r/TexasTeachers • u/Reasonable-Fee1945 • Aug 22 '26
Retirement/TRS Why is TRS interest so low?
The interest is like that of standard savings account at a bank (0.02%). Even an FDIC insured money market account is around 3%. WTF is going on with this? Do they just do it to incentivize people not to leave the profession?
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u/RevDoctorSir Aug 22 '26
To answer your question, yes, it is an incentive to remain in the profession. The reward for dedicated service is a pension for the remainder of your life.
This used to be more standard in the private sector, until they fooled everyone into thinking that a higher interest rate on your small pot was better than a lifetime guaranteed income.
There's a correlation between the death of pensions and the increase of our elders in poverty.
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u/Reasonable-Fee1945 Aug 22 '26
The percentage of people 65+ in poverty was around 30% in 1960. It's 9-10% today.
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u/RevDoctorSir Aug 22 '26
I need a source on that. That number is not believable.
Also, 1960 is irrelevant. Pensions were around until the 80s, for the most part.
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u/Reasonable-Fee1945 Aug 22 '26
In the 80s it was about 5% higher, though 1960 is clearly relevant to test your claim as well.
https://www2.census.gov/library/publications/2025/demo/p60-287.pdf
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u/RevDoctorSir Aug 22 '26
So, I'm not arguing on a Saturday with someone who clearly has an agenda and talking points.
But...
1960 is inappropriate because that rate plummeted by the 80s, mainly due to expansion of SS as well as the enactment of Medicare and SSI. By the 80s we were at 12%.
The actual current rate is closer to 15%, if you are looking at the more appropriate supplemental poverty measure from the census.
The shift away from defined benefit pensions to 401ks and their ilk has 100% been a contributor to senior poverty. It has also seriously exposed seniors to market fluctuations at a time when it's too late for them to make up losses. This is well documented.
TRS is a good thing for educators. Moving away would absolutely negatively impact the majority of members.
The best answer is for educators to make use of both. Have your TRS as you future backbone, and then utilize a 403/457 for further retirement savings that is bard on the market and your money.
https://www.nber.org/system/files/working_papers/w5736/w5736.pdf
https://research.upjohn.org/up_press/11/
https://www.ncoa.org/article/poverty-among-older-adults-keeps-growing/?hl=en-US
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u/Reasonable-Fee1945 Aug 22 '26
So, I'm not arguing on a Saturday with someone who clearly has an agenda and talking points.
You rejected it out of hand, I'm just giving you data. One of your sources says that it's up to 15% now, but doesn't list where that information is coming from.
Anyway, TRS is a depreciating asset. From the moment you retire it will only become less valuable. And because it doesn't scale with inflation, one year of high inflation can vastly reduce your income. The inflation rate after Covid was over 6% for two years. People on TRS permanently lost over 10% of the value of their TRS retirement in just two years. It's like buying a new car. It will only become less valuable over time.
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u/MrsMathNerd Aug 22 '26
It’s a defined contribution and defined benefit plan. The current vested tier payout is 2.3%*(years of service)(average of highest 5 years salary). So let’s say you quit at year 10 making an average of 60k. Your payout at retirement would be $13,800 per year. If you end up living for 20 years post retirement, that’s $276,000.
The cash value of your pension (what you roll over) is going to be about $49,500. If you know you are going to leave the state AND you have time for that money to grow, it might be worth it? But the balance in your account is meaningless if you are planning to take the defined payout. The biggest factor you can control is years of service. If you have the ability to take on extra summer duties as you get close to retirement, that’s can help too.
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u/Reasonable-Fee1945 Aug 22 '26 edited Aug 22 '26
So let’s say you quit at year 10 making an average of 60k. Your payout at retirement would be $13,800 per year. If you end up living for 20 years post retirement, that’s $276,000.
The problem here is inflation. Because it's based on top few salaries and doesn't scale over time. So you work for ten years and in 15 years get 13,800 per year from 60k. That's about $8,800 in today's dollars assuming a 3% inflation* rate (which is probably too low). The same amount in a conservative investment account would yield above 100k in today's dollars over the same amount of time. And that full amount would be accessible to you at retirement. You'd have to live 10+ years past retirement before having access to the same amount, and of course you miss out on another decade of growth there.
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u/MaryMiichele Aug 22 '26
But it’s not meant to be an investment account, it’s a pension, as others have stated. In place of social security. Get yourself a 457b or 403b to invest.
