Transcript Maximizing Your School Retirement

JL Waite Financial Group
Form No. 4923-CA (0905)
Retirement Benefit Factors*
Age
50
55
60
61½
63
Fewer than
30 Years
of Service
1.1%
1.4%
2.0%
2.2%
2.4%
30 or
More Years
of Service
1.3%
1.6%**
2.2%**
2.4%
2.4%
Retirement Formula
Years of Service x State Factor = % of Highest One
Year Income if at least 25 years of credited service
*Hire date after July 1, 1980. **With early retirement reductions.
Plan Example
(2.4 Percent)
A member, age 63, retiring with 30
years of service and compensation of
$70,000, would receive a retirement
benefit computed :
(.024 x 30 x $70,000) = $50,400 ÷ 12 =
$4,200 per month. + longevity bonus*
*Estimate of retired teacher in CA.
CalSTRS Retirement Options
Plan
Unmodified
100%
75%
50%
Member
$4,425
$3,713
$3,885
$4,108
Spouse
$0
$3,713
$2,914
$2,054
Based on…
63 yr old with 30 yrs of service and $70,000 salary
Income Gap
$70,000
28% Net Loss of
Spendable Income
$50,400
Teacher Retirement
Income
Begin
Working
Retire
at 63
Income Gap
$126,428*
Income needed in 20 years
$70,000
28% Net Loss of
Spendable income
$50,400
Teacher Retirement
Income
Begin
Working
Retire
at 63
*Assumes a 3% inflation factor
Retirement Program
Enacted by Congress
403(b)
One of the most effective
financial planning tools
available today.
Why People Do Not
Participate in a 403(b)
Lack of Understanding.
Viewed As A Cost
Rather Than A Benefit.
Belief That The Money
Will Not Be Accessible.
Taxes and the
Discounted Dollar
Gross
— Taxes: 28%
Net
?
?
$250
Taxes and the
Discounted Dollar
Gross
— Taxes: 28%
Net
$347
$97
$250
Taxes and the
Discounted Dollar
$200,000
$150,000
$100,000
$50,000
$1
3
5
7
Tax Deferred
9
11 13 15
Taxable
17
19
Over 20 years assuming a 6% rate of return, the accounts grew to…
Taxable
$113,911
Tax-Deferred $158,109
The Tax-Deferred account has over $44,000 more than the Taxable
account, over a 38% increase.
A Special Feature of
the 403(b) Program
Loans
Accessible Prior to Retirement
Tax and Penalty Free*
2% Net Interest Cost**
Five-Year Payback (Monthly)
or, up to 30-year if
primary residence
* Non-payment may result in a tax liability.
** On Traditional Fixed Annuities.
Meet Your Financial
Objectives With a 403(b)
Pay Off Debt
Buy Back Years of Service
Home Purchase
College Education
Pre-Tax Contribution
Emergency Fund
Bridge The Retirement Gap
Bridging the Income Gap
$70,000
403(b)
Income
$50,400
Teacher Retirement
Income
Begin
Working
Retire
at 63
Three Obstacles to
Financial Security
TAXES, INTEREST,
and DEBT
How much of your money
goes toward one, two, or all
three of these areas, hindering
your progress to achieve
financial security?
