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Retirement Preparedness in Under 45 Minutes

Recorded on May 18, 2022

Today’s presentation is understanding TRS and social security for educators. My name is Edgar Ortiz. I’m a senior retirement planning specialist. My info is on the screen. You can make an appointment via email phone call use a virtual session or if your tech savvy you can open up your phone to your camera selection put it right over that nice QR code and you can get access to my calendar, which will then allow you to make an appointment at your convenience.

So TCG, we seek to deliver long-term investment and Retirement Solutions that provide peace of mind. We have well over active plans we manage about billion dollars and we have about. million dollars under Administration. So we provide Administration for retirement plans to financial Wellness Solutions, and we’re dedicated to making financial decisions as easy as possible. One of the great things is that we provide fiduciary protection. We manage portfolios on a fee only basis. We are registered with the SEC and we act as the investment advisor on the advisory committee. So, let’s Jump Right In. understanding TRS and the retirement Gap On the left hand side, you’ll see that there is a pi there because income retirement is very different for Texas teachers than it is for their spouses in their neighbors on the left hand side. You’ll see that Educators in the retirement system. Most of the retirement will come from TRS and you’ll see that a small piece of the pie will come from Social Security. If you worked in the private section prior to coming into the school district and the rest will come from savings on the right hand side. You’ll see your neighbors such as myself and your spouses and neighbors and you’ll see that most of the retirement will come from savings and a personal comment from Social Security. So the pies look very different TRS retirement versus Corporate retirement.

So let’s dispel one of the biggest myths that come when you are in a TRS plan system. We talk about the rule of. What is the rule of and why is it important? So the rule of is the qualifier to be eligible for retirement? And the rule of Av is the qualifier not the percentage and how you get to the rule of matters based on the tier number that you are in we will review some of those tier numbers as you can see in your statement so you can better understand that information. To be eligible for normal age retirement. You must meet one of the conditions within your tier and the same is true for early age retirement eligibility. Looking at the rule of. How do you get to that number? The math is pretty simple. You take your age plus the years of service and it needs to Total. So earlier we talked about tier numbers. Well, how do I know? What tier number you’re in? So changes in the retirement plan over the years have resulted in several distinct membership categories with its each own retirement eligibility requirements and early age reductions. So you fall into one of these three buckets either a tier one tier two, tier three tier four tier tier.

Let’s go over briefly over each one of these. Tier one and two current membership began prior to September stand had at least five years of service on August. Now the retirement criteria for tier one and tier is Rule of with five years of service or age with five years of service. So you simply need to get to the rule of and have at least five years of service to qualify for retirement. Moving on to the next bucket tier three and tier membership began between September 1st and August 1st. And at least five years of service by August 1st. Now looking at the retirement criteria for this these two buckets that actually changes so you have to be at least age meet the rule of and have five years of service. Again age with five years of service will also qualifying so tiers three and four have three quite criteria age meet the rule of and five years of service moving on to the next tier and tier. This is the one if you started current membership from September 1st, and he did not have at least five years by August 1st. This one’s very similar to tier and tier it has an age requirement. The age requirement is at least. Meet the rule of and at least five years of service. Also age with five years of service will qualify you so it’s pretty simple. If you look at your TRS annual statement that comes in every fall semester between October and December you’ll look to see what category you’re in. What tier number do you fall into? And that’s how you begin the process of understanding when you would become eligible for retirement.

One question that we always get is am I grandfather or non-grandfather? That’s a very simple for you to look at if you were grandfathered then they would use the top three salaries. If you are non-grandfathered then they would use your top five earning salaries and there is a requirement that comes with Being grandfathered or non-grandfather and we can speak a little bit more in detail about that if you decide to make a one-on-one appointment. TRS is using Financial awareness initiatives for you to start looking at what you have what you need and how to get it. There’s small short clips that you can see on youtube.com/trsofTexas. It’s just it’s just Financial awareness. So that way you can understand how TRS works and what you need to do to begin to retire and have the correct Financial awareness upon retirement.

