When I tell people that most of my clients are K-12 teachers and other public school employees, I usually get a confused response. Why so specific? Don’t teachers have pensions? Can teachers afford to pay for financial guidance? In short, public school employees can't afford to skip financial advice. Here are my top two reasons why:
The Educator’s Pension
Ironically, having a pension can create the illusion that financial planning is unnecessary. Many educators know they have a pension but don't understand how it works, and instead of it prompting them to seek financial advice, it leads them to delay. I've met many educators who wish they had understood their pension rules earlier. I focus on working with educators because understanding their pension is crucial. Lack of knowledge and advice about your pension can be very costly.
In several states, retired teachers and other state workers have yet to receive a cost-of-living adjustment to their pension checks. And with inflation and the cost of health care continuing to rise, many retirees are at a loss.
The 403(b) is a Mess
In effort to combat the unreliability of the pension system, educators wisely seek out other avenues to supplement their retirement income. The 403(b) method can be a helpful option. Employees enroll and participate through their employer and contributions to are made through a Salary Reduction Agreement. The employee agrees to take a reduction in salary, and the reduced amount is then directed to investments and excluded from the employee's taxable income.
But there's one problem: The K-12 403(b) world is a mess, plagued by salespeople who prioritize selling their products over providing the best options. This reduces education and worsens retirement outcomes. Many educators aren't aware of their best 403(b) options, leading to expensive mistakes. Bad 403(b) decisions can be very costly; I help K-12 educators navigate their 403(b) choices to ensure they get the best results.
403(b) ranking is a crucial topic to understand, especially if you're a public school employee participating in a 403(b) or 457(b) plan. Not all providers are created equal; companies like Voya, Aspire, Ameriprise, and National Life Group differ significantly in terms of their offerings.
Dan Otter, a veteran teacher, established 403bwise.org in 2000. This non-profit organization aims to provide retirement resources and education specifically for K-12 teachers. With a bold tagline on its website stating, “The K-12 403(b) is broken. Together we can fix it,” the primary
mission of 403bwise.org is to highlight the issues within the K-12 403(b) system, promote transparency, and advocate for better investment options for educators.
Where Does Your Vendor Rank?
One of the most valuable tools on their site is the 403(b) rating system. I highly recommend checking this list and considering two critical questions:
1. What rating does my 403(b) vendor hold?
2. If my employer doesn’t offer a green-rated vendor, why not?
This information can guide you in making more informed decisions about your retirement savings and ensure that you're not at a disadvantage.