Thursday, March 16, 2017

Are You On Track To A Comfortable Retirement?




























One of the nice perks being an educator in the New York City Public School system is that, if you can last to full retirement age, you will get a generous pension and Social Security.  The question is that enough to have enough income in retirement?

If we take the average educator pension of $43,701 and for teachers at maximum salary, Social Security of about $30,000.  The total retirement income is $73,700.  Excluding any other savings from the TDA, IRA, annuity, etc.  The question is, is that enough retirement income?  The short answer is yes, but with some caveats.

If we assume that the teacher's work history was 35 years, in and out of education, retired at maximum teacher salary and was 66 years of age.  Its safe to say that the above scenario of $73,700 of annual retirement income is a reasonable guess. The table below shows, based upon age, the amount of retirement income needs to be saved, at any given time, to achieve the goal of living comfortably in retirement.

Age...............Salary Saved Multiplier

35.................................2x
40.................................3x
45.................................4x
50.................................6x
55.................................7x
60.................................8x
67...............................10x

For example the maximum teacher salary at the end of this contract is $119,472, using the chart above the retirement savings necessary is $119,472 x 10 = $1,194,720  assuming that the lifetime of a teacher is 16 years after retirement at 67 years of age and using the $73,700 figure the retirement income for the 17 years would be $1,232,900 or a little more than ten times the $119,472 salary. Consequently, without any other investments, educators should be able to have enough retirement income to live comfortably, according to the chart.

The caveats I mentioned previously are as follows:

  • Teachers at maximum salary
  • Educators reaching full retirement age for Social Security
  • Educators living to at least the average lifespan
  • No pension loans outstanding at time of retirement
The chart above is simply a guide where an educator should have saved for retirement, based upon the age of the educator.

From the chart above and the caveats used in my analysis , educators who make it to full retirement age and retired at maximum salary should have a combination of the pension and Social Security to act as a floor of reliable and steady retirement income for comfortable living and any other investments are simply surplus income that the retired educator can use as they please.
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18 comments:

Anonymous said...

I am in 25/55 and WILL BE OUT at 55. I might work part time for the DOE but I am done with dealing with the stress of a regular teaching job.

Anonymous said...

Out at 55 with 20 yrs and moving to Asia.....f'ckem all.

Anonymous said...

Hey Chaz...!
Your photo is so apropos for St Patrick's Day! Anyway, another way to stretch the retirement dollars: Years ago, I realized I couldn't even afford to live in the Bronx on my pension. So I bought an apartment in a 55+ community. $40K for a 2 bedroom w/ common charges at $125 per month. Now I will have money to travel when I retire. If anyone decides to do this and needs to borrow money for a mortgage, remember to get any loans before you retire, so it's based on your full salary! PS Do NOT take a loan on your pension or TDA. Join a credit union. Interest rates are better there than any bank or TRS.

Anonymous said...

Assuming you have $1,000,000 in your TDA at age 70, you will be required to start taking out funds every year(required minimum distributions or RMDs). The money you are forced to take out will be taxed as income. By the time you are 80 years old you must withdraw $65,000 that year. So, you will have your generous pension, social security, plus $65,000, this will put you in a high tax bracket every year for the rest of your life.

That's why I do not contribute to TDA anymore. I go with the Roth 401k and the Roth 457 plans offered by the NYC deferred compensation available to all NYC workers. My beneficiaries will inherit TAX FREE MONEY!!!!

Anonymous said...

Out at 55 with only 17 years in. That's my plan. I cannot stand Danielsons, ambush observations, etc.

Anonymous said...

They really want all senior teachers to leave.

Anonymous said...

Our Union thinks Danielson is great.

Anonymous said...

5 years tops and it's over. Plan accordingly.

Anonymous said...

Chaz I'm wondering if you have an answer....teacher maxing TDA contrinutions (24K annually) retires in July. Can she contribute the full 24K between January and end of June prior to retiring?.

Chaz said...

The answer is yes but you must have earned at least 24k and contact TRS that you would like to contribute the maximum before you retire.

Anonymous said...

Chaz what percentage of teachers max out their TDA each year?

Chaz said...

No idea. TRS and the UFT probably have that information but have never reported it.

Anonymous said...

Thank you, Chaz, for taking the time to answer my question regarding contrinbuting full 24K by summer.

Anonymous said...

You can max out as early as April , just put the highest percentage you can afford. Good luck.

Anonymous said...

Would like to know more about Roth for UFT members.

Rona said...

I totally agree , what happens Chaz if you have negative days in your car and due to retire , should I buy them back
I am -11 , sure to retire June 2018

Anonymous said...

There is no Roth for the TDA. You must join the NYC deferred compensation plan offered to all NYC city workers. The NYC deferred compensation plan offers a 401k Roth and a 457 Roth which, for tax purposes, are far superior than the TDA. I no longer contribute to the TDA.

Anonymous said...

"assuming that the lifetime of a teacher is 16 years after retirement at 67 years of age"

This sounds really depressing. Kind of puts in perspective the uselessness of chasing Pablo and Dequan around the hallways for 20-30 years.