UnderstandingYourRetirement
2015©Teacher’sPension&InsuranceServices
CalSTRSChanges2013AB340
22015©Teacher’sPension&InsuranceServices
Nolongercanbuy“air0me”
Agefactorchanges-NewHires(startedSTRSa@er1/1/2013)
3yearaverage-Newhires(startedSTRSa@er1/1/2013)
CalSTRSChanges2014AB1469
32015©Teacher’sPension&InsuranceServices
CalSTRSMemberContributionRateIncreasesMembercontribution increaseswillbephased inover thenext threeyearsand increasebyanadditional2.25percentofpayroll forCalSTRS2%at60members,andanadditional1.205percentforCalSTRS2%at62members.
EffectiveDate PriorRate AB1469IncreasesAllMembers 2%at60Members 2%at62Members*
July1,2014 8% 8.15% 8.15%July1,2015 8% 9.20% 8.56%*July1,2016 8% 10.25% 9.205%*
*TherateimposedonCalSTRS2%at62membersinbasedonthenormalcostofbeneOits.Thecontributionrateshowninfutureyearsassumesnochangesinnormalcost.
CalSTRSmemberswhoperformcreditableserviceonorafterJanuary1,2014,willreceiveaguaranteeoftheexisting2percentAnnualBeneLitAdjustment,alsoreferredtoastheimprovementfactor.Underthenewlegislation,the2percentimprovementfactorcannotbereducedformemberswhoretireonorafterJanuary1,2014.FormemberswhoretiredpriortoJanuary1,2014,thefundinglegislationdoesnotchangetheimprovementfactorbeneLit.
EffectiveDate PriorRate AB1469IncreasesIncrease Total
July1,2014 8.25% 0.63% 8.88%July1,2015 8.25% 2.48% 10.73%July1,2016 8.25% 4.33% 12.58%July1,2017 8.25% 6.18% 14.43%July1,2018 8.25% 8.03% 16.28%July1,2019 8.25% 9.88% 18.13%July1,2020 8.25% 10.85% 19.10%July1,2046 8.25% Increaseformpriorrateceasesin2046-47
DeOinedBeneOitSupplement-(DBS)Account
42015©Teacher’sPension&InsuranceServices
+
Currentlyfundedbyassignmentsoutsideof
mastercontract(coaching,
summerschool,etc...)
Cannottouchorchangeuntilretirementorseparationof
service
+
SettlementOptions:- CashOut(PayTaxes)-Rolloverto403borIRA- AnnuityPayments
fromCalSTRS(NoCash)
+AutomaticallyFundedbyCalSTRSif
teachingfrom2001-2011
PensionReport
5
AnalysisofOptionsatVariousAges,PreparedforSampleClient,August12,2014
2015©Teacher’sPension&InsuranceServices
VariousoptionvaluesatdifferentretirementagesforSampleClientThegriddisplaystheestimatedmonthlyincomefromthepensionplanforthevariousoptionsavailableinthepensionplanatdifferentages.
Date Age SpouseAge MemberOnlyOption100%BeneOiciary
Option75%BeneOiciary
Option50%BeneOiciary
Option06/2014 55 57 $1,945 $1,792 $1,836 $1,87506/2015 56 58 $2,198 $2,006 $2,061 $2,10906/2016 57 59 $2,465 $2,226 $2,295 $2,35406/2017 58 60 $2,745 $2,509 $2,580 $2,63906/2018 59 61 $3,040 $2,749 $2,837 $2,90806/2019 60 62 $3,332 $2,978 $3,085 $3,17106/2020 61 63 $3,671 $3,240 $3,369 $3,47406/2021 62 64 $4,025 $3,503 $3,659 $3,78506/2022 63 65 $4,340 $3,838 $3,999 $4,11906/2023 64 66 $4,480 $3,906 $4,089 $4,226
BeneOiciaryOptions
6
MONTHLYRETIREMENTBENEFITSUSINGAJOINTAND100%SURVIVORPAYOUTOPTION
MONTHLYRETIREMENTBENEFITSUSINGASINGLELIFEPAYOUTOPTIONANDTHEAIP
INCOMEDURRINGTHELIFEOFTHERETIREE:
• Singlelifeincomeoption…………………...4,340• Jointand100%survivorbeneOit………..3,838• CostofprovidingsurvivorbeneOit………...502• Retireeincomebeforetaxes……………....3,838
• Singlelifeincomeoption…………………...4,340• AIPbeneOitpayablesurvivor……….……..4,340• MonthlypremiumforAIPoverthelifetimeofthe
retiree…………………………………………….287• Retireeincomeafterpremiumbutbeforetaxes
…………………………………………………..4,053
Note: thesevaluesdonot take intoconsiderationany incometaxes thatmaybedueonpension incomeundereitheralternative.ThepremiumforAIPispaidwithafter-taxdollars.IndividualshouldconsulttheirowntaxadvisorforadvicespeciLictotheircurrentsituation.