So, let’s look at the TRS formula. So the TRS formula is simple. Here’s of service times. % times the average of either your three or five highest years of income will give them give you your maximum benefit. Let’s look at an example so you can see how this works. So you would take this individual who has years of service and their average income is,. So plugging these numbers in you get times%times. percent will give you percent. % of the average income turns out to be,. So an individual who is earning, when they reach the age of for retirement will have a% net loss of gross income. So if you’re used to living a certain lifestyle at, just remember that getting to the age of or, depending on what tier you earn you will have a net income loss in the state of Texas to receive a hundred percent of your retirement. You must complete years of service. And so to work this formula with your numbers simply enter your years of service multiply it times. % times the average of your three or five highest income and you will see what your maximum benefit is. So what are some ways to maximize your TRS? A lot of people will say increase of salary. Well, we say good luck because that’s very difficult as some districts do as some employers do offer increases some districts do some districts don’t it becomes very difficult increase years of service credit. So if you recall from the previous slide I said the other you work the more you’ll make working years will get you % You can also purchase service credits and some of the service creates that you can purchase is. Let’s say for example, you were in the TRS system. And then you withdrew and you left the school district and decided to go work in the private sector and then you’re back now into the school district. You can actually purchase the years that you were out of potentially cashing out your TRS or if you’re out of state and you’re coming from another state where you were an educator as well. If you were in the military or you have unreported or you were a substitute.

Now the number one question everybody asks is what is the cost to purchase a year of service? Everyone will pay something different the cost varies depending on the type of service that you are purchasing. And so what we recommend is that you contact TRS for the cost estimate. Remember your TRS annuity is never reduced by Social Security. This is one of our favorite slides to put on there because there is some confusion that your TRS will be reduced by Social Security. And unfortunately, your Social Security is reduced by TRS. Not the other way around. So let’s look at some retirement savings plans. So Educators options for retirement State there’s a many different plans that you can get. There is the employer-sponsored plans which usually are or B’s. There are individual plans that you can get into such as traditional IRAs or Roth IRAs or there are brokerage accounts or savings accounts that you can get in which usually have to do with after tax dollars. So, let’s Deep dive a little bit more into and b since those are employers sponsored plans. So the and the br side-by-side here on the screen the is what we like to call a group plan low fees relative to the b. No commissions full disclosure fees. The b is an individual plan. Most four or three fees have higher fees you pay commissions and you put and they are sometimes to limit it or no commission options, but there are sales loads. The contribution limits are the same. If you are under the age of, then you are eligible for, if you are over the age of, you are allowed to-do an additional, which is the catch up contributions limit. The has an investment oversight committee. It is managed by investment oversight board composed of superintendents and CFOs and TCG advisors. The b normally does not have investment oversights. Another big difference between having a and b is the penalty to withdraw funds the as you depart or leave service. You are eligible to cash out your funds. Of course, you will still pay taxes, but you will not be eligible for the % penalty. The b has a% penalty if you would draw the service when you are under the age of and a half. The investment options are also different when it comes to what the offers and what the b offers in the. You have Target date funds risk-based portfolios or self-directed mutual funds. In the b there are fixed annuities variable annuities mutual funds or custodial accounts. Access to the funds are very easy, as you see you termination of employment death disability retirement unforeseen emergencies and Loans. Remember age and a half. You are eligible to cash out your b, even if you’re still employed. Another big difference that we did speak about is fees. We like to call this the fee effect. If you’re looking at your screen, you will see that this individual based on a % earnings of net fees contributed$ monthly for years at the beginning of the month. If you look the individual who was paying % to have their account, we’ll walk away with about. If the individual had for example gotten into a b account where they were charging them three percent the same individual will walk away with less. So it’s really important to look at what are the fees involved when you are investing in bsand for accounts? So watch for your best interest you really want toe careful with excessive hitting fees inappropriate types of Investments lack of monitoring Investments life insurance as an Investments. What we say is retirement stays with retirement and life insurance stays with life insurance. Be careful with words saying pension maximization or any annuity writers. Also, some people will say take out the partial lumpsum when you reach the rule of and we can invest that investing the lump sum to beat the TRS system is very difficult. Shadowing market and endorsements. So these are all things you need to be on the lookout for when you are looking at retirement.