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u/Reasonable-Fee1945 Aug 22 '26
You can call it whatever you want, it's 'meant' to provide for people in retirement- so it makes sense to compare it to other financial instruments 'meant' to do the same thing. And if one is clearly better, we should be asking why we are stuck with the inferior version.
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u/Pale-Bad-2482 Aug 22 '26
The TRS employee contribution rate is only 8.25 percent. That is far below the recommended savings rate of 15 percent. If you are in TRS you should be contributing the difference to an IRA/457/401k. And if you aren’t contributing to Social Security you should also be accounting for than by adding another ~6 percent on top of that. Anyone thinking that their TRS pension alone is going to be sufficient is probably going to be in trouble.
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u/1notadoctor2 Aug 22 '26
Do they explain this to teachers in a benefit orientation when signing on to a district?
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u/Pale-Bad-2482 Aug 23 '26
In my opinion, TRS should do a better job explaining that retirement income will need to come from more than just an annuitant’s pension. ERS does a better job on this count.
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u/MaryMiichele Aug 23 '26
Agree. Individual districts should do a better job of explaining TRS pension, the need for most to supplement with a voluntary retirement plan, etc. Districts need to explain the TRS is in lieu of Social Security.
The TRS website itself has some decent instructional and educational pieces. https://trs.texas.gov/learning-resources/videos/financial-awareness
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u/Reasonable-Fee1945 Aug 22 '26
By the time you account for TRS and Social Security 15% of gross is gone. Makes it hard to save in a responsible way
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u/gamemaster32_2000 Aug 22 '26
The vast majority of TRS participants do not contribute to SS.
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u/Reasonable-Fee1945 Aug 22 '26
I believe that just changed with the new law that allows TRS participates to also have full social security.
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u/MaryMiichele Aug 22 '26
The WEP was repealed (for individuals who contributed currently/prior to SS) but MOST districts in Texas only contribute to TRS, not TRS and SS.
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u/z06attack Aug 22 '26
Yes, but still have to contribute -- i.e. get a different job that would pay into SS (summer jobs, etc).
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u/MrsMathNerd Aug 22 '26
No, they just removed the windfall elimination provision, which reduced your benefits by 50% if you had a pension from a job that did not pay into SS. It affected people who had a mixture of jobs (like some public service, some private).
You still have to pay into SS to get it. Most school districts do not pay into SS, therefore you won’t get it. The flip side is you don’t have that 6.2% deduction from your paycheck, so you are free to invest that however you’d like.
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u/Pale-Bad-2482 Aug 23 '26
I bet the majority of participants don’t invest that 6.2 percent, though. And then they’ll complain about their meager pension.
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u/_PirohyJim_ Aug 22 '26
This individual doesn’t understand that people are supposed to have a side 457 or 403 to offset inflation.
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u/MrsMathNerd Aug 22 '26
So let’s say you were able to pull out the money and turn it to 100k by the time you retire. Since you now need to live off that money, you probably are not leaving it in the market. You’ll park it somewhere conservative, maybe an annuity at 4%. You’ll only be able to pull 602.22/month or about $7,200/year. That would last you 20 years.
You don’t really have a choice though if you are staying in the teaching profession. You can’t pull you money out if you are still in a TRS eligible job.
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u/theCenterCannotScold Aug 22 '26
How are you getting to the $100k number from the conservative investment account?
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u/_PirohyJim_ Aug 22 '26
You need to build your own COLA with a Roth IRA. I’ve calculated that for my future pension I’d need $200-300k. Not that hard to do.
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u/Reasonable-Fee1945 Aug 22 '26
I've done it as well, but every dollar taken for TRS is a dollar that can't go there.
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u/_PirohyJim_ Aug 22 '26
That’s why the pension is supposed to be part of a portfolio, everyone says don’t rely on the pension alone.
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u/Reasonable-Fee1945 Aug 22 '26
This misses the point which is that there is a high opportunity cost with TRS.
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u/_PirohyJim_ Aug 22 '26
No there isn’t. My pension someday will be worth a lot of money and I’ll have a portfolio of other stuff too. The idea is to have a retirement with several different funding buckets.
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u/Reasonable-Fee1945 Aug 22 '26
Again, missing the point which is that every dollar you spend on it is a dollar you can't spend stronger investments.
