There are financial advisers who suggest that retirees will need only about 70% of their present income when they retire. But because of the ravages of inflation, the fact that retirees will need money much longer because we all live longer, and because most retirement plans have little or no cost-of-living adjustments, it would seem logical that teachers should error on the side of having too much money when they're retired rather than too little.That is why it is suggested here that all teachers make their own decisions and estimations of how much they expect their life style to change after they retire. Most of the retired people that I know say they want and need about the same amount of income as when they were working.
The chart below shows the shortfall teachers will have if their income is reduced to 90% of their present salary which seems to be reasonable because of inflation and our living longer after retirement. It is shown to help teachers understand how serious it is to not have enough money when they retire.
The chart shows how much money a teacher would be short every year if their ONLY retirement income is their District retirement plan.
The bottom line is that without supplemental income, teachers retirement income alone will not be enough.
The chart is based on California's state teachers' retirement plan (STRS). The amounts shown are based on a final salary of $65,000 a year, reducing income need by 10%, and an inflation factor of 4%. It also includes the 2% non-compounding yearly increase. It shows that the yearly shortfall is not critical in the first few years of retirement but during the later years, the shortfall could be devastating. How does a 90 year old retiree make an extra $80,000 to make up for a shortfall?
|
Year |
Expenses |
Retirement |
Shortage |
|
1 |
$58,500 |
$46,800 |
$11,700 |
|
2 |
$60,840 |
$47,736 |
$13,104 |
|
3 |
$63,274 |
$48,672 |
$14,602 |
|
4 |
$65,805 |
$49,608 |
$16,197 |
|
5 |
$68,437 |
$50,544 |
$17,893 |
|
6 |
$71,174 |
$51,480 |
$19,694 |
|
7 |
$74,021 |
$52,416 |
$21,605 |
|
8 |
$76,982 |
$53,352 |
$23,630 |
|
9 |
$80,061 |
$54,288 |
$25,773 |
|
10 |
$83,264 |
$55,224 |
$28,040 |
|
11 |
$86,594 |
$56,160 |
$30,434 |
|
12 |
$90,058 |
$57,096 |
$32,962 |
|
13 |
$93,660 |
$58,032 |
$35,628 |
|
14 |
$97,407 |
$58,968 |
$38,439 |
|
15 |
$101,303 |
$59,904 |
$41,399 |
|
16 |
$105,355 |
$60,840 |
$44,515 |
|
17 |
$109,569 |
$61,776 |
$47,793 |
|
18 |
$113,952 |
$62,712 |
$51,240 |
|
19 |
$118,510 |
$63,648 |
$54,862 |
|
20 |
$123,251 |
$64,584 |
$58,667 |
|
21 |
$128,181 |
$65,520 |
$62,661 |
|
22 |
$133,308 |
$66,456 |
$66,852 |
|
23 |
$138,640 |
$67,392 |
$71,248 |
|
24 |
$144,186 |
$68,328 |
$75,858 |
|
25 |
$149,953 |
$69,264 |
$80,689 |
|
26 |
$155,951 |
$70,200 |
$85,751 |
|
27 |
$162,189 |
$71,136 |
$91,053 |
|
28 |
$168,677 |
$72,072 |
$96,605 |
|
29 |
$175,424 |
$73,008 |
$102,416 |
|
30 |
$182,441 |
$73,944 |
$108,497 |
In addition, most teachers do not know that, because of two Social Security regulations, it is unlikely that most teachers will receive full Social Security benefits.
1) If the school district does not withhold Social Security taxes, the teacher will usually receive only about 40% of the credits earned when they worked on another job where the taxes were withheld. Click here to see the Social Security publication that explains this situation.
2) The other situation is when a teacher expects to receive any benefits from the spouse's benefit. In most cases, no benefits will be paid. For the publication about this situation click here.
Go on to learn about compound interest 
