How to Financially Transition out of Teaching
The number of teachers that leave the profession has grown alarmingly in Texas. In addition, the average teacher's salary in Texas is well below other larger states. In this blog post, I discuss what to think about when you have decided to switch careers from being a teacher. Although I focus on Texas, what is discussed here applies to other states. Furthermore, even if you have already left teaching, this also applies.
1) Your Pension: Decide what to do with your TRS retirement pension plan or another pension. You can get a refund and roll it into an IRA or 401(k) or wait until you retire to collect the monthly annuity. This can be a difficult decision if you have many years of teaching and have a monthly pension. It might be easier if you have only a few years of working as a teacher and more difficult if you have many years. Talking to a financial planner is very important at this stage as this can be a life-altering choice.
2) Budgeting, Budgeting: Switching careers, do you have enough money to cover the income gap from the switch? In this case, working on a budget and seeing how to make cash flows correspond to the transition period. You can work up a budget on a simple spreadsheet listing all of your expenses and income coming in. Or you can use a mobile budgeting app to help you categorize your spending. Budgeting is tricky and can be time-consuming, but very important as you transition to a new profession. If you cannot understand where your money goes, keeping on budget and out of debt is more complicated.
3) 401(k) Plans: Understanding employee benefits in your new job is essential. Being a teacher, the retirement benefits are pretty well set. When you transition to the private sector, you get a more comprehensive array of choices and have to deal with investing in a 401(k) plan. First, determine what investment choices work best with your retirement goals. Many 401(k) plans have over 25 options of mutual funds, which can confuse someone with no investment experience. In addition, you need to decide how much to save in your 401(k) plan. Some employers offer a matching budget some do not. But you still need to save for retirement, be proactive, and determine how much to save each paycheck into your 401(k) plan.
4) Higher Income Challenges: A former teacher might enter a new profession with a much higher salary than their previous teaching position. This might not seem challenging, but it can be for some not used to the higher income. You would have to be careful about your choices and that you keep on budget and keep the amount of debt low or paid off. Having more income comes with the same difficult decisions on how to spend your money. Getting into a higher income also means that you could potentially pay more income taxes. Determining tax savings strategies is especially important as you enter high tax brackets.
5) Have an Emergency Fund: The benefit of being a teacher is job stability. Unfortunately, the private sector has much less job stability, and being laid off or fired is riskier. As a result, you should save enough in your emergency fund for six months of living expenses that you can use until you get another job. You can place your emergency fund in a high-yield savings account. An emergency fund should be used only in case of unexpected expenses you cannot cover from your cash flows.
There are five, I think, food for thought when transitioning from being a teacher to working in the private sector. First, there are many challenges but great opportunities to transition from teaching to the private sector. Contact me on the contact page below to learn more about transitioning from being a teacher to working in the private sector.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on to avoid Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in estate planning should work with an estate planning team, including their legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.