Supplementing Your TRS Benefit

You may need more money in retirement than your TRS pension will provide, depending on various factors such as length of service, salary, health issues, travel plans, family obligations, etc. One of the best ways to save more money is by investing in a defined contribution plan.

You should consider allocating money toward a defined contribution plan [403(b), 401(k) 457] or an IRA, especially if you are not contributing to Social Security. You should get a statement of your Social Security earnings and know if you are paying into the plan or not. Many people find out that they are not entitled to a benefit because they don’t have enough quarters or were not aware they were not paying into the system. If you do not contribute to Social Security, consider increasing your personal savings to at least match what would have been deducted (currently just over 6%). The use of defined contribution plan allows you to save money towards your retirement through vendors selected by your employer. This can be done directly with a financial institution as well.

Unlike your TRS benefit, you can control the amount that goes towards your retirement plan and what it is invested in. Your adversity or tolerance towards risk will more than likely drive the way you want to invest. Financial advisors will help you to select plans that are best for your long-term goals, but may be outside of what you would be comfortable investing in on your own. Take a look at the magic of compound interest and how it helps you the earlier you save and invest:

Age at Start 32 42 52
Contribution/month $100 $100 $100
Rate of Return 5% 5% 5%
Years Until Age 60 28 years 18 years 8 years
Balance at Age 60 $73,750.82 $35,311.30 $11,972.17

Also, all contributions to a defined benefit plan are pre-tax contributions, just like your TRS contributions. This reduces your taxable salary and current taxes.

For example:

Salary (Gross) $3,750
DC (5%) -$   186
TRS Contribution (6%) -$   225
Taxable Salary $3,339

Other Considerations to Supplementing Your TRS Benefit

Do I invest in myself or put my kids through college? What is the opportunity cost to finance their education? If I finance their education, what are my options?

Planning for your children’s higher education is something that is often put on the back burner. Many pre-retirees find themselves pushing retirement dates out further because their children are approaching college and may not have the funds to cover the costs.

Investing and saving early gives parents time to accumulate funds towards college costs. The state of Georgia has a 529 plan that you can have a specific dollar amount taken out each pay period to automatically be deposited into an account. You can also use your savings or take a student loan to help with college costs.

And finally... Your TRS benefit will be a definite amount but may not be enough to cover monthly expenses. Know what is needed to live the quality of life you want to live in retirement.

A Replacement Ratio is a person’s gross income after retirement, divided by his or her gross income before retirement. A benchmark is 80% to live the same lifestyle in retirement. That percentage could be more or less depending on health and living expenses. A financial planner can help with determining what your desired replacement ratio is and if your other savings, assets and investments will help you achieve that goal.

Make sure you have some understanding of what you are investing in and are comfortable with the advisors you choose to invest your money with. You are paying them so they still need to provide you with good customer service.

And last, but not least…plan for your own future because no one will do it for you.