Retirement Guide for Indiana Teachers
As a teacher thinking about when you should retire, you have a lot to consider.
In this guide, we cover the essentials so you can determine when to retire from teaching and how to make your retirement meaningful. We want to provide you with an overview of the procedures of the Indiana State Teachers Retirement Fund (ISTRF), as well as the personal and emotional considerations involved in retiring from such a meaningful and important profession.
We at the Indiana Retired Teachers Association (IRTA) are committed to assisting active educators in making informed retirement decisions. We work to protect retirement benefits and to improve retirement benefits of all retired teachers.
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Questions to Consider as You Plan to Retire
- How early should I retire?
- How much ISTRF and Social Security income will I have?
- What other sources of income, in addition to my ISTRF and Social Security income, will I have (savings, deferred compensation, IRA’s, etc.)?
- Do I plan to work after retirement? If so, will I work part-time or full-time
- Have I given consideration to my leisure time and volunteer activities during retirement?
- Medical insurance coverage until the age of 65.
- Medicare coverage and insurance after age of 65.
Most teachers work hard throughout the school year for a modest salary, and many take on part-time jobs in the summer or seasonal work in between. It's hard to make those dollars stretch to cover expenses and bills, let alone save money toward retirement. The answer? Best not to hide your head in the sand and ignore the situation. You can do more than you think possible if you make a plan and start doing what you can TODAY to make sure you have enough to last you through retirement. We're not going to tell you how to spend your money or how to pinch pennies. Rather, we have some practical financial wisdom from professionals from Morgan Stanley who presented a webcast on this topic earlier this summer. You can see the entire webcast here.
- Retirement savers are less likely to have pensions.
- Interest rates are lower, and with them, returns for retirement investors.
- People are living longer and 30+ year retirements are common
- Health care costs—a major source of retiree expenses—are going up faster than inflation
With these challenges for educators come questions about how to make your salary last through retirement. How does your strategy need to change when you've gone from saving to spending? What can you do to make up for lower investment yields? How can you ensure your savings will last? Will inflation impact your quality of life in retirement? These are serious questions to consider, so let's talk about steps we can take.
How Early Should You Retire From Teaching?
It's good to know when you are eligible to receive pension benefits, but this doesn't necessarily mean you'll want to retire as soon as you are eligible. Many financial, personal, emotional, physical factors should be considered in your decision. We will get to those.
First, let's look at the nuts of bolts of retirement benefits. and other In Indiana, according to the INPRS, when you have at least 10 years of service in a TRF- or PERF-covered position, you are considered vested. This means you qualify to receive a monthly pension benefit, once you meet age and service requirements.
If you meet the age and service requirements for regular retirement, you will have a few payment options. All current benefits and retirement details can be found here on the INPRS website.
The question is when should I retire. The regular retirement information above shows when you can retire with full retirement benefits, but what happens if you want to retire early?
You can retire early, but you will receive a reduced amount of your normal annual pension benefit. It's important to know that you will receive this smaller amount for life.
So, the question "when should I retire" depends on many factors, but age and years of service play a key role on when you can retire with full benefits.
You can retire early, but you won't get full benefits. You must be between age 50 to 59 to retire early. You must also have at least 15 years of service credit. See the table below to find out how much less money you will receive if you retire early. At 59, you get 89% of your benefits, but at age 50 you only get 44%. That is a significant difference.
How To Calculate Pension Benefits
When you retire, you will be able to select one of six options for your monthly pension benefit and you can see all of your options here. It is a good idea to consult with a financial advisor to discuss the best option for you.
There are many, many variables in play for estimating what your benefits will be at retirement. To make it easy, use this Benefits Estimate Calculator on IN.gov. You can plug in all your variables and play around with it to find estimate your monthly benefit at retirement. You will need to know the following to use the calculator:
- Projected retirement month and year
- Date of birth
- Average Salary (average dollar amount of your five highest yearly salaries)
- PERF creditable service
- TRF creditable service
- Do you want to include a beneficiary?
- Do you want Social Security Integration as an option?
How Much Income Will You Have?
One of the biggest factors in your decision to retire will be how much income you can expect.
1. Start Early!
I think we all know by now that we can't rely on pensions and social security to keep us comfortable in retirement. Those things alone aren't enough. It's important to start saving and investing early in your teaching career. Create a savings plan with a financial adviser and start socking away as much as you can, even if it's just a $100 a month at first. When you start saving early, you get the advantage of compounding interest, so you can save as much as someone else who starts later, and make more money in the end. Waiting just 10 years can severely impact the potential of your investment, as you can see in this hypothetical time horizon below:
Your financial adviser can help you plan for how much you'll need in retirement and how to reach your goals.
