What are Target-Date Funds?
Target-date funds are essentially one mutual fund you can save for your 401(k) retirement plan. You would pick your target retirement date, and a fund such as 2045 would correspond to that date. More than half of all 401(k) participants have at least some money in target-date funds. Target date funds are often found in most corporate retirement plans.
For many Texas teachers who will receive TRS, you should understand the rules for getting Social Security. If you have paid into Social Security and expect to receive this retirement benefit and a government pension, such as TRS, you may see your Social Security benefit reduced due to the Windfall Elimination Provision (“WEP”).
For those in the education field, such as teachers, professors, and administrators, it incumbent upon them to save for retirement. One of the benefits of working in education is the generous employee benefits, which many educators don’t take full advantage of. In this blog, I will discuss 4 rules of thumb to follow to save for retirement, focusing on educators. Although following these rules won’t guarantee success, they can put you on a good path.
1. Save at least 15%
Teachers Pension Inadequacy
A defined benefit pension plan, such as TRS, provides a small group of long-serving teachers with good benefits while leaving short and medium-term teachers behind.1 TRS carries no investment risk if the teacher continues until retirement. The teacher is guaranteed a stream of income for the rest of their life with the option of a survivor's benefit. Prior research has found pension plan benefit formulas disproportionately reward very long-term employees at the expense of short- and medium-term workers.2
Employees in corporate professional careers often switch jobs during their careers. But what should you do with the old 401(k) or 403(b) retirement plan?
As of 2018, women earned 85% of what men make, according to a Pew Research Center analysis.1 This is paired with the fact that women tend to live longer than men and often have to draw down their retirement wealth over a longer period of time. In 2020, the average life expectancy at age 65 is 21.1 years for women and 18.6 years for men.2
401(k)s for retirement savers are extremely important especially for those in corporate careers as they are one of the best vehicles to fund your retirement. Americans have $6.3 trillion invested in these tax-deferred workplace savings accounts. There are more than 58 million active 401(k) participants.1