By Financial Advisor Carrie McDonnell
As a former school administrator, I have witnessed the skill and dedication of our Vermont teachers at work. Considering how impactful and critical educators are to our state’s future, one would expect our teacher retirement system to be designed to ensure full financial security for these civil servants. Unfortunately, this is not the case. A successful retirement for educators requires planning and a multi-faceted approach.
Some key concepts teachers should consider in preparation for retirement:
Is it structured as a pension? Or a 403b? Most plans allow participants to select their investment options, so seek out information about what those investment options are. Not all equity and fixed-income funds are equal; some carry costly fees which grind away at your investments and substantially diminish your returns over time. Look for low fee fund options, such as index funds.
In order to rest fully upon your retirement, educators should imagine retirement as a three legged stool: one leg is Social Security, the second is the school sponsored retirement plan, but what is that third leg? Consider investing outside of your employer’s retirement plan in either a traditional IRA or a Roth IRA. Supplementing your employer’s plan with a separate investment account can be a great strategy for achieving stability.
As a general rule, individuals should plan on spending no more than 4% of their retirement savings each year in retirement. So, for example, if you need $40,000 of income per year, then you should be working towards roughly $1,000,000 in investments.
Even if you can only contribute a small amount to a separate retirement account in the early years, starting early establishes a healthy habit and allows those contributions to compound over many years. If you are a Vermont teacher who is closing in on retirement, talk to a Vermont financial advisor about shorter-term investment strategies.
Most people have great difficulty staying the course in an investment strategy over a long period of time. Emotions, like fear and greed, win out, leading to irrational decisions. For example, while it may be tempting to sell your investments in a down market, you are losing out on huge growth opportunities. Over the last 20 years, top performing market days almost always occurred within days of the worst performing market days. Missing top performing days can have a significant impact on your return over the long run.1 Having a trusted financial advisor to support you during difficult times, such as a tumultuous market, can help you stay the course and reach your investment goals.
1. BlackRock, "Staying calm amid market volatility" Feb 2022
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