What About My Pension?

What about my pension? This is the question that Ali and JoDee are discussing with today’s guest, Andrew Kerper. Andrew is a financial advisor with Federal Prep, an investment advisory firm that specializes in tax preparation, financial planning, investing, and retirement. On top of being a financial advisor, Andrew is also a full time music teacher. Together, they’ll dive into not only pensions, but also the benefits of working with a financial advisor and the biggest mistake Andrew sees people make with their retirement investments. 

Connect with Andrew:
Email: Akerper@federalprep.com
TikTok: https://www.tiktok.com/@financialprep4teachers
Instagram: https://www.instagram.com/financialprep4teachers/

Connect with Ali and JoDee:
Instagram: https://www.instagram.com/teachershift
Facebook: https://www.facebook.com/teachershift
Teacher Shift LinkedIn: https://www.linkedin.com/company/teacher-shift
Ali’s LinkedIn: https://www.linkedin.com/in/alisimon/
JoDee’s LinkedIn: https://www.linkedin.com/in/jodeescissors/

Website
https://www.teachershiftpodcast.com/

Episode Transcriptions
https://www.teachershiftpodcast.com/blog

Transcript

Ali  0:05  
Teachers are natural innovators, entertainers and problem solvers. They dream of growing old into the profession, teaching their kids kids, but sometimes career goals shift or change, and that makes opportunities outside of the classroom seem intangible questioning who am I, if I'm not a teacher? I'm your host Alexandra Simon.

JoDee  0:31  
And I'm your co host, JoDee Scissors.

Ali  0:34  
This is The Great Teacher Resignation.

Today, our guest is Andrew Kerper. Andrew is a financial advisor with Federal Prep, an investment advisory firm that specializes in tax preparation, financial planning, investing, and retirement. Along with being a financial adviser, Andrew is also a full time music teacher in Prince William County, Virginia. Welcome to the show today, Andrew.

Andrew  1:04  
Thank you. Thanks for having me, guys. I appreciate it.

Ali  1:07  
We're looking forward to talking to you today. And I wanted to share some background that are number one performing episode on the podcast so far, besides our initial episode, is leaving the salary and benefits. Today, we hope to tackle one of the most common concerns for transitioning teachers. What about my pension? So Andrew, we hope you can shed a little bit of light on the various options for teachers and really what they can consider and think about when they're going to be transitioning away from teaching, where there are a lot of specific benefits that they have been entitled to during their tenure as an educator. So I'll open it up for you to maybe just give some general guidance around this. And then we do have some specific questions too.

Andrew  1:51  
So the pension system is been modified multiple times throughout the course of history, even within the past 15 years. So depending on where you are in the country, your pension system has gone through maybe various different plans. For example, where I am, we have the Virginia Retirement System plan 1, plan 2, and hybrid plan within past 20 years. These plans have changed in ways that have created more opportunity for teachers to grow their money throughout the time that they've been working. But also it requires them to pay a little bit more attention to it and also understand their benefits more throughout their process as a teacher. I know that's very vague. I know.

Ali  2:35  
Well, no. I mean, for me, it was really, really helpful to hear that. I actually taught in Virginia, that was the second school that I worked at. And so I'm a little bit familiar with the retirement system that you're talking about. I also think that, you know, we're specifically looking at what to do if you think you might leave, but honestly, just being in the system, there's a lot to know. So teachers really should do their homework and, and meet with a financial advisor to really understand what their options are. I think the question that I had, and, you know, for years was I moved to a new state, and I'm like, What do I do with this pension? So what might be a couple of options of what an educator could do if they're no longer teaching anymore? You know, different states have different rules and things like that. But generally speaking, there's usually a couple of options, or at least one option of what you could do outside of leaving it in the pension plan.

Andrew  3:29  
Yeah, absolutely. Say you're working in Pennsylvania, this happens to me. That's actually someone I spoke to a couple of weeks ago. They're a former teacher in Pennsylvania, they just came to Virginia. They'd been teaching in Pennsylvania for 10 years. They have their pension there. What do they do with their pension? Now you're right, different pensions, different states have their rules. Most retirement accounts are protected under an IRS code that allows tax free transfers from one retirement account to another. This is the biggest mistake that I see everywhere. For example, I went from one county in Virginia to another. The first county I started in has their own little retirement account, which I'll talk about a little bit if you ask about it, but I still have that money there. I mean, it wasn't there long, it was three years. So maybe it's a couple of thousand dollars. But it's my money. It's not doing anything. I'm not putting more money into it. But I can in a tax free way. Just roll that over into another IRA or another 403b. Those are real retirement accounts set for teachers and public employees. So it's important to know your options of you can transfer this tax free and if anyone tells you that there are tax implications for that, that's another discussion to you should have with not only your financial adviser, but also your tax professional.

JoDee  4:52  
You know, I moved around a lot too. Ali and I both have been in that same position and once I left teaching, I had pensions everywhere in multiple states. And what I found helpful about working with a financial advisor was bringing it all together, rather than having to keep up with all of these different accounts, the past codes, where is it, you know, wondering where all the money's at. And in the end, when we finally got it all together, I actually had more accounts than I thought I had, after we started digging everything up. Because you move and you forget about things. And so I found it helpful. Just bringing it all together, and only having one thing to really have to look after.