2015©Teacher’sPension&InsuranceServices
ARevolutionarySolution
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DisabilityIncome
Moneytohelppayyourbills.
RetirementIncome
Moneyforasecure
retirement.
AcceleratedLivingBeneOits
Chronic,Critical
orTerminalillnessriders.
LifeInsurance
Moneyforyour
family.
LifeInsuranceyoudon’thavetodietouse!
2015©Teacher’sPension&InsuranceServices
SocialSecurityFacts
8
CaliforniapublicschoolteachersdoNOTpayintosocialsecurity
Currentparticipantspay6.2%oftheirsalarytosocialsecurity.Mosthavesomeother
formofretirement(401k,IRA,Pension,etc)
Currently,teacherspay9.2%intoCalSTRS
WindfallElimination
GovernmentPensionOffset
2015©Teacher’sPension&InsuranceServices
GovernmentPensionOffset
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GPOCalculator
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CalculateYourBeneOits1.Entertheestimated"gross"monthlyamountofthegovernmentpension(intoday'sdollars)youwillreceiveforworknotcoveredbySocialSecurity:$2.Entertheestimatedmonthlyamountofspouse's,widow'sorwidower'sbeneLitsyouwillreceivebeforeGPO(seeabove):$Compute3.Yourestimatedmonthlyspouse's,widow'sorwidower'sbeneLitamount,afterGPO,is:$
4340
…
…
2015©Teacher’sPension&InsuranceServices
GPOCalculator
11
CalculateYourBeneOits1.Entertheestimated"gross"monthlyamountofthegovernmentpension(intoday'sdollars)youwillreceiveforworknotcoveredbySocialSecurity:$2.Entertheestimatedmonthlyamountofspouse's,widow'sorwidower'sbeneLitsyouwillreceivebeforeGPO(seeabove):$Compute3.Yourestimatedmonthlyspouse's,widow'sorwidower'sbeneLitamount,afterGPO,is:$
4340
2533
…
2015©Teacher’sPension&InsuranceServices
GPOCalculator
12
CalculateYourBeneOits1.Entertheestimated"gross"monthlyamountofthegovernmentpension(intoday'sdollars)youwillreceiveforworknotcoveredbySocialSecurity:$2.Entertheestimatedmonthlyamountofspouse's,widow'sorwidower'sbeneLitsyouwillreceivebeforeGPO(seeabove):$Compute3.Yourestimatedmonthlyspouse's,widow'sorwidower'sbeneLitamount,afterGPO,is:$
4340
2533
0
2015©Teacher’sPension&InsuranceServices
WindfallElimination
132015©Teacher’sPension&InsuranceServices
Yearsofsubstantialearnings Percentage
30ormore 90percent29 85percent28 80percent27 75percent26 70percent25 65percent24 60percent23 55percent22 50percent21 45percent
20orless 40percent
DetermineyourGap
14
60626466687072747678808284
12,000
10,000
8,000
6,000
4,000
0
2,000
Client'sAgeIncomeIncomeNeededShortfall
ProjectedAverageMonthlyIncome
2015©Teacher’sPension&InsuranceServices
IncomeGap
15
$70,000
Begin Working
Retire at 63
28% Net Loss of Spendable Income
$50,400 Teacher Retirement
Income
2015©Teacher’sPension&InsuranceServices
403(b)/457Income
$50,400TeacherRetirement
Income
$70,000
BridgingtheIncomeGap
16
BeginWorking
Retireat63
2015©Teacher’sPension&InsuranceServices
Whatisa403b?
17
403(b)-OneofthemosteffectiveLinancialplanningtoolsavailabletoday.
LackofUnderstanding
Beliefthatthemoneywillnotbeaccessible
ViewedasaCOSTRatherthanaBENEFIT
WhyPeopledon’tparticipateina403(b)
2015©Teacher’sPension&InsuranceServices
403b/457-MeetyourOinancialobjectives
18
Homepurchase
Emergencyfund
Bridgetheretirement
gap
Payoffdebt
Collegeeducation
Pre-taxcontribution
Buybackyearsofservice
2015©Teacher’sPension&InsuranceServices
403bTSAOptions
19
WhatTypeofAccountFitsYourFinancialNeeds?
