Primer on Retirement
Visualizing Your Retirement Lifestyle Helps to Attain it
Most every education support professional (ESP) I know has a different idea about how they will spend their retirement years.
Some look forward to spending more time with friends and family and hobbies.
Others can't wait to hit the road in pursuit of new adventures. While there are many retirement lifestyle choices to make, one thing is common among ESPs: everyone wants financial security.
Becoming aware of Social Security benefits, increasing your knowledge about pension plans, and deciding how much income you will need during retirement are steps you can take today to help you assess what your financial situation may be like during your Golden Years.
Most ESPs pay into Social Security as well as their own retirement system. In most cases, the employee and employer make contributions of a certain percentage of the employee's salary toward an ESP's retirement.
In Illinois where I work, ESPs are members of the Illinois Municipal Retirement Fund (IMRF). It is owned and controlled by those who contribute to it. ESP retirement systems in other states may vary according to their state laws concerning public employees.
In Illinois, for example, ESPs pay 4.5 percent to the IMRF while the employer's contribution will vary based upon the financial profits of IMRF. In 2006, the employer's contribution was 9.2 percent. This year, it dropped to 8.6 percent.
Know Your 401
In some states, ESPs may be part of a 401(k) retirement plan. This is an area of concern. A report from the Government Accountability Office (GAO) states that "current retirement savings law, passed in 1974, does not explicitly require 401(k) plan sponsors to disclose comprehensive information on fees; yet even small fees can significantly affect savings over the course of a career."
The GAO gave an example of a 45-year-old worker who leaves $20,000 in a 401(k) account until retirement. If the average net return is 6.5 percent -- a 7 percent investment return minus a .05 percent charge for fees -- the account will grow to $70,500 at retirement. But if the fee is 1.5 percent, the person will have only $58,400 upon retirement.
Teacher retirement plans are different than those for ESPs. In many states, teachers do not pay into Social Security and rely entirely upon their own Teacher Retirement System (TRS). In Illinois and about a dozen other states, teachers are exempt from Social Security and subject to offsets.
In most cases, the employee and employer make equal contributions toward the retirement plan totaling about 9.4 percent. But there are also contributions toward retirement health care, which vary according to the employee's age and service years.
Some teacher Associations in the nation have bargained to get the employer to make 100 percent of the contribution. In Illinois and some other states, teachers have been given an early retirement option by the state.
Who's in Control?
Illinois lawmakers recognized that some school districts could save a considerable amount of money by replacing teachers at the top of the pay scale with new teachers starting at the bottom of the scale. So, the state gave teachers who were 55-years-old and above the opportunity to buy their additional years of service and retire early. ESPs were not given this option since their lower salaries and pay scale isn't as costly.
This may sound as though teachers have a better retirement plan than ESPs, but the beauty of it is only skin deep. TRS is owned and run by the state. ESP retirement systems are not, so we have more control over the funds. Our Association bookkeeper says she has to call the state office when she has a question. Local folks have no authority regarding TRS.
TRS funds are low in several states, including Illinois. Since the system is controlled by the state, state officials can access the funds if necessary. Several years ago, the state found it necessary to borrow from TRA to the tune of $3.5 billion.
After more than two years, the state still has not begun paying back what it borrowed from TRS. Consequently, some teachers ended up holding retirement checks that they could not cash because the money wasn't there. That made me much happier to be an ESP.
Impressions of Retirement
In a poll of American workers, Svea Herbst-Bayliss of Reuters Limited found that an ESP's retirement may be brighter than most. Consider this:
43 percent of Americans say they will have to re-enter work force almost as soon as they retire from it
8 percent say they hope they die before they get old and don't believe they could survive on retirement
25 percent say that they have saved nothing for retirement
41 percent anticipate medical expense to be their biggest challenge
61 percent of those polled said they would use an unexpected windfall of $1 million to invest for retirement
86 percent said they would strongly urge the next generation to start saving for retirement as soon as possible
ESP Member Excerpts
Saving for retirement isn't easy when you are just getting by with what you are bringing home. As my friend, John Brazee a custodian and warehouse manager from Jackson, Tennessee puts it: "I have fellow ESPs who basically work for so little that they usually have very little left over for any saving. They may have another source of income, such as a second job, a working spouse, welfare, food stamps, or something else. Therefore, any extra money is scarce. But I believe that with proper money management training, most ESPs could find $5 a month to save."
My friend Katie French is a former school bus driver and ESP council member from Effingham, Illinois. Her retirement is everything she had hoped for. She had fought many a battle with her school administrators over various labor and contract issues. Today, Katie's main battle involves changing the diaper of a reluctant great-grandchild. Since retiring, Katie and her husband have not seen much difference in their lives, financially speaking. Their Social Security, and her IMRF, incomes bring in close to what they were making while in the work force.
Sometimes we might be confronted with having to take an early retirement due to health problems. Such was the case of another friend of mine who also served on the Illinois ESP Council.
Bill Fowler of East Peoria had diabetes and was forced to take an early retirement. However, even after a knee replacement, Bill still remains an active part of the Illinois Education Association (IEA) and NEA. You might not ever see Bill making a presentation at an ESP conference, but you can be very sure that he is there working behind the scenes setting rooms up for presenters and running errands.
Bill suffered a reduction in income by taking an early retirement, but when his IMRF disability income is added to his Social Security disability income he makes ends meet. Not only does this suit Bill's retirement lifestyle at the moment, but also those of us who depend on his experience and expertise at helping to manage ESP conferences.
(Dave Arnold, a member of the Illinois Education Association, is head custodian at Brownstown Elementary School in Southern Illinois. He can be contacted at email@example.com.)
The views expressed in this column are those of the author and do not necessarily reflect the views of the NEA or its affiliates.
Dave Arnold: This school custodian and former Illinois Education Association ESP of the Year is a published poet. But most Association members know him best from the editorials -- Dave's View --