Secure Your Future
End of the year: Time for a financial check
Dec 11, 2008 4:56 PM
This is the last issue of the New York Teacher for 2008. We wish you a very happy, healthy New Year and hope that our columns this year have helped you to “Secure Your Future.”
The 2008 Retirement Confidence Survey ® (RCS) shows that only 18 percent of workers are very confident about having enough money to live comfortably in retirement.
Only 72 percent of workers report that they and/or their spouses have saved any money for retirement. Of workers age 55 or older, only 23 percent have total savings of $250,000 or more not including the value of a primary residence or a defined benefit pension plan. As you can imagine, those who are married, have a higher education and earn $75,000 per year or more are more likely to have saved for retirement and have higher savings balances. About 47 percent of workers have taken the time and effort to complete a retirement needs calculation — the basic first planning step that can help individuals determine how much they are likely to need in retirement.
Of course, UFT members are in much better shape than most workers. Not only do all UFTers have Social Security (as do most workers) and a defined benefit pension plan (as do about 18 percent of workers) and about 67 percent of UFTers participate in the TDA program (about twice as many as in other school districts), but they also get information and support from the UFT and TRS.
You should take the time as the year draws to a close to conduct an annual review of your finances to monitor and make any adjustments to ensure that you are meeting your financial objectives.
The following six steps are suggested:
1. You should outline or reconfirm your financial goals. Start by evaluating your spending priorities and your savings targets. Some spending and savings priorities should include setting up an emergency fund, retirement savings, home purchase, children’s education as well as your other fixed and variable expenses. For priorities such as retirement and college savings, you should use the automatic savings mechanism of the TDA and the New York State College Fund (see your school secretary). These deductions can be made directly from your paycheck. For your emergency fund, you should use liquid, nonvolatile instruments like bank accounts and money market funds.
2. You should eliminate your outstanding high-interest debt. A financial plan for an individual with high-interest credit-card debt should include a plan to eliminate this debt. You should manage your cash flow so that you do not add to your outstanding debt. A rule-of-thumb recommendation is that no more than 20 percent of your net pay goes to financing non-housing expenses; no more than 30 percent of your net pay should go to housing expenses like rent or a mortgage.
3. You should evaluate changes in your personal situation. As part of your annual review, make sure you have taken appropriate measures in your financial plan to account for significant life event changes — such as marriage, birth of a child or grandchild, divorce or death. Update the designation of beneficiary (or beneficiaries) on your retirement accounts and insurance documents. Draw up or review your will (and/or other estate documents) and note how your assets are titled. If you are married, have your spouse do the same. How your assets are titled will determine whether someone gets access to them immediately upon death or if they have to wait for legal proceedings.
4. You should revisit your insurance coverage levels. Insurance needs change over time, so make sure to check your life, health and disability policy levels for appropriateness. Life insurance needs may increase or decrease. If a child graduates from college, you may wish to lower your insurance. If a child is born, you may wish to increase your insurance. As you grow older and have more assets, you may not need as much insurance. If your salary increases, you might need more disability insurance. You may wish to consider purchasing long-term-care insurance. Lastly, you should examine your homeowners, auto and other liability insurance. You should strongly consider excess liability coverage, frequently called an umbrella policy.
5. You should consider your tax situation. Begin by checking your withholding amount. Make sure the appropriate amount is being deducted from your paycheck. Pay enough to avoid penalties, but not so much that you reduce your paycheck unnecessarily. Contribute to the TDA or other tax-favored programs that you may be eligible for.
6. You should review your current asset allocation. How much of your investments should be in stocks, bonds, cash, real estate or other asset classes? Review your tolerance for volatility and all of your family investments, not just the TDA. Experts say as you invest for long-term goals you can invest in more volatile assets. As your investment time period shortens, the asset allocation should be less volatile. Short-term investments, like your emergency funds, should be invested in nonvolatile instruments.
Your financial plan should evolve as your personal circumstances change. This exercise should be done annually.
New member kits
You should have received the first part of the new member Welcome Kit. Included in this distribution was a publication, “Your TRS Benefits in Brief,” and enrollment and beneficiary forms. Please file all the forms with TRS and make sure you include proof of your date of birth.
The second part, which includes a CD that is a detailed Summary Plan Description of your benefits and other publications, will be distributed in early 2009.
ABS and QAS
All members should have received their Annual Benefit Statement (ABS) and Quarterly Account Statements (QAS). If you did not receive both, contact TRS (see phone number below).
“Secure your future” is compiled and written by Mel Aaronson, Sandra March and Mona Romain, teacher-members of the NYC Teachers’ Retirement Board. For further information on items discussed, call your UFT borough office or the TRS. BRONX: 1-718-379-6200; BROOKLYN: 1-718-852-4900; MANHATTAN: 1-212-598-6800; QUEENS: 1-718-275-4400; STATEN ISLAND: 1-718-605-1400; Teachers’ Retirement System: 1-888-8NYC-TRS (692-877), www.trs.nyc.ny.us.