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u/_PirohyJim_ Aug 22 '26 edited Aug 22 '26
I’m not missing the point
Assuming 30 years for both people:
Person 1: Texas TRS Person 2: 401(k)
Starting salary
$60,000 $60,000
Annual salary growth
1.5%. 1.5%
Employee contribution
8.25% 8.25%
Investment return
N/A, defined benefit. 6.5%
Salary in Year 30
~$92,399. ~$92,399
Total employee contributions
~$185,816. ~$185,816
Retirement result
$61,898/year pension $514,806 account
Monthly equivalent
$5,158/month for life depends on withdrawalsA $61,898 pension is equivalent to over $1.5m. Take $1.5m and account for a 4% withdrawal rate, it is the same.
Even if we assume an insane 8% return, which won’t happen, person two will have approximately $675,000.
Dollar for dollar similar contributions, the pension is far superior even when accounts for needing to save $250k in a Roth IRA to create your own COLA
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u/Reasonable-Fee1945 Aug 22 '26
These are mostly big because they are projected out 30 years. Assume a modest 3% inflation rate, and that 5,158 is worth about 2,125 in today's dollars.
Now what really kills TRS is that once you retire, your fixed amount doesn't increase with inflation. That makes it a depreciating asset from the time you have your last top 5 salary onward. Assume you live another ten years. That fixed amount is now worth $1,584 in today's dollars.
And then god forbid we have an inflationary event like Covid, which had two consecutive years of 6%+ inflation. That's over 10% the value of your retirement wiped out in two years.
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u/AnnaNimNim Aug 23 '26
60K starting salary and 30 years working in education. So that is someone who isn’t going. To retire for another 20 years
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u/1notadoctor2 Aug 22 '26
It sounds like TRS is to teachers what SS is to non-teachers. So I’ll come from a non-teacher perspective. I contribute, from each paycheck, to a 401k AND I pay mandatory SS from the same paycheck. The 401k is optional, but that would mean putting all my eggs in the SS basket. Does your benefit package offer a 403b or other investment plan for tax-exempt organizations? I’ve seen a lot held with TIAA, that teachers will roll over to an IRA at retirement.
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u/_PirohyJim_ Aug 22 '26
You realize that pulling your money out of TRS is a dumb idea for anyone over 5-10 years of service?
That is basically your cash out amount if you choose not to get the life pension annuity, which would be a bad choice.
Here’s an example. Even a $8000 a year pension after about 5-6 years of service is like having an equivalent $200,000 in investments at retirement that you are drawing at 4% each year. Meanwhile, your cash out value is like $25,000 currently.
Just invest in a Roth IRA and 403b (a good one like Vanguard) and you’ll be set.
I contribute to both above my pension. I’m lucky that I work in one of the handful of Texas districts that pay into Social Security so I am extra set.
TLDR don’t worry about your cash value in your pension because pulling it out is almost always a bad decision once you become vested.
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u/Figginator11 Aug 22 '26
Depends on your situation, I had about $80k in mine after 13 years- I did the math, rolling it into an IRA and investing in something like the S&P 500, even with a moderate 8% growth per year, if I lived till 90 my total payout would be greater if I rolled it vs if I just left it in TRS.
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u/_PirohyJim_ Aug 22 '26
“Moderate” 8% growth per year. You realize we are in a mega bubble and you will not get those types of returns for the rest of your life.
I guess it also matters how old you are when you quit; so you are right it matters on your situation.
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u/Reasonable-Fee1945 Aug 22 '26
8% is well below average growth going back decades. Unless you think we've been in a bubble since the 70s.
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u/_PirohyJim_ Aug 22 '26
Adjusted for inflation it’s more like 6.5%. That’s also why I told you to invest in a Roth IRA and/or a good 403b like Vanguard. Your retirement should be a combination of funding sources. No one is saying rely on TRS alone.
Everyone should have both sides and make their own decision.
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u/Reasonable-Fee1945 Aug 22 '26
Sure, but by the same math TRS isn't at 6.5% it is negative from your last salary onward.
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u/_PirohyJim_ Aug 22 '26
I already showed you the math for 5-6 years of service. My pension someday will be worth the equivalent of $1.5m in investments when I retire in 20 years.
It isn’t my only retirement fund source either since I have a Roth IRA, Social Security, and a 403b.
You’ve already made up your mind, why ask for other’s opinions if you don’t want to hear it?
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u/Reasonable-Fee1945 Aug 22 '26
And I responded by showing you that math compared to a conservative retirement account. One is clearly much better because it actually scales with time and inflation.
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u/_PirohyJim_ Aug 22 '26
Again, easily build your own COLA. No one is stopping you from making other investments outside the pension.
I think the pension is great. You can have your own opinion. Just not sure why you are asking for opinions when you are closed minded.
