REAL CASES

BUSINESS OWNER

RETIRED COUPLE

TEACHER

GENERATIONS OF A FAMILY

SUCCESSFUL SALESMAN
Teaching is a noble profession. While not a highly paid one, the benefits are often excellent, but we say that with a few caveats. In the K-12 educational arena, teachers are frequently the unwitting recipients of: (1) expensive financial products, (2) bad financial planning advice, and (3) Social Security's "gotcha" provisions.

When Peggy Sue Holly* and her husband Buddy were referred to us by an elementary school principal from Gwinnett County (Georgia) for retirement planning, we were wary of the three problems mentioned above. 

What We Did

Peggy Sue was one of those rare people who had been a teacher in the same school district for 32 years. She started at twenty-three, left the profession for ten years to rear her children, and then had then come back to teaching. Now that she and Buddy were both approaching sixty-five, they wanted to understand what their retirement could look like. 

What follows are some of the mistakes educators make and/or encounter when planning for retirement:

  • 403(b) Plans/Tax Sheltered Annuities - These are products in most K-12 school systems that function very similarly to 401(k)s, but without the match. Peggy Sue had purchased one from a man that gave a lunch-and-learn retirement plan meeting at her school decades ago. Monthly paycheck after monthly paycheck, and with increases along the way, contributions were made into this product. Decades later, it was valued at nearly $100,000. The annual fee - buried in the product literature and the insurance company's financials - was over 3% per year. Clearly, a significant amount of money was lost to fees over the preceding years and there was nothing that could be done to get those fees back. We could do something in looking forward and thus, we recommended that Peggy transfer that money in that product to a low-cost IRA, thus saving her a few thousand dollars in product fees in the first year of retirement.
  • Inappropriate Financial Planning Advice - Prior to her meeting with us, Peggy Sue had been approached by someone recommending that she use a strategy known as "pension maximization." The pitch goes something like this: Rather than taking a pension option at retirement that gives leaves a survivor benefit to Buddy at Peggy Sue's death, she should take the maximum pension at retirement - the one with no survivor benefit for her husband. With the extra money she would receive because there would be no survivor benefit, she would purchase a life insurance policy on her life. When she dies, the life insurance proceeds would be used to provide Buddy with an income. For Peggy Sue and her husband, this was horrible advice for several reasons: (1) Her husband would lose the health insurance benefits provided by the school system when Peggy Sue dies, and (2) the Teacher's Retirement System of Georgia has numerous "pop-up" provisions for Peggy Sue and Buddy to choose from that provide more options at a lower cost than the "pension maximization" solution. Fortunately, we were able to prevent Peggy Sue and Buddy from acting on bad advice.
  • Social Security Gotcha's - Social Security has two provisions - known as the Government Offset Provision and the Windfall Elimination Provision - that negatively affected Peggy Sue and Buddy. The reason for this is that Gwinnett County does not require its teachers to pay Social Security Taxes. As a result, whatever Social Security benefit they might be eligible to receive is reduced by Peggy Sue's government pension . Furthermore, spousal benefits from Social Security are also reduced by Peggy Sue's government pension. Peggy Sue and Buddy were very surprised and disappointed to learn that the reports they'd received from Social Security were "wrong" and that there was nothing that could be done. 

Contact us so we can be of help. 

* Penny Sue and Buddy Holly are fictional names and they represent, in one hypothetical family, the work we have done for real clients. 
Strategic Wealth, LLC | 5957 Shiloh Rd, Suite 114 | Alpharetta, GA 30005 | (678) 456-5060