The next thing that we’re going to cover is social security issues. We’re going to put our favorite slide on the screen. Again. Remember your TRS annuity is never reduced by Social Security benefits. So let’s talk about two Social Security considerations. There are two regulations that Educators need to be aware of it’s the government pension office plan or GPO which applies to members also. and that reduce your Social Security. So let’s look a little bit more into the first one the government pension offset plan. once again, the government pension offset affects spousal benefit So you are eligible to receive a benefit in the amount equal to% of your spouses benefit. former spouses eligible if married for at least years You are subject to a two-thirds offset rule. This further reduces our offsets entirety of your eligibility for Social Security payment. The current law says you have to be employed by and retire from a social security cover district for your last months to be eligible.

So let’s look at a GPO example. In this example, you will see that the individual is getting a TRS pension of. The spousal benefit is $,When you subtract the / of the TRS benefit from the eligible statement, you will see that, minus / of is, leaving the individual with negative dollars. This TRS member is not eligible for spousal benefit, but we’ll still receive the full TRS annuity. In this example, the spousal benefit is higher. So we’ll keep the same numbers the TRS pension at will increase the spousal benefit to using the same formula minus will give you a positive. So this TRS member is eligible for spousal benefit of $ plus the full TRS annuity of dollars. Let’s talk about the windfall elimination provision. The windfall elimination provision you have to qualify for service credits under Social Security. You have to be eligible for four credits per year giving you a total of credits to qualify for the benefit which in turn is about years of working. Forto receive four credits. You have to earn at least,. Now the windfall elimination provision reduces an impacts the individual’s own Social Security. Based on the government and state pension. Using a factor to calculate your social security benefit income is based on years of substantial earnings. So once you qualify for the credits, then you will look at your social security statement to see how many of those years are substantial years. So looking at the windfall elimination provision, for example if you had to earn at least. So if you were to put your social security statement right next to the windfall elimination provision in, if you were employed and earned at least, or, then that would be a year of substantial earnings. After you’ve done that with all your years, then you would come to the Blue Table and you would see here if you counted and you had at least years of substantial years, then you would be eligible for% If you have a total of years of substantial earnings, then you would earn in the eyes of Social Security or more years of service will give you% the actual reduction cannot be greater than % with years or less the maximum reduction you can have with years or less foris So let’s look at an example using the windfall elimination. This individual is eligible for, and has years of substantial earnings Social Security uses a three-tier system to qualify for Social Security. So what they do is they take the first% of given the individual And then between, uh percent and over through, the individual gets a hundred and seventy two dollars and if they earn over,, then the individual would have received some extra income. So using the regular social security income the individual receive, and cents.

Now let’s look at how windfall elimination affects the individual so using the exact same numbers, but only having years of substantial earnings. If you recall from the previous slide, you will see that they are eligible for only% So the next one will be% of the first, giving the individual % over through, and % The difference is the individual walk away with.. So let’s look for some steps for success. Remember that it is a process not an event know your goals. How much will you need for retirement? Who do you need to provide for spouse children parents Charities any other quantifiable goals that you have choose the portfolio allocation design to achieve investment return needed only take the risk that you need to meet that goal monitor your Investments and choose the Investments to meet your goals. Not the beginning of the presentation. I told you that there would be a link that you would be able to look at it is www. tcgservices.com/Firstmark. You can click that and make an appointment with the Telewealth. Agent you can schedule a meeting access the meeting talk to an advisor one-on-one.

