“One-third of millionaires never had a six-figure household income in a single working year. In fact, when we asked 10,000 millionaires what they did, the top three answers were engineer, accountant, and teacher.” - from Everyday Millionaires by Chris Hogan.
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Before talking about money any further, let's be clear about a few things.
First off, without question educators are vastly underpaid for their work. We could talk for days about teacher salaries ... but that is for another time.
Second, I am by no means a personal finance expert. The article contains very basic ideas, so if you are looking for detailed advice contact a retirement professional.
Finally, some may say it is taboo for a superintendent to talk about money. For a long time, I questioned whether or not to write this article. However - first and foremost - I am an educator. I have a passion for teaching and feel a personal responsibility to share information that may help other educators.
Given the importance of this topic, I am eager to pass along a few concepts that could impact your financial mindset.
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When new teaching staff start in our district I am intentional about creating several "touch points" early in the year. Not only am I hoping to build relationships with our employees, I am also willing to answer any questions they may have.
One of the topics of conversation I like to bring up is retirement.
Every state has a public employees pension program. While some pension programs are faring better than others (another conversation for another day) the general consensus is state pension systems are superior to private sector retirement programs.
Here in Iowa, we have a program called the Iowa Public Employees Retirement System (IPERS). Employees who work in an "IPERS position" have approximately 15% of their monthly salary automatically placed into their IPERS account. Nine percent is contributed by the employer, and six percent is contributed by the employee.
What does this mean? First, contributing 15% of monthly income into a retirement account is a great place to start. Second - and more importantly - a 9% employer (school district) contribution is an impressive fact many people do not realize.
Compare a 9% contribution to private business, where only 56% of employers offer a retirement "match." Furthermore, of those companies that do contribute to their employees' retirement, the average contribution is only 4.3%.
If you aren't following me, just know this: The average teacher is often better-prepared for retirement than the average business-world employee.
Let's go a step further and see how this generous contribution adds up over the long run.
Assume a teacher in Iowa has a starting salary of $38,500 and that teacher averages a 2% yearly increase. Furthermore, let's assume the teacher hits "full retirement age" at 55 (the earliest possible age in Iowa). Here are the full benefit amounts an individual will receive based on life expectancy:
75 Years: $943,582
80 Years: $1,179,478
85 Years: $1,415,373
90 Years: $1,651,269
Pretty good, huh?
Some readers may say, "A million dollars in retirement doesn't go very far anymore."
Fair point. Let's find out how we can earn another million.
Most districts offer retirement plans in addition to the public employees pension program, such as a 403(b) or a Roth IRA. If someone started investing $350 per month at 22 years old, she would earn another million by the age of 60 (assuming an average interest rate of 8%).
"But $350 per month is a lot of money for a beginning teacher!"
Totally agree. However, let's consider car payments. The average monthly car payment in the United States is $492. Now of course, most everyone needs a car. But do they need that nice of a car? Car loans are one of the biggest barriers to building wealth.
I was guilty of "needing" a nice car when I started my first teaching job. After getting my first adult paycheck I went down the road and picked out the first car I saw - an (almost) new Mitsubishi Endeavor SUV. It had everything I was looking for - six disc CD player, sunroof, heated leather, chrome wheels - this thing was sure to impress the ladies!
The car was fun to drive and I received some nice compliments, but at $500 per month in car payments I was spending a lot of money just to look cool. If I could do it over again, I would have settled for an older car and invested more money into retirement. If you are serious about having millions (plural) at retirement, getting rid of the car payment is a great place to start.
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What steps can school leaders take to ensure employees have the information needed to understand retirement?
First, school leaders must create an environment where staff feel empowered to ask money-related questions. Employees in many school districts believe asking questions about their paycheck makes them selfish or greedy. And staff who do muster the courage to ask questions are often greeted by irritated HR personnel.
Educators should never feel bad asking where their money is going. "Public employee pension programs" and "tax-advantaged retirement savings plans" are already complicated enough, the last thing employees should feel is embarrassed by asking perfectly reasonable questions of people whose job it is to answer these questions.
Next, leaders should be proactive in creating opportunities to educate staff about retirement. Many school districts only discuss retirement during new staff orientation and when employees near retirement. To better inform staff, leaders should consider bringing in outside speakers, setting up informational sessions in teachers lounges, and hosting a yearly personal finance fair.
Some leaders may say, "Outside speakers ... personal finance fairs ... what a poor use of time!" Unfortunately, this mindset is narrow minded. Effective educational leaders understand the connection between staff wellbeing and classroom outcomes. And since research speaks to the positive correlation between financial health and employee engagement, bosses would be wise to assist staff with questions about retirement.
Finally, school districts are relatively limited on the retirement choices they offer. Therefore, leaders should be prepared to give employees recommendations on educator-friendly financial planners in the area. Most finance professional charge nothing for an introductory conversation and are happy to answer finance questions and discuss retirement plan options.
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Chris Hogan goes on to say, "Teachers are often notoriously underpaid, especially considering how hard they work and how important their jobs are. And yet, teaching is one of the most common professions among America's millionaires."
The next time your business-world friends brag about money, simply nod your head and smile. Take comfort in knowing you are a future millionaire.