2015©Teacher’sPension&InsuranceServices
Fixed
NoFees
1%-3%
0%--------
Variable
0%--------
+
-
Fees
Indexed
0%
NoFees
+10%
-
403b/457vs.IRAComparison
20
403b/457 IRA
Contributionlimits:-Under50yrsold-$18,000-Over50yrsold-$24,000
Contributionlimits:-Under50yrsold-$5,500-Over50yrsold-$6,500
Contribution-ImmediateAvailableasaRoth(AfterTax)
Pre-taxcontribution-OnTaxesAvailableasaRoth(AfterTax)
NoIncomeLimit/Loansavailable IncomeLimits/Noloansavailable
Availablethroughschooldistrict’sapprovedvendorlist Availablewithanycompany
IRA–IndividualRetirementAccount403b–EmployerSponsoredRetirementAccount
457-DeferredCompensationAccount*YoucantransferyouroldIRAor401ktoyour403b
2015©Teacher’sPension&InsuranceServices
5yearpayback(monthlyorupto20yearsifforhomepurchase)
Taxandpenaltyfree
Accessyourmoneypriortoretirement
403b/457Feature-Loans
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403b/457Feature-Loans
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$12,000CreditCardDebt(Avg.Payment$225payingoffin135monthsat9.99%)
$3,000TaxDebt($250monthlypayments)
$60,000Ira
(Wasprevious401k)
Rolloverto403b,tobeabletoloan
Take403bloanof$15,000with
monthlypaymentsof$279at4.5%paidbackin60
months
2015©Teacher’sPension&InsuranceServices
403b/457Provisions
23
Retirementprovisions:• 403b:55andseparatedor59½toavoidIRSearlypenalty
• 457b:Anyageonceseparatedor70½stillworking
Hardshipwithdrawsmustqualify:• Foreclosure/eviction• Medicalbills• Deathofimmediatefamily
• Tuition
Transfers/Exchanges/Rollovers:• Rulesforplantoplan• Previousemployerorexisting
• Suitable• TPAProcessandprocedures
2015©Teacher’sPension&InsuranceServices
Howmuchcanyoucontribute?
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Calculations Current QuickMax Proposed#1 Proposed#2TaxFillingInformation
FederalStatus/Allow S/0 S/0 S/0 S/2StateStatus/Allow S/0 S/0 S/0 S/2AdditionalAllowances 0 0 0 0
IncomesGrossIncome/Paycheck $4,000.00 $4,000.00 $4,000.00 $4,000.00AdditionalIncome $0.00 $0.00 $0.00 $0.00SummerPay $0.00 $0.00 $0.00 $0.00Pre-TaxWithdrawalsPre-Tax125 $115.00 $115.00 $115.00 $115.00
403(b)$0.00 $2,000 $100 $194.430% 47.9168% 2.5% 4.8608%
Pension $280.00 $280.00 $280.00 $280.00TotalTaxable $3,605.00 $1,688.33 $3,505.00 $3,410.57TaxationFederalTaxes $509.06 $187.31 $484.06 $346.90StateTaxes $124.53 $23.03 $117.93 $92.26LocalTax $0.00 $0.00 $0.00 $0.00FICA&Medicare $297.20 $297.20 $297.20 $297.20MarginalTaxBracket 31.60% 17.20% 31.60% 21.60%TaxSavings N/A $423.25 $31.60 $194.43After-TaxDeduction $158.00 $158.00 $158.00 $158.00NetPay $2,516.21 $1,022.79 $2,447.81 $2,516.21
EstimatedChangeinTakeHomePay: ($1,493.42) ($68.40) $0.00
SamplePaycheckReport
2015©Teacher’sPension&InsuranceServices
403b/457Plan
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Thegriddisplaystheestimatedaccumulatedvaluesfrommonthly403b/457contributionsovertimeillustrationthepowerofcompoundinginterest.
Year Monthly 4% 6% Monthly 4% 6%1 $100 $1,221.84 $1,232.65 $100 $1,221.84 $1,232.655 $100 $6,617.91 $6,948.59 $100 $6,617.91 $6,948.5910 $100 $14,669.60 $16,247.34 $100 $14,669.60 $16,247.3415 $100 $24,465.71 $28,691.18 $200 $31,083.61 $35,639.7820 $100 $36,384.17 $45,343.84 $200 $51,053.76 $61,591.2225 $100 $50,884.81 $67,628.86 $300 $81,968.41 $103,268.6930 $100 $68,527.07 $97,451.25 $300 $119,580.81 $159,042.54
403b/457Plan–TheCostofwaiting……
262015©Teacher’sPension&InsuranceServices
Thegriddisplaystheestimatedaccumulatedvaluesof(2)25yearoldnewschoolemployees.ClientAstartsaving$500rightawaybutonlysavesfor10yearsClientBwaitsuntilage35tostartsaving$500amonthBothplantoretireatage60.
ClientA Monthly 6% ClientB Monthly 6%
Hiredatage25 $500 $6,163.26 Hiredatage25 $0 $0
Year5(age30) $500 $34,742.89 Startatage35 $500 $0
Year10(age35) $500 $81,236.73 Year10(age45) $500 $81,236.73
Years11+ $0 Year20(age55) $500 $226,719.34
Year35(Age60) $0 $348,657.56 Year25(Age60) $500 $338,144.51
THANKYOUFORATTENDING!2015©Teacher’sPension&InsuranceServices
Welookforwardtomeetingwithyoutodiscussyourindividualquestionsandneeds.
DanielKrause209-765-0592
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