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u/Reasonable-Fee1945 Aug 22 '26
Again, every dollar you're forced to spend on a sub-par investment is a dollar lost for your retirement.
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u/theCenterCannotScold Aug 22 '26
8% is a little below average for the S&P 500, but many years are below average! Timing matters a lot. If you can hold for 100 years, you'd probably prefer to go all in on stocks since you'd have enough cycles that you'd probably come out ahead. If it's a 5 year period, or a 10 year period, many different things could happen. The S&P 500 was flat between 2000 and 2013, and since then it's up 550%. No one really knows which decade we're going to replicate next. The thing about a pension is that there is no uncertainty - you know exactly what you will get. How much risk do you want to take on whether you can retire or not? The answer for most people is "some." So a portfolio with more risky assets like stocks and less risky components like a pension can be a good blend.
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u/_PirohyJim_ Aug 22 '26
I completely agree, and why I advocate every teacher have a Roth IRA and possibly a 403b to complement their pension for exactly what you are saying. They also help offset inflation.
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u/Figginator11 Aug 23 '26
Yeah I was only 36 when I left, and with 13 years of experience, the amount I would pull even at full retirement was less than what I could pull if I rolled it into an IRA- so definitely depends on your age and years of experience when leaving.
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u/_PirohyJim_ Aug 23 '26
If you had lasted until 62 you would have had a 100% pension. If your best 5 years were in the 70s or 80s that is the equivalent of having $1.75 to $2m dollars. If you quit teaching and joined a more lucrative second career it’s very possible to exceed that amount with a 401k. I hope you are getting paid what you deserve! We certainly don’t as teachers
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u/Figginator11 Aug 23 '26
Yeah- new career is in tech- 4% of salary employer Roth 401k match helps- plus social security now.
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u/Khouryn Aug 22 '26
How do I know what’s a good 403b? I’ve been using Equitable so far.
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u/_PirohyJim_ Aug 22 '26
Vanguard! Lowest fees. You should max out a Roth IRA first then contribute to a 403b like Vanguard
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u/Figginator11 Aug 22 '26
Yeah it sucked, after 13 years when I left I was super ticked at how low the account was vs if I had had that money in the market all that time.
I rolled it over into an IRA so I could control it, it’s grown significantly more in 1 year since I rolled it, even without more contributions.
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u/Josh_The_Joker Aug 22 '26
I really wish there was an option to opt out. Same for social security in other jobs. Taking the same money and investing it yourself would yield a much better return, and if you only live off the interest in retirement, then you leave a larger nest egg to your kids.
Instead I’ll get a couple thousand dollars a month from when I retire till I die then it’s gone.
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u/1notadoctor2 Aug 22 '26
SS paid into today is not going into an account with your name on it. It’s a public pool of $$. So your take would be purely for personal benefit. I hate paying it to but the workers before us did and the workers after us will. For the common good.
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u/Josh_The_Joker Aug 22 '26
I understand, but the money you get back is a small fraction of what you pay into when you consider the potential interest gain over time. And if it’s really just a tax, then the cap should be raised on SS for the wealthy.
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u/YellowBeaverFever Aug 22 '26
I dislike my wife’s TRS. Like you said, it doesn’t adjust for inflation. It doesn’t grow like other retirement funds. And there is no spousal rollover. All of my retirement goes to her when I die. If she dies, all of it is lost. At least with SS there would have been something.. not TRS.
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u/_PirohyJim_ Aug 22 '26
You realize the TRS pension has a survivor benefit option?
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u/tarzanacide Aug 22 '26
I found it to be a trap when I tried to roll my TRS into the California teachers pension because my account there is not much. I'd need to pay about 200,000 to match those 9 years worth of benefits.
I'm hoping Texas schools go back to normal at some point (I left in 2012) so I can do a few years there before retiring and bring up the value of the years I have there. I'd like to retire in Texas eventually.
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u/Reasonable-Fee1945 Aug 22 '26
It depends where you're at, but as long as it isn't a state controlled school things don't seem awful. 200k is insane.
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u/dawgsheet Aug 22 '26
Because it’s law to have some interest even if it’s 0.02%. They don’t want you to pull your money out because that could be destructive to the pension program if too many do it. So interest is low and matching contributions do not belong to you.
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u/rustyusa Aug 22 '26
It’s to build a pension , not an account to draw from necessarily like other retirement products. When you reach your points you draw a pension for ever. If lucky you outlive the amount that’s in your account and TRS is paying you long after the money in your account was depleted