Connecticut’s teacher retirement plan is currently underfunded. This means, a small number of educators will retire with a full pension. Financial Consultant John Caserta delivers a lesson in planning ahead.
What is the current state of the CT Teachers’ Retirement Fund?
· Connecticut’s Teachers Retirement Plan is underfunded by approximately $13 billion and the required actuarial contribution has grown by 145%, according to multiple sources. And because of the underfunding, it’s estimated that only about 34% of teachers will actually retire with full pensions.
How does the Connecticut Teachers’ Retirement System work?
· It’s a defined benefit program, which means that the benefit receive in retirement is define by – or based on – a formula based on your credited years of service, age, final average salary, and your full-time equivalency.
· State law requires that as of January 1, 2018, teachers contribute 8.25% of your annual salary into the retirement fund.
In addition to the CTRS, what other retirement planning options are available for teachers?
· Depends on the municipality
· Can have 403b (explain contribution limits of 19,000 plus catch up of 6,000 for ages 50+)
· Can be traditional or roth – explain the difference
· Can also have a 457 or 457b option – non-qualified deferred compensation for government and certain non-government employee – can be pre-tax or after-tax. Up to 100% of compensation not to exceed the annual applicable contribution limit. No 10% penalty prior to age 59 ½.
What other factors should a teacher consider for retirement planning?
· Current and anticipated expenses in retirement. While general rules of thumb can help you get in the ballpark of how much you should contribute, really considering what retirement will look like (both from a financial and non-financial perspective) will look like.
· Current and anticipated tax situation. Talk to your account about what would make the most sense – taking a tax deduction today (and having taxable income in the future) or forgoing the tax deduction today (for tax-free income in retirement).
· Unexpected illnesses that keep you from working and/or premature death. Review the amount of life and disability insurance to make sure that any dependents can continue to meet their financial obligations in the event income is interrupted or disappears.