, such as: • • •

Which TRS option should you take?

When you should retire?

Are you financially able to retire?

These decisions usually fall into three categories: 1. Quantitative – Your Finances 2. Qualitative – Your Lifestyle 3. Housekeeping

The quantitative decisions include income needs, TRS and Social Security. Other considerations are qualitative such as whether to work after retirement. It is also smart to review your will, your medical power of attorney, and your beneficiaries to ensure they are up to date.

The purpose of this e-book is to help you break down these decisions so that you can tackle them one at a time and hopefully alleviate most of the stress surrounding retirement. We have hundreds of clients who have retired, and we have seen what has worked and what has not worked. You can leverage both their experience and ours to make informed decisions about your retirement.

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PRE-RETIREMENT GUIDE

Quantitative Decisions: The Challenge How much income will you have? Do you have enough to retire?

Why It’s Important It is very helpful to see how much income you will have from your TRS, Social Security, and your retirement accounts. We’ve had clients who were convinced they didn’t have enough to retire only to be pleasantly surprised by their strong financial position.

Even if your nest egg isn’t ready for retirement, an income plan is very helpful because you will know where you are and can create a plan so you can retire as soon as possible.

Recommendation Create a detailed income plan so that you can have a clear understanding of where you are and where you want to be. The illustration below shows an example of an income plan. We can guide you through this process and create an income plan with all the components that will make up your income during retirement.

This hypothetical example is for illustrative purposes only. The above illustration does not take into account the effect of any state or federal taxes. Actual results will vary.

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PRE-RETIREMENT GUIDE

Teacher Retirement System (TRS) The Challenge You want to choose the TRS option that is the best fit for your financial situation.

You’ve spoken to TRS, but they can’t give you advice.

Why It’s Important TRS is an excellent pension plan, and it is financially sound. The customer service representatives are well trained and helpful in explaining your benefits to you.

However, they are not allowed to give advice. This is the first time you have made this type of decision, and you want to make sure you get it right. After all, once you start collecting TRS, your decision is irreversible.

Recommendation If you have a question about which TRS option is the best option for you, that’s where we can help. We can discuss your financial situation and create a retirement income plan so that you have the facts you need to make an informed decision.

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PRE-RETIREMENT GUIDE

Social Security and TRS The Challenge This is a subject on which there is a lot of confusion. First, let’s establish the main facts: 1. Social Security does not affect TRS. 2. TRS will affect your ability to collect Social Security.

Why It’s Important The Windfall Elimination Provision and the Government Pension Offset are unfair laws. Unfortunately, both are here to stay because the government is doing everything it can to keep Social Security viable. Thirty-six states require their school districts to contribute to Social Security. Texas is among the 14 that do not. Those 14 states don’t have the votes to change the law.

The Windfall Elimination Provision (WEP) affects your ability to collect Social Security that you earned since you have a State Funded Pension. The WEP reduces your Social Security by as much as 60%. The size of the reduction depends on your earning history and the number of years you paid into Social Security. This is different from the 40 quarters needed to qualify for Social Security.

The Government Pension Offset (GPO) is even less fair. The GPO will prevent you from collecting on your spouse’s Dependent Spouse Benefit because you have TRS. This is REALLY unfair! There is one way around the GPO. If you retire from a school district where you pay into TRS and Social Security from the SAME check for a 5-year period, you are exempted from the GPO.

Recommendation We are happy to run the calculations for you so that you know where you stand in regards to the Windfall Elimination Provision. If you want to find a district where you can work to get around the Government Pension Offset, there are a few dozen Texas school districts that pay into both, and we are happy to share them with you if you are interested in learning more.

Source: www.ssa.gov

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PRE-RETIREMENT GUIDE

Review All of Your Retirement Accounts The Challenge If you are like many of our clients, you may have multiple 403(b)s that you accumulated over the years and IRA’s at several different institutions. You may not be sure if they are the right type of account for your current financial needs. One of our clients described her situation as having an uncoordinated collection of financial accounts.

Why It’s Important Whether this describes your situation or not, it is imperative to make sure you know where all your accounts are located and that they are working together towards your current financial goals. Chances are your goals have changed over the years and your old accounts may not be in alignment with your new financial situation.

Recommendation Gather all of your statements so that you can take inventory of what you have and where it is located. We can help you identify the type of account and answer your questions so that you can evaluate whether the accounts are working together to help you meet your financial goals in retirement.

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PRE-RETIREMENT GUIDE

Qualitative Decisions: Working After Retirement We recommend some form of employment after you retire from teaching. There are two main benefits of part-time or full-time employment. The first is the financial benefit. The extra income will allow you to supplement your TRS annuity and delay withdrawals from your IRAs and 403(b)s. By giving your money more time to grow, your nest egg will be larger and can have the potential to last longer into your retirement. The second benefit is that it is good for your emotional health to get out of the house and engage with other people. We’re not suggesting another full-time career, but a part-time job can give structure to your life.