In other words, don't put all your eggs in one basket. Diversified portfolios can help mitigate risk. You might have some funds that are more aggressive, some more conservative. You might balance your portfolio in a way that is aggressive in your younger years, and then more conservative as you get nearer retirement. Your financial planner can help you figure out what model works best for you.
3. Have a Strategy for Managing Longevity and Inflation Risk
What does the future hold? Some things we can plan for, and others we can't. Future economic and personal circumstances can be unpredictable, but you can still plan for those unknowns. In some cases, the best strategy for managing those risks might be a specific mix of traditional products. In others, non-traditional investments and/or insurance products like annuities may be called for.
4. Monitor Your Progress: Are You Funded for Retirement?
Finances may not be your thing, which is why a professional can help you make decisions along the way and monitor your progress. You can use a market interest rate-based funding ratio as a measure of progress toward your retirement goals. You can see the chart below as a reference for when you're on track, off track, or at risk.
Note that younger investors can be on track with lower funding ratios, as their savings has more time to grow.
5. Course Correct: Choose the Strategy Suited to Your Needs
If you are fully funded, there's no need to take on more risk. Risk is more risky near retirement, so it's important to mind your time horizons. At or near retirement is the time to closely examine your withdraws and
There are different levers you can pull if you are off track. Can you start putting more savings away? Are you willing to take on more risk? If you're monitoring your progress and keeping a close eye on funding ratios, you can take action to close those funding gaps in your portfolio.
6. Greater Tax Efficiency Helps
Taxes can significantly erode your investment returns over time. Be mindful of where and how you own investments. Spend time with your accountants or financial planner to determine how you can be most tax efficient when you take money out of your accounts in retirement.
7. Stretch All Your Resources
If you can afford it, wait to take Social Security. Some recommend waiting until age 70 to stretch your social security benefits to the max. If you take Social Security benefits early, your monthly benefit and total benefits received until age 90 will be much lower than if you had waited. Age 70 is about the sweet spot when your total and monthly benefit until age 90 is highest. Now, everyone's situation is different and circumstances may compel you to take benefits early, and that's OK. If you're in good health and favorable circumstances, many advisers recommend waiting.
What Will You Do After Retirement?
If you have planned properly, your financial picture should be clear for your post-retirement years. But what about your emotional needs? Have you thought about the psychological impact of ending your career?
According to a survey by Ameriprise Financial, 37 percent of recently retired Baby Boomers miss the daily socialization with colleagues. Nearly a third of the respondents (32 percent) said they had a difficult time getting used to retirement.
So, how do you deal with your feelings during this significant life change?
Here are some tips:
Ease into retirement. Some people can quit work cold turkey. Others cannot. You might consider working in education part time. If you taught elementary school, you could work one or two days per week at a preschool or day care center. If you taught high school students, you could teach one class per semester at a local community college.
Discover your new purpose. We are programmed to contribute to society. You became a teacher because you care about others. Sometimes, new retirees see themselves as no longer useful. Fuel your passion to help others by volunteering. Research and advocate for a cause that makes a difference in your community. If you find yourself struggling, contact a counselor who can help you process your feelings and help you get involved.
Get yourself socially connected. Let’s face it – your friends at work got you through the weeks, months and years. Avoid sitting at home all day watching television. Join a service club, regularly meet friends for lunch or organize a community project.
Connect and reconnect with family. Being an educator often took time away from them. Now is the perfect time to spend quality time. You don’t have to take expensive trips. Being together at a cookout, a family hike or a ballgame will bring you closer.
Exercise. Take long walks every day possible. Join exercise classes at a local gym or have a trainer help you with an appropriate routine. Not only does exercise help you live longer, it greatly enhances your mental health.
Keep learning. Your brain also needs constant exercise and challenge. Maybe you always wanted to paint or play the guitar. Check out free classes offered by your library or community center. Take a community college class on a topic that fascinates you.
Travel. Go to the places that you studied in your classrooms. The anticipation and excitement of visiting a new city or foreign country help keep you young at heart.
Enjoy the benefits of your age. Yes, the knees and back don’t work as well as your younger days. But age provides great wisdom and perspective. Share those gifts as often as possible with your family, friends and community. Write a blog about your life’s experiences as a way to help others find peace and purpose.
The quality of your retirement years will depend on how much time you invest in it. Life can be as exciting and rewarding as those days in your classroom.
Resources & Links for Indiana Teacher Retirement Plan
- The Official Website of the Social Security Administration
- The Congressional Budget Office – Nonpartisan analysis for the U.S. Congress
- The Congressional Budget Office – Poverty and Income Security page
- American Academy of Actuaries
- American Academy of Actuaries – The Social Security Game
- Just Facts – a resource for independent thinkers