Hiring a financial advisor is a great idea for anyone who wants to boost their chances of living comfortably in retirement, but it's especially important for public school teachers. As state employees, public school teachers have access to the pension system along with other unique forms of investment. Unfortunately, not all of these investment vehicles are worthy of banking your retirement on. Hiring a financial advisor who understands the position that public school teachers are in will give you the best chances of retiring comfortably. If you teach in a public school, read on to learn three reasons you need a financial advisor on your side.
1. Relying on a State Pension Can Be Risky
Public school teachers have traditionally relied on state-run pension plans to support them after they retire. Teachers pay a portion of their paycheck to the state, who in turn supports them during retirement. However, many states have been reducing the funding for their government pension systems — this can result in low monthly payments that don't keep up with inflation.
Additionally, state pension plans aren't useful if you plan to move around during your teaching career. If you move to a different state, you may receive a much lower pension payment during retirement or nothing at all. Overall, it's not a safe strategy to rely solely on your government pension during retirement.
A financial advisor can help you make investments on your own, and that money will be yours during retirement — it's not tied to the state's ability to pay or the actions of the state legislature.
2. Many Teachers Won't Receive Social Security Payments
Due to the fact that many teachers pay into state pensions, some states don't require them to pay taxes for Social Security. In essence, the state pension is used as a replacement for Social Security payments made by the federal government. If you don't pay into the system during your career, then you won't receive Social Security benefits after you retire.
While the amount retirees receive from Social Security is quite low, it does provide an important safety net. Most financial planning advice is directed towards private employees who pay into Social Security rather than teachers who don't. If you're not paying Social Security taxes and won't receive benefits once you retire, it's important to hire a financial advisor that will make conservative investments for you — you'll rely heavily on them during your retirement, so you need to ensure that your money will be there once you retire.
3. 403(b) Investment Plans Vary in Quality
Many teachers enroll in 403(b) plans provided by school districts. They're essentially the non-profit and government equivalent of 401(k) plans offered by private companies — you pay a portion of your paycheck into the account and a plan manager invests it for you.
Unfortunately, there's a very important difference between 403(b) plans and 401(k) plans. 401(k) plan managers are legally and ethically required to act as fiduciary advisors, which means that all of their advice and investments need to be made in the best interests of their clients. 403(b) plans don't share the same regulation.
Due to the lesser regulation placed on 403(b) plans, it's important to contact a financial advisor before you enroll in one offered by your school district. Some offer matching contributions to the money you pay into your 403(b) along with a wide variety of investment choices, while others offer no matching contributions and push teachers towards purchasing investment products that the plan managers receive a personal commission for. A financial advisor can help you determine if your school's plan is worth investing in — in some cases, it's better to open a Roth IRA and make investments on your own.
Overall, being a public school teacher puts you in a unique financial situation when you're planning for retirement. Between state pensions and the availability of 403(b) plans, you have numerous options available to support you in retirement. If you teach in a public school, hiring a financial advisor is a great move — they'll help you navigate the available options to accrue the most money possible to support yourself in retirement.