3 Important Facts about the Texas Retirement System

Texas Retirement System
A big portion of your paycheck as an employee in Texas goes toward funding the Texas retirement system, also known as the Teacher Retirement System (TRS). If you have little idea what this system entails or why it’s important, then check out these three important facts about the Texas retirement system that will change your perspective on both.

The First Fact

The Texas retirement system is calculated as a percentage of an employee’s salary at retirement. This means that if you make $20,000 a year before retirement and then retire after 10 years, your benefit would be about $1,000 annually ($20,000 multiplied by ten divided by 12). For employees who have been working for less than 10 years when they retire, it is calculated on what they made in their last fiscal year.

This means that a new college graduate could retire with 40 percent of their annual salary after just one year working for a company . . . It also explains why so many retirees take jobs out of state: It allows them to increase their retirement income while living outside Texas. A two-year stint teaching English in Japan could earn a teacher (assuming they put back enough during those two years) nearly $200,000 upon retiring—nearly double what he or she might receive staying home. And there are benefits beyond money: Taking part-time work elsewhere can give teachers experiences—culturally or professionally—that simply can’t be had elsewhere.

The Second Fact

Annuities Are NOT Always Bad. I’ve often heard people say that annuities are a bad investment, and that if you need guaranteed income, you should just buy an immediate annuity. I totally disagree with that approach. An immediate annuity is an investment in which your money is placed into a safe interest-bearing account until you turn age 65 (usually). Then, you start receiving payments for life. What happens to those payments after you die? Who will get them? What happens to them when there’s no one left to inherit them? You have no control over any of these things—and they can spell disaster for your loved ones if you don’t have appropriate long-term care insurance protection in place. A deferred variable annuity, on the other hand, will give you some choice over how much risk or volatility you want in your portfolio during retirement.

The Third Fact

If a Public Employee Contributes at Least 5% of their Salary, then the Local Government is Required to Match Up to 5%. This is Called Texas Intergovernmental Cooperation Act (TICA). TICA has been in effect since 1999. Now, if both Employee and Employer Pay 10%, Then That’s a Total of 20%. Here’s an Example: John makes $50,000 per year and his employer (City of San Antonio) pays him $5,000. Therefore, he contributes 10% ($5,000). So all together he has contributed a total of $15,000. If John’s employer matches up to 5%, then that will total $2,500 or $17,500!

Another example, Rosalyn makes $30,000 per year and her employer pays her $3,300 annually; she contributes 8% because she doesn’t contribute more than her employers match ($3,300 + 3%), so she would be contributing a total of 7%; therefore only 3% are matching. Another way to think about it is – Let’s say you make 50k/year; your employer takes away 7k/year automatically in pre-tax monies towards retirement.

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