It’s a hard pill to swallow, but the truth is, traditional teacher pension plans are getting risker by the year.
Although, since the risk is growing, it doesn’t mean pensions are a poor retirement investment option. Here at National Educational Services, we want to help you better understand the risks associated with your retirement funds, as well as help you decide which option is best for you and your family.
Throughout this article, we are going to identify the risks that are associated with underfunded pension plans and how they may impact your retirement. Keep reading to learn more!
Importance of Underfunded Pension Funds
Currently, in the United States, nearly 90% of educators are enrolled in a defined-benefit pension plan, which is the traditional pension.
Traditional pension plans are tied to your years of service and salary, which leads many teachers to believe that these plans are not risky, but unfortunately, this is not necessarily true.
Explaining How Pensions Acquire Liabilities
Pensions acquire liabilities as they promise benefits in the future to teachers.
The professionals that plan the pensions must make estimates as to the future salaries of the teacher, in addition, to an estimate of how long people will stay in the profession. Additional factors include how long teachers tend to live after retirement and how the pension fund’s investments perform in the market.
If the expected assets do not match the current liabilities, then the pension is no longer fully funded.
In fact, most teacher pensions have not been fully funded for the last 20 years. One of the reasons for this lack of funding is because teacher pensions tend to assume too high of a percentage on investment returns.
Is an Underfunded Pension Going to Impact my Retirement?
There is no simple answer to this specific question.
Underfunded pension plans depend on your state and the specific type of pension plan that is offered by each state. Although pensions are guaranteed to the teachers that have paid into the plans, if the underfunded gap grows too larger, there is no definite answer about what could happen.
Something we do know for sure is:
New Teacher’s Pension Will Be Impacted
Pension plans for new teachers now involve longer vesting periods and have lower payouts than previous plans. These details are not known to many teachers, as many do not take the time to explore the details of the pension plans.
Our team at National Educational Services does not want any educator to be in the dark in terms of the details of their pension, that is why we recommend that all new teachers take part in a free pension review. This process will provide you will all the important details regarding your pension.
How Can I Protect My Retirement?
As you now have a better understanding of the risks associated with teacher pensions and underfunded liabilities, you are most likely wondering how you can protect your retirement investments and dreams.
Listed below are some protection tips from our experts here at National Educational Services.
Pension Review Process:
Investing in a 403(B) plan is a great way to have supplemental retirement income outside of your pension plan. These plans are available to all educators as well as other public officials and are like the 401(k) plan. 403(B) plans offer some other great benefits, such as:
- Tax-deferred contributions until withdraws are made
- Shorter vesting period than a 401(k)
- Contributions are often matched by your employer.
Making an effort to educate yourself about your individual financial situation can allow you to take control and action over your retirement. If you do not know where to begin, call National Education Services today to be set up with an advisor to get you started on the track to improve your financial literacy.
Create a Solid Retirement Plan
Creating your own personal retirement budget and plan can help you achieve your retirement goals and allow you to have complete control of your finances. We understand that this process can be confusing and scary to many, that is why our advisors are here to help! During a one-on-one meeting with a National Educational Services advisor, we will discuss all the aspects of your retirement investments and assess your financial goals and how to achieve them.
Explore Your Options Today
At National Educational Services, we are so thankful to have educators like you who have chosen to teach and serve children across the country. Now, we want to be the ones who can teach and serve you when it comes to preparing for life after your teaching career.