How to
Get Out of Debt
Using Your 403b
Month 0
Debts
Balance Payment
(1) Credit Card $ 2,200
Rate
Term
$ 66/m
16.8%
45 months
(2) Credit Card
1,350
38/m
19.8%
46 months
(3) Auto #1
7,200
240/m
12.6%
36 months
(4) Auto #2
2,600
226/m
10.75%
12 months
$ 13,350
$572/m
Assets
403(b): $3,500 + $50 per month
Month 1
Debts
Balance Payment
(1) Credit Card $ 2,164
Rate
Term
$ 66/m
16.8%
44 months
(2) Credit Card
1,332
40/m
19.8%
45 months
(3) Auto #1
7,035
240/m
12.6%
35 months
(5) 403(b) Loan
2,563
52/m
2%
60 months
Totals $ 13,094
$398/m
Assets
403(b): $3,806 + $291 per month
Month 4
Debts
Balance Payment
(1) Credit Card $ 2,056
Rate
Term
$ 66/m
16.8%
40 months
12.6%
31 months
(3) Auto #1
6,531
240/m
(4) Auto #2
0
0
3,727
79/m
Totals $ 12,314
$385/m
(5) 403(b) Loan
0
2%
Assets
403(b): $4,751 + $308 per month
0
60 months
Month 11
Debts
Balance Payment
(2) Credit Card
Rate
0
0
0
(3) Auto #1
$ 5,293
$240/m
12.6%
(4) Auto #2
0
0
0
5,123
122/m
2%
Totals $ 10,416
$362/m
(5) 403(b) Loan
Assets
403(b): $7,181 + $340 per month
Term
0
24 months
0
60 months
Month 19
Debts
Balance Payment
Rate
Term
(1) Credit Card
0
0
0
0
(2) Credit Card
0
0
0
0
(4) Auto #2
0
0
0
0
(5) 403(b) Loan $ 8,241
$231/m
2%
Totals $ 8,241
$231/m
Assets
403(b): $10,378 + $522 per month
Let’s Take a Look After
19 Months
Before
Total Debt
Payment
13,350
572
Average Interest
13.4%
Total 403(b)
3,500
Contribution
50
Let’s Take a Look After
19 Months
Before
Total Debt
Now
13,350
8,241 [403(b)]
558
231
Average Interest
13.4%
2% [Net]
Total 403(b)
3,500
10,378
Contribution
50
522
Payment
Let’s Take a Look After
60 Months
Before
Total Debt
Payment
13,350
572
Average Interest
13.4%
Total 403(b)
3,500
Contribution
50
Add to Take-Home
0
Let’s Take a Look After
60 Months
Before
Total Debt
Now
13,350
0
558
0
Average Interest
13.4%
0
Total 403(b)
3,500
36,003
Contribution
50
833
Add to Take-Home
0
24 + All Raises
Payment
How to
Maximize Your
Pension Benefits
CalSTRS Retirement Options
Plan
Unmodified
100%
75%
50%
Member
$4,425
$3,713
$3,885
$4,108
Spouse
$0
$3,713
$2,914
$2,054
Most educators choose the 100% option. In
this example, $3,713 would go to the
member, and $3,713 would go to the spouse
in the event of the member’s death
CalSTRS Retirement Options
Plan
Unmodified
100%
75%
50%
Member
$4,425
$3,713
$3,885
$4,108
Spouse
$0
$3,713
$2,914
$2,054
With proper planning, you could choose a
higher pension option.
By choosing this higher option, your
household will receive more than $150,000
in additional income over 25 years.
Spousal Loss of Income
Plan
Unmodified
100%
75%
50%
Member
$4,425
$3,713
$3,885
$4,108
Spouse
$0
$3,713
$2,914
$2,054
The challenge with the member choosing the higher
pension option is the spouse’s loss of income. In this
example, $3,713 - $2,054 is $1,659 monthly loss of
income. Solution: a $330,000 side fund could bridge this
short fall. $330,000 invested at 6% yields $19,800
annually / 12 = $1,650 of monthly income for the
surviving spouse.
Benefits of Pension Maximization
• Maximize your retirement income.
• Provide continued income to your beneficiary.
• Receive raises on higher pension options.
• Maintain control over your retirement dollars
instead of STRS having control.
• Cash availability for other contingencies.
• Provide a legacy to your estate
There have been two 40% losses in the stock
market in the last 10 years…
CAN YOU AFFORD A THIRD?
$2.3 Trillion Lost in
Retirement Savings
Plans in 2008!
YOU have a choice of a
safe and secure place to
save for retirement that
provide guarantees from
loss of principal and
earned interest.
How TCG can Assist YOU?
• Analyze and advise you on which CalSTRS option is best
for you.
• Validate if your investment portfolio allocation is
commensurate with your age and lifestyle?
• Implement a debt reduction strategy utilizing your 403b.
• Validate your retirement income needs, and implement a
proactive plan to reach your retirement goals.
• Review and analyze your need for a living will and trust
to create tax intelligent strategies to shelter your estate.
CalSTRS Loan Program
3% Down (80/17)
•3% down payment – only 1% needs to be
your funds the remaining can be gifted by a
family member
•FREE float down to lower rate – if CalSTRS
lowers rates during the 45 day lock period,
you get the lower rate
•The 17% 2nd has a deferred for 5 years, this
enables you to qualify for a larger home
Questions and Support
Call 661-979-0945 or 800-566-4047
Jim Waite
JL Waite Financial Group
661-979-0945 (c) 589-5268 (f)
[email protected]
www.jlwaite.com