What is a 403 (b) ?

"What is a 403 (b)?" 

I hear that sometimes and thought I would share a couple of basics:

• The 403(b) is a tax sheltered annuity similar to a 401(k)
  
• The 403(b) is a retirement plan for public school employees, 501(c)(3) non-profit organizations and churches
  
• The 403(b) is designed to supplement the Teacher Retirement System pension
  
• The 403(b) enables an employee to contribute pre-tax dollars right from their paycheck

The money you save in a 403(b) grows tax-deferred which means you will not pay taxes on the growth of your money until you retire and even then, for most, the tax rate will be lower after retirement.

TRS Defined Benefit--The Plan to Convert Texas Educators of the Current TRS to a Defined-Contribution Type - 401(k)

Many of my clients began contacting me about Senate Bill 1751 in March when Senator Bettencourt submitted the bill to the Secretary of the Senate. The bill was read and referred to the State Affairs committee March 23, 2017. It never left the committee.

http://www.legis.state.tx.us/BillLookup/History.aspx?LegSess=85R&Bill=SB1751

What the bill would do if it ever got out of committee intact and became a bill:

New hires would have the option of using a qualified plan like a 403(b) that many educators currently hold beyond TRS instead of using TRS. This would give the employee more direct control over their retirement monies. The required contribution (currently at 7.7%) would still be mandated to go into the account of their choice. Current employees would not be affected by this bill if it became law according to the text.

http://www.legis.state.tx.us/tlodocs/85R/billtext/pdf/SB01751I.pdf#navpanes=0

My Thoughts:

As a former educator of 27 years, now dedicated to learning as much as possible about retirement planning and teaching others, I do not worry about this bill. IF, and it is a big IF this ever becomes law, it would mean educators would have to spend some time in the beginning of their tenure learning  some basics about retirement. Currently, there are 6 Tiers in the TxTRS system so AT BEST, an educator could receive up to 65% of their best 5 years' salary average.

That said, few of us could maintain our current lifestyle on a 35% cut in pay.

When I started back in the early 80s, no one told me that. I just understood I would be part of the TxTRS system when I retired and as a young person, I asked little except where to sign.

This bill is helping to get educators to ask critical questions and in my view, that is always a good thing if the answers you are getting are valid and correct. There are options out there where an educator placing his/her retirement funds in a different account could make considerably more than what TRS is able to provide.

Until this bill or any other bill actually gets a signature from the Governor, we need to put away as much as we can above the minimum 7.7% of salary as early as we can in a 403(b) to help maintain our desired lifestyle in retirement.

My First Blog Post

Wish I knew when I was 21 what I know now about retirement. 

I assumed, wrongly that as a teacher I would have a great state pension through retirement. What I did not know was that in Texas, after reaching the Rule of 80 (your age at retirement + your years of service), AT BEST, I would receive only about 65% of my ending salary.

We used to have retirement guy come in and sit in our teacher's lounge and talk about retirement. It made no sense to me. These are the things that ran through my mind as I saw the same guy come through every year:

• Who is he?

• How do I know if he is trustworthy?

• What solutions are available? (not that I ever asked because he was in the lounge with all of my peers and I wasn't going to share my personal finances there)

• I heard he mentioned to someone about a retirement calculator--that scared me a bit because I just knew all that could mean was negative news for me and how did I know if what he was saying was true?

• Why can't I just talk to him and ask him questions without feeling I was pressured into something?

Needless to say, I did little. I did start a SEP once, but it lost money 3 times over the years so I got out of that. I had worked hard to put that money aside so I placed it in a regular savings account so it would be safe. Poor interest rate, I know but I didn't know where to go for better than what the bank offered.

Occasionally, the topic of retirement would come up as part of a discussion between close friends or colleagues. I listened but discovered most were just as confused as I was or, worse yet, they were trying to "sell" me something.

I knew nothing of fixed, indexed or variable accounts. Never even understood what a 403(b) was. My retirement vocabulary and knowledge was woeful and I determined to do something about it.

After relocating to the DFW area in 2016, I became passionate about retirement and teaching others about retirement solutions. In September, I passed my insurance license exam. It took me 6 weeks of intense Internet study and I did it. Later, I learned there are simpler ways to do this but oh well, you know, I learned the hard way.

I was interviewed immediately for a position that fit me perfectly, a retirement planning specialist. My niche would be educators and non-profits. Right down my alley, I thought. What I have discovered since is that what I have learned is for everyone. 

So, I dedicate this blog to you; the worker who one day wills to retire with what my company calls, "A softer landing."

Hope you enjoy, feel free to write me with questions; what I don't know, I will find the answers to and, let's work together for that softer landing for you.

~James

jnutting@myretirementguru.com