Take steps now to maximize your retirement

This article appeared in the Spring 2021 issue of The Classroom Teacher.

While Texas teachers don’t have the most generous school employee benefits in the country, the defined benefit retirement plan under the Teacher Retirement System is a benefit that many private sector employees would envy. But because most Texas teachers don’t qualify for Social Security* (or if they do, their benefit is reduced), it is especially important to take steps to maximize their TRS annuity.

Work more, make more

As a defined benefit plan, TRS promises to pay its members a specified amount of money through a calculation based on years of service credit and salary. In a defined benefit plan, the longer you work and the more money you earn, the higher your retirement income.

There are two key variables in the retirement formula — your years of TRS service credit and your salary. (The formula is in the section below.) Increasing your years of credit, your income, or ideally both, will have a positive effect on your future retirement checks.

Reaching retirement eligibility represents the point at which an employee is eligible for the standard TRS benefit. But that doesn’t mean it’s the best time to retire.

How to calculate your TRS service credit

(Years of service credit) X (2.3%) X (average of 3 or 5 highest years of salary, depending on the TRS tier you qualify for) = TRS benefit
30 years times 2.3% = 69%.
69% times $60,000 = $41,400
Find your TRS tier in the TRS Benefits Handbook.

The basic criterion for TRS retirement eligibility remains the Rule of 80: years of service credit plus age must total at least 80 to be eligible for normal retirement. For certain TRS tiers, a minimum age of 60 or 62 also applies — these employees can retire upon reaching the Rule of 80, but there is a penalty for each year of age shy of the required 60 or 62.

Retiring later will pay off

Many teachers are burned out after 30 years in the classroom. Many choose to retire in their 50s and early 60s, and for some it may be the best decision. But it is important to understand the financial consequences of retiring early.

One thing many younger retirees don’t think about is the cost of health insurance. TRS-Care for retirees who are under age 65 and thus not Medicare-eligible is considerably more expensive than when you are able to access Medicare coverage. Retiring in your 50s will mean a smaller net check until you turn 65.

If you can stick it out, it makes financial sense to continue working. Each year adds 2.3% to your calculation. Any annual raise, to the extent you can count on that in your district, can also affect the calculation. See the shaded box above for an example of a teacher whose highest salary averages $60,000. After 30 years (assuming there is not a penalty for under-age retirement) the person would earn a normal benefit of $41,400 per year. Working just three more years — even without any increase in salary — raises that by more than $4,000 per year, to $45,540.

Consider taking on additional responsibilities

If the employee in the example above increased their average salary by working summer school or taking a position that included a stipend for additional responsibilities, the impact of the extra time would even more beneficial: raising the average salary by $3,000 would add another $2,000+ in the above example.

Note that the extra money will only count in the retirement formula if those years are among your highest-salaried. If, like most people, your highest-earning years are at the end of your career, any opportunity to increase your pay in your last few years will further boost your TRS check. (Note that TRS places limits on the amount by which your total salary can increase for retirement calculation purposes, but they are relatively high and typically affect administrators or those moving from a teaching position to an administrative position.)

Avoid quitting before the fall semester ends

School employees can earn a full year of TRS service credit by only working a partial year. If you leave mid-year but are not yet retiring, you must work at least 90 days during the school year to receive a year of service credit, and the 90-day count starts on Sept. 1. If the partial year is the one in which you are retiring, you can leave after the first full semester (even if less than 90 days) and receive a year of credit, as long as you work or have paid leave for each day of the semester. If at all possible, take advantage of this perk to ensure that you receive service credit for any year in which you have worked.

Check your TRS record

TRS and your school district occasionally make mistakes. You should receive an annual statement from TRS every fall. Check it to see if TRS’s records — particularly regarding your years of service credit — match your own. There are deadlines for correcting any mistakes, and failing to verify credit for a year that was left out of your record can be an expensive mistake.

Remember to factor in deductions

Don’t forget about deductions from your TRS check. TRS-Care costs vary depending on the plan you are in. Also, you have choices regarding your beneficiaries who might receive benefits after your death. The options that pay more to beneficiaries will lower your check. This is not an argument for or against any particular options — just a reminder to factor in those choices when determining whether you can afford to live on the check you receive.

Things that don’t make a difference

• In any given year, working more than 90 days doesn’t increase your amount of service credit. You either get the year of credit or you don’t.
• Working summer school doesn’t increase your service credit, only your compensation for the year. It is not possible to earn more than one year of service credit in a year’s time.
• Additional pay such as summer school or stipends doesn’t affect your retirement if the year you earned it is not among your highest years of salary. Only your top 3 or 5 years (depending on your TRS tier) are included.
• Your service record years, used to determine where you are placed on the state minimum salary schedule, are not the same thing as your years of TRS service credit and do not impact your retirement formula.
• Returning to work after retirement can bolster your income, but it does not affect your actual TRS check. That amount is fixed (subject to any subsequent benefit increases that may be approved by the Legislature) when you retire.
• Contributing to Social Security through a separate job can improve your overall retirement income if you qualify for Social Security benefit, but whether you receive benefits or whether you are subject to one of the federal penalties* doesn’t affect the amount of your TRS benefit.

Can you live on your TRS annuity?

Every teacher’s situation is different. Some may have a second job, a healthy savings account, or a spouse with a generous retirement package. Some will receive a military pension or have family money. But even if you have a seemingly stable retirement plan, you should imagine a worst-case scenario (a market crash virtually eliminates your family’s retirement savings, for example) and determine whether your TRS check would provide the retirement security you want — potentially for decades. Remember this: There is no assurance that your TRS annuity amount will ever increase. And your living costs almost certainly will.

*Note: Two federal laws reduce Social Security benefits for government employees, including Texas school employees, who do not pay into Social Security. The Windfall Elimination Provision reduces Social Security benefits for those who have earned them through other employment; the Government Pension Offset reduces (and sometimes eliminates) spousal benefits that a school employee might otherwise be entitled to through their spouse.