Andrew  5:37  
You know, when I meet with people, I use a fact finder. And when I use that fact finder, I'm putting their entire financial life on a piece of paper. And it's scary, and I warn them of that. I'm about to put your entire life on my yellow pad. You're going to be freaked out. I deal with this every day. And when I do that, I say, Where have you worked? How many years of experience do you have? Okay, you've worked in five different states, okay? Do you have pensions in those different states? Okay, you do. So then at the bottom, I draw a box, and I write down their different retirement accounts that they have, or savings, checkings, whatever. And before you know it, if you have people who've worked in a bunch of states, especially in Virginia, where we have military families. I have had someone in my fact finder, I gotta find it, it's like five or six different pensions, but then you have to put them all together. And they have to do the work, I can't do the work. So it's multiple meetings, multiple discussions. And that's the best part. It's just helping people out, getting it all into that one place you were just talking about.

Ali  6:39  
So I think the one biggest mistake that I've seen my friends who are former teachers make or honestly, even just people who move to another state or another county, is that they don't do what you explained and take the tax free route of transferring money to another retirement account. And they make the mistake of pulling out their retirement. And I'm wondering, you know, some people might not understand the difference between rolling over a retirement or a pension into another retirement plan, that that's where you don't pay the taxes at that point. Because it's either pre tax or, you know, tax later on. But they just pull out the money, right? They see that they have $20,000 in their state pension or their retirement account. What's the problem with doing something like that? Can you share with our listeners why you want to be really cautious if you're considering that as an option.

Andrew  7:30  
So Federal Prep is also a tax preparation agency. This is something we deal with a lot. The downside, let's say you have $20,000 in your 457 plan. You're ready, you know your leaving teaching, you want to take it out. In the state of Virginia VRS, we'll do a 20% tax deduction immediately. Then you do a penalty on top of that, which I think is about 10%. Don't hold me to that I haven't looked at in a while. But then it's the Virginia state tax, which is 5%. So you're 35% out. So you're not really getting 20k. There's a 35% reduction, and really what you're getting, so is it really that much worth it? And listen to a lot of people that I speak to, but actually is. There are certain people certain situations, but that applies. And they're like, I need this money. Needs to happen. And they say, okay, there it is. There's your money. There's your ticket out. But on the other side of that, if you're still teaching, you're still in the workforce, that's a major mistake. Because you're gonna get hit with all these taxes. Oh, my gosh, why do I owe this much to the IRS? Because you made a financial mistake without consulting a financial advisor, or a tax preparer.

JoDee  8:43  
And what do you say to the people that are reluctant to seek that type of advice and help?

Andrew  8:51  
One of the first things I say to any prospect is I congratulate them. I congratulate them for making the meeting. I say this is a great step. I understand for you, this was either a phone call that you had to make, or this was a stop at a Panera Bread that you weren't planning on doing on a Saturday, but good on you for scheduling this. Because you're about to save yourself a lot of time, a lot of money and a lot of energy, just in an hour.

Ali  9:18  
And we learned in a previous episode with Eric Garcia, that there's different models for fees and how financial advisors essentially earn their living. So there's various options in which you can work with a financial advisor, so if you are interested in learning more information about that, you should definitely check out that episode. And I agree with you. I mean taking the first step towards learning about your finances. Making a plan for your finances is really essential, particularly in a career transition. Because it's really scary to make a transition like leaving a stable career like education to go into something new and so if you can be as prepared as possible, that will take that level of anxiety like the financial stress and strain. If you can have that lowered, then you can focus on other things in your life instead of having to deal with all of this, you know, at the end or making an impromptu decision where you didn't have all of the facts. And, you know, one thing that we also learned is that everyone's financial situation is different. So how do you differentiate for clients? 

Andrew  10:28  
So going off of really what you just said about, you know, it's so important that people learn about all their options and everything. You know, one of the things you said, I'm a teacher. I'm still a teacher. I work as a chorus teacher, teaching middle school chorus, and I love it. I'm an educator. My passion is education. So when I get into these meetings with people, I'm just giving them an education. When you think about it even deeper, how do you differentiate a client? How do you differentiate a student? When I hold a meeting, it's a lesson plan. I am drawing the lesson plan of retirement for them. That's all I'm doing. It's very simple to me. And I don't mean to be cocky about it. Not I mean, you'd be like, wholesome or whatever. But every day a teacher goes into that office, you go into your room, you were just asking me before about Oh, aren't you lesson planning this weekend? No, I'm not lesson planning this weekend, because you don't want to live my life. That's number one. Number two, is, every day a teacher goes in and lesson plans for other people, for tiny humans. That's what they do. They plan they plan SOLs, Virginia state standards, blah, blah, blah, blah, blah. But no one teaches them to create the lesson plan of their retirement and their financial future. And it makes me angry. It makes me upset. So that's why I do what I do. And that's how I differentiate it, just like I would in a lesson plan. It's the same thing.

Ali  