As a public-school teacher in the great state of Texas, you are aware of the TRS (Teachers’ Retirement System) of Texas. What may not be well know, without research, is the intricacies in terms of planning for retirement. This article will give insight as to what to expect when you reach retirement. In the words of Alice Cooper, “School’s out forever!”
The first thing we will look at is the contribution rate per paycheck. The current rate at 7.7% of an individual’s paycheck goes directly to the TRS. So, if your salary is at $55k a year, $4,235 goes to the TRS. If you are a Dave Ramsey follower, you are already half way to your “Baby Step Four” of a 15% towards retirement.
How much will you receive as a pension in retirement?
Depending on your age and how many years of service, will provide you with an estimate. All of the below calculations are based on a retirement age of 60. This chart looks at the projections based on the a 30 year old. Right now, the average salary for a public-school teacher is $55,000 per year. Therefore, if you are 30 years old and you plan on working 30 years, your pension would be approx. $70,380 per year in retirement. But what if you only work 25 years. Based on starting age of 30, your pension will be $51,750 annually. The pension is calculated by “years of service” x “2.3%” x “Average 5 year salary before retirement.”
This chart examines the numbers from the viewpoint of a 40 year old that would retire at age 60. So if you are a 40 year old and are planning on working 30 years in the TRS, you will work 20 more years. The column 25 years of service, assumes you retire at age 60, already had 5 years of service and thus would end with 25 years of service. The column 20 years of service looks at a 40 year with no previous years of service and working until age 60. The column 15 years of service, looks at a teacher with no years of service and only planning working 15 years, until age 60. Notice that 5 years difference in service equals around $9k difference in pension.
This chart is the viewpoint of a 50 year old. Same assumptions as above.
The age 60 chart is a little different. Because we are looking at age 60 as the retirement year, all of the “Years of Service” is past tensed. That is why the average salary are all the same. Remember, the TRS takes into account the past 5 years salaries and averages them out. So if you make $55k now, you probably averaged $52k in the last 5 years.
An important factor is Social Security. According to TRS of Texas, each school district determines whether or not their employees will get social security on top of their pension. So your cash inflow at retirement could be a lot more depending on if this benefit applies to you. Please contact your school district if you are unsure if you have this benefit or not.
A benefit that gets overlooked is healthcare after retirement. Your age will determine what your monthly premiums look like and you must have achieved at least 10 years of service. As of today (2022), if you are under age 65, your premium will be $200 a month, or $2,400 annually. If you are over age 65, your premium will be $135 a month, or $1,620 annually. To give you an idea, private health insurance costs almost $9,000 annually (on average). Medicare groups A, B, And J costs, on average, $3,600 a year. Talk about a huge cost savings!
PLANNING YOUR RETIREMENT: THE TEACHER'S RETIREMENT SYSTEM (TRS) OF TEXAS
July 14, 2022
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