Departments: Money
Look Before You Leap

Q: I have worked in public schools for 26 years. I want to continue to work, but in a less stressful job, which means lower income. Does salary amount really matter when retiring or is years of service the most important thing to consider?

A: The amount of salary definitely matters. You need to check with the human resources department in your school district to get the pension formula for your plan, but taking a lower salary could be a mistake.

Here's why. Pensions are usually determined by taking a percentage of the final salary times the years of service. To use a simple example, let's say the formula is 3 percent of your final salary times years of service. Let's assume you make $50,000. Three percent of $50,000 is $1,500. If you retire now with 26 years of service, that would give you a pension of $39,000 ($1,500 times your 26 years). If you take a job within the district at $40,000 and retire four years from now, 3 percent of your final salary would be $1,200. Multiply that times 30 years of service and your pension is $36,000. So you are actually penalized for working longer.

If your plan is similar to what I've outlined, you might be better off retiring with the higher pension and getting a less stressful job somewhere else (assuming there's no bonus for completing 30 years of service). Benefit plans vary greatly, so get the formula for your district and do the math before deciding. Money's not the most important factor-your quality of life over the next few working years is critical. But you should have all the information before making a decision.

Q: How did you open an IRA for your 15-year-old daughter? I was told that my son must be 18.

A: I was told the same thing at our local bank, but I argued about it and insisted that the bank employee research the rules. She made a few calls and ended up opening the IRA account.

I've found that most well-informed consumers know more than the employees of the average financial services institution about matters like this, so don't give up.

But, I didn't succeed in opening a checking account for my daughter's 16th birthday. I want my daughter to learn how to budget her money and use an ATM card before she goes to college and has too much independence tossed at her all at once. But the bank refused on this one. They said that someone under 18 is not fiscally responsible.

Q: We want to open an IRA for our 19-year-old daughter. How do we decide between a Roth and a regular?

A: I opened a Roth for my daughter. The earnings on a regular IRA are taxed when they are withdrawn, while the earnings on a Roth are never taxed.

That seems a big advantage to a young person who has such a long time to let the money grow. The advantage to a regular IRA is that you can deduct the contribution from taxes. But my daughter's income is so low that she already is in the lowest tax bracket.

Q: I am 55 and recently divorced. I refinanced my house at 8 percent so my husband could get his share of the equity, and he received half of my retirement benefits. Can I refinance at a lower rate and put the savings back into my retirement account?

A: I think you could get a better rate on your loan because interest rates are low now. But I'm less certain of your ability to pump that extra money back into your retirement plan.

Plans have specific rules on contributions. Some, like 403(b) plans, have catch-up provisions. It's worth checking out. Even if you can't put it into your plan, the refinancing could still make sense for you if you plan to stay in the home for a while. You could put the monthly mortgage savings in another account.

Mary Rowland is an author and contributor to several financial planning magazines. E-mail your personal finance questions to MoneyQuestions@neamb.com.

Thrifty Educator

This month's tips come from Bonnie McMoran, an EJHS English and Reading Teacher from Boise, Idaho, and Arietha Lockhart, a music specialist at Medlock Elementary School in Decatur, Georgia.

McMoran: I found a great use for electrical tape available at any home improvement center.

Use electrical tape to make lines or grids on a white or chalk board. They come in a variety of colors, are inexpensive ($2 for a set of colors), and won't stick permanently to the board.

I use the tape in my classroom to set up an agenda using a 4 x 6 grid for each subject and each day of the week. I set up the agenda like it is in the student's agenda so they aren't confused when they write the information down. The grid is a great visual tool for students, the teacher, and substitutes.

Lockhart: I'm a music educator, and for my elementary students, learning to keep a steady beat is an important skill. To help them, I give each student bottle drums-recycled 64-ounce plastic juice jugs. We do a lot of large group responses as well as echoing individual students. It would cost hundreds of dollars to purchase drums for the entire class, but students can recycle at home and the beat can go on and on and on...

Got an Idea?
If you have a suggestion for how your colleagues can save money at school, send it along to neatoday@nea.org.

Heads Up from NEA Member Benefits

Statistics show that educators have better than average driving records, meaning fewer accidents and claims. That's why NEA Member Benefits can offer NEA members fantastic rates through the NEA Members Auto & Home Insurance Program^TM, underwritten by California Casualty. For over 50 years, California Casualty has provided educators with auto and home insurance programs to meet their needs.

The auto insurance portion of the program features various types of coverage, including motorcycle and boat coverage for NEA members. A few of the unique educator benefits are: convenient payment plans with summer skip options, a collision deductible waived for accidents involving other NEA Members Auto & Home Insurance Program policyholders, and up to $250 coverage for any kind of personal property stolen from a vehicle.

The home insurance portion of the program provides specialty coverage for vacation homes, rental homes, and permanent residences. Unique homeowner policy options include coverage up to $500 for fundraising money lost or stolen on school premises, up to $2,500 for a computer used in educator business stolen at or away from home, and educator excess liability coverage provided at no additional cost.

Already available in half of the states, this exciting program will be available to all NEA members nationwide over the next few years.

For more information, see the "Are we there yet?" ad on page 6, or visit the NEA Member Benefits website at www.neamb.com.