And now the next thing that we’re going to go to is our Q&A portion of the presentation where we will open up everybody is available to unmute themselves and they can ask any question in the Q&A or you can unmute yourself since we don’t have such a large crowd. So I’ll take any questions and you can put them in the Q&A box or in the chat box. It will there be any retirement information for non-educator? What questions are you looking for that we can help you answer? Will you show the first slide of the tears again? Yes, absolutely. Let me go back to that for you. There you go. Miss Medina. There are any if there are any specific questions on these tier I can answer them for you or if you have your statement. I can show you what statement you can look to so we can answer any other questions on that. Can you confirm something for me? Sure, absolutely. You said if you were grandfather in TRS if your grandfather? And the three highest salaries or the three last salaries are averaged. Correct. If you were if you were a grandfathered then they will take your top three salaries and you will see that on your statement. If you are non-grandfathered, they will take your top five earning years to show your that you’re non-grandfather. And so there is a specific rule when it comes to being grandfather or non-grandfathered. Which would you like for me to go over that with you? Sure. So to be eligible for grandfathered you are grandfathered member under the legislation you had to at least meet one of the following criteria to be eligible for grandfathered. So before September first of you had to be at least age. So if you were not age, then you had to your age and your years of service needed to Total at least. And if you didn’t have either of the two the last chance you had of being grandfathered you had to have at least years of service before September 1st. Okay. I know my statement. I started teaching and, okay? And but I’m pretty sure my statement says that I know I did call TRS aid I just had to meet the rule of. It sounds like you’re saying I don’t meet the rule of. I am years old. So if you are tier one or tier two, everybody has to meet the rule of eight. So if you look at the screen, you’ll see that every in every every tier requires the rule of depending on when you came in will determine whether or not there’s additional steps to the rule of. So if you started in you’re and you hadn’t had a break in service and haven’t cashed out your TRS, then you are probably a tier one. Right which would put you as grandfather which would be your top three. And all you would have to do is at least meet the rule of and have five years of service. So if you are the age of Then all you would have to have is years of service and you would have qualified. So and at years of service. Let’s say you had years of service. You’re looking at getting% of your TRS retirement. Okay, I’m still a little confused. So with a tier one rule of a t least five years. Or with five years current membership prior. Okay, so yes, I had the current membership. And yes, I had five years. So that’s a qualify. Okay and current tier three. Which one’s more Advantage? No, there’s no way tier one and tier two are the best. Okay, then it looks like I’m a cheer one. I did my math and but I’m not a math teacher. Oh, you can’t do the math for me. Unless you know my three highest salaries, correct? I can do a small kind of off the cuff calculation. If you know, maybe you’re three salaries I could give you a real quick number. Let’s try salaries of and. So the average of that is going to be, with how many years of service? so you’d be looking at. %of, gives you, which would equate to about, per month gross. Yeah, that’s roughly what I Add calculated, but those numbers are not sure on. Okay guys, will it really depends? It really goes as far as what are the numbers and that was just a real quick rough estimate. Right. I’m tempted to look up my statement. I have it here on my bulletin board.

Is there somebody else who has a question so I don’t manipulate we’re not no as a matter of fact there is so let me just answer their question. Okay, one second, okay? Okay, Mr. Garcia. I just sent you a response to your question, sir. Michelle I don’t have to meet the rule of if I’m or five years of service that is correct. So in any of the tiers once you’ve reached the rule once you get to the age of and already have five years of service you automatically qualify for retirement. So if you look for example into your one into your two, it’s rule of with five years of service or age with five years of service. great question I found my numbers. Oh, okay. Let’s take a look at them. Okay, if you look at the average it tells you that your average is, correct? It tells me my average here says. let me make sure I have the numbers correct. You said to? yes, Yes and to. Yes. Oh, I know why because this statements from last year and that’s years. Because right now I’m in tenth year. Okay, so let’s assume that you had retired this year at years of service. That’ll give you. And you are looking at a monthly benefit of about. Okay. Okay. Now if we have private meetings, what will we discuss at those meetings or appointment? Whatever you whatever you’d like to discuss if you’d like for us to calculate if you stand extra five years or you have questions regarding your retirement packet the content of the retirement packet Social Security or other Investments if you have a or b with your current employer, there’s just a lot of different questions. It’s completely open to you. Are you saying that a is more advantageous than a b? No, I am saying that a is different thana b. There are some folks that will see a better and there’s some who will see a b better. It’s really based on what you are looking for and the type of investment that you’re looking for. I see. Yes ma’am. Thank you. You’re very welcome. Are there any other questions or anybody else that I can assist? With those no one. I mean with those numbers I gave you. I don’t know if you still haven’t written down, I do. Yes. What would it be? at years sure, absolutely. So then at years you add. % giving you a monthly benefit of about Okay, it just helps me decide. Absolutely.

Well, if there’s nothing else then I appreciate everybody coming in this evening. Once again, you can make an appointment with us. If you did not get the appointment link you could always call us at our advisor hotline at 512-600-5204 and we can be of assistance. Have a wonderful day. Thank you. Thank you.

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