Educators have a lot to handle on a daily basis. The amount of dedication and attention that we put into our jobs often eats a significant chunk of our personal time. As a result, we often forget or neglect to take time to do things that can improve our lives. One of the things we often ignore is money. Whether it’s understanding the differences between Tier IV and Tier VI, deciding whether to take out a QPP or TDA loan, trying to figure out how much to contribute to our TDA, or deciding how to invest our money, the majority of us are usually left wandering around in the dark desperately searching for a light switch.
I am not a financial expert by any means, but I have been reading books by people who seem to know a lot about the subject. In this series of articles, I will provide summaries of what I am reading in the hopes that it helps others when it comes to learning about and improving their financial situations. Again, this information does not come from me and I am not providing any financial advice. You can do with this information what you wish.
This first book is called TL; DR: Financial Literacy for New York City Public School Teachers: Optimizing Financial Decisions Based On Your TRSNYC Benefits by Karl Fisch & Christopher Travers. The book is broken up into four parts. For the sake of brevity, each of the first four posts in this series of articles will be devoted to a different section of TL; DR: Financial Literacy for New York City Public School Teachers: Optimizing Financial Decisions Based On Your TRSNYC Benefits. You can read Money Moves Part 1 here.
Part 3: Optimizing Your Financial Planning
pp. 79-81: Optimizing Your Defined Benefit - Look into purchasing service credit if you are eligible. It will increase your pension. You should also look to max out your Final Average Salary towards the end of your career. Earn any educational salary increases (i.e. Masters +30 credits). If you’re up to it, take on extra duties to bump your FAS. Take note of the date you can earn an unreduced retirement.
You can earn a maximum of 200 CAR days throughout your career. Once you leave service, you will be reimbursed for half of your CAR days. You will be paid in three installments - two months, 14 months, and 26 months after the date you left. COVID vacation days pay out at a 1:1 rate.
Consider moving to a different part of the country where your money can go farther in retirement.
pp. 82-94: Optimize Your TDA, Deferred Compensation Plan, HSA, and 529 Plan Investments (Asset Allocation) - It’s difficult to give advice since everything is based on individuals’ unique situations, but, most people should be contributing to their TDA, 457, an IRA outside of work, and HSA if you have a high deductible health plan.
When investing in a TDA or 457, always be on the lookout for low fees.
Invest in an IRA through Vanguard or someone else with low fees. However, there are income limits that limit how much one can invest in an IRA. There are different limits for Traditional and Roth IRAs. You can check the IRS website or Google to see what the limits are.
All things being equal (fees and investment choices), it is recommended to invest in a 457 before a 403b because it’s easier to withdraw money before 59 1/2 (editor’s note: a 457 does NOT offer a Fixed Return option so you’d be forced to invest in stocks).
It can be tricky deciding between investing in a Traditional or Roth IRA. Many people invest in both.
If your spouse has access to an HSA, it is well worth it to invest.
Your Asset Allocation and Risk Tolerance: Since we get guaranteed lifetime money through our pensions and social security, we can make riskier decisions (investing in stocks) with our TDA contributions.
Your investment choices are based on your risk tolerance. Stocks outperform bonds over time, but are much more volatile. You must think about how you’re likely to react. If you think you’re going to panic and sell stocks if they drop, then you may not want to be aggressive with your TDA investments. However, if you’re fine riding it out, you should invest mostly or completely in stocks. There is no one size fits all advice.
High Risk Tolerance: Consider investing 100% in equities.
TDA - 50% U.S. Equity Index Fund, 40% International Equity Index Fund, 10% Fixed Return Fund
NYCDCP 457 - 40% Equity Index Fund, 30% Small Cap Index Fund, 30% International Equity Fund
Vanguard Traditional and/or Roth IRA - 40% Vanguard Total Stock Market Index Fund, 30% Vanguard Small Cap Value Index Fund, 30% Vanguard Total International Stock Index Fund
You may want to consider periodically rebalancing your allocations based on how your funds are performing.
Medium Risk Tolerance: Consider investing mostly (but not 100%) in equities.
TDA - 50% U.S. Equity Index Fund, 50% Fixed Return Fund
NYCDCP 457 - 50% Equity Index Fund, 50% Target Date Fund (choose the fund that is roughly 10 years after the year you plan on retiring)
Vanguard Traditional and/or Roth IRA - 50% Vanguard Total Stock Market Index Fund, 50% Vanguard Target Retirement Date Fund (choose the fund that is roughly 10 years after you plan on retiring).
Periodic rebalancing recommended.
Lower Risk Tolerance: Equities should be overweighted but not as much as the Medium Risk Tolerance level.
TDA - 25% U.S. Equity Index Fund, 75% Fixed Return Fund
NYCDCP 457 - 25% Equity Index Fund, 75% Target Date Fund (choose the fund that is roughly 10 years after the year you plan on retiring)
Vanguard Traditional and/or Roth IRA - 25% Vanguard Total Stock Market Index Fund, 75% Vanguard Target Retirement Date Fund (choose the fund that is roughly 10 years after you plan on retiring).
Periodic rebalancing recommended.
Very Low Risk Tolerance: If you think you will panic, just pick a Target Date fund and forget about it. It will rebalance for you.
TDA - 100% Fixed Return Fund
NYCDCP 457 - 100% Target Date Fund (choose the fund that is roughly 10 years after the year you plan on retiring)
Vanguard Traditional and/or Roth IRA - 100% Vanguard Target Retirement Date Fund (choose the fund that is roughly 10 years after you plan on retiring).
No matter your risk tolerance, never sell, except when rebalancing. Pick your strategy and stick with it. The worst thing you can do is panic sell when the market is at its lowest.
New York’s College Savings Plan (NY 529) - An excellent choice when saving for your child’s college tuition. State tax deduction of $5,000 ($10,000 if married filing jointly). Since the 529 isn’t a long-term (i.e. retirement) investment, you may not want to be as aggressive as you would be with your retirement, but you can still mostly invest in stocks, especially when your child is younger. You can decide to get more conservative as your child approaches college age. Website: nysaves.org
p. 77: Go to the TRSNYC website or speak with a TRSNYC counselor with any questions.
Hopefully, this brief summary of Part 3 of TL; DR: Financial Literacy for New York City Public School Teachers: Optimizing Financial Decisions Based On Your TRSNYC Benefits has provided you with useful information. The final installment for this book, Part 4: Scenario Planning, coming soon…