Inflation The Challenge I call inflation the silent assassin of purchasing power. Each year, your purchasing power erodes very gradually. Since your TRS is a fixed payment and doesn’t increase each year to keep up with inflation, at some point you will feel the impact.

Why It’s Important Think about teachers who retired around 1990 with a salary of $45,000 per year and TRS income of $32,000 per year. Thirty years ago, that was enough to retire upon.

How do you think you would manage with a TRS Annuity of $2,700 per month?

Recommendation As you can see in the example, even with today’s low inflation rates, your purchasing power will be cut in half in 20 years. So, it is VERY important to have a plan to deal with inflation. We can help you develop that plan.

This hypothetical example is for illustrative purposes only. The above illustration does not take into account the effect of any state or federal taxes. Actual results will vary.

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PRE-RETIREMENT GUIDE

Housekeeping

Where There’s A Will, There’s A Way! The Challenge In today’s world, every institution requires the proper legal documents to conduct business for yourself or for someone acting on your behalf. Think about how easy it was for a parent to ask the school nurse to give their child medication 25 years ago and the documentation required to do the same thing today.

Why It’s Important No one loves to deal with estate planning because we are dealing with our own mortality. Estate planning helps your family manage their way through difficult times in the easiest way possible. The alternative is a lot of time, money, and headaches for loved ones.

Recommendation It’s important to work with a qualified attorney to create these important legal documents so that they are current, correct and effective.

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PRE-RETIREMENT GUIDE

Will A will is the legal document that enables you to pass real property, such as your home or car, to another person. The legal process through which property is transferred is called the probate process. Probate may be as short as a year or may last longer, depending on the complexity of your estate.

Financial or Durable Power of Attorney This document gives legal authority for others to conduct business on your behalf. If you were to become incapacitated, the person who has Power of Attorney (POA) can buy and sell property, deal with utility companies, and manage your banking or retirement accounts. This is a very powerful document, so be sure to ask your attorney about safeguards and best practices.

Medical Power of Attorney This is a very important document that will serve you in times of good health and bad.

This gives your medical professionals the legal authority to discuss your health situation with your loved ones. It also allows the person with your MPOA to make medical decisions for you if you are incapacitated.

Another important note is that if your child is over age 18, you must have a MPOA in order to get information from their doctors, even if they are on your insurance plan.

Also, it’s a good idea to keep a copy on a thumb drive so that you can have access to it should you need it while traveling.

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PRE-RETIREMENT GUIDE

Housekeeping you can do on your own Beneficiaries The Challenge When is the last time you updated your beneficiaries on your retirement accounts, investments, or life insurance policies? Did you get married, divorced, or re-married?

Did you have a parent who passed away that was your beneficiary?

Why It’s Important The reason this is so important is that the beneficiary designations on your accounts trump your will. There are scores of stories I can share with you when a client forgot to update their beneficiaries, passed away, and their money didn’t pass to their immediate family.

Recommendation Review the beneficiaries on all of your retirement accounts, life insurance policies, and TRS. This will not take very long and you can ensure that your hard-earned money goes to whom you intend it to go.

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PRE-RETIREMENT GUIDE

Account Titling The Challenge You have not reviewed your bank accounts since you set them up and are unsure of how or to whom your money will pass on to your loved ones in the event of your passing.

Why It’s Important How your bank and investment accounts are titled is very important. For instance, if you have an account in your name only, your heirs will need to go through probate to gain control of an account that you willed to them. However, if you set it up in your name with the Transfer on Death (TOD) designation, the account would transfer to your heir without having to go through probate. There are other ways your accounts can be titled such as Joint Tenants or Joint Tenants with Right of Survivorship that are beneficial as well.

Recommendation Review how all of your accounts are titled and discuss your options with your bank to make sure the titling will ensure that your accounts bypass probate and go to your loved ones.

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PRE-RETIREMENT GUIDE

A Survivor’s Guide The Challenge You don’t have your financial affairs organized and no one knows who to contact or where to look in the event of your death. Will your family know where to look to find your important documents? Will they know who your CPA is? That you still have a safe deposit box at a bank you haven’t used for checking in over a decade? How to find your passwords?

Why It’s Important This will save your family a lot of time, money and stress. We have seen situations where one of our clients was about to finish a long probate process only to discover that their mother had a safe deposit box in a town they had not lived in for over 20 years. They had to delay the completion of the probate process for another 9 months.

Recommendation A Survivor’s Guide is a road map to all your important data and documents so they can manage your affairs after you have passed away. Some of our clients have given a copy to their family for safe keeping while others have it in a secure place in their home and have let their family know where to find it. Either way, it’s a good idea to have one.

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PRE-RETIREMENT GUIDE

Our Strategy For You 1. Get Organized – Know what you have and where it is located 2. Create an Income Plan – Know where you are, and if you need to make adjustments 3. Prepare for Inflation – This is a fact of life, and you should prepare for it 4. Get your Estate Planning in Order – Speak with an attorney 5. Update your Beneficiaries – Verify that they are correct 6. Complete a Survivor’s Guide – Ask us for a copy and let your family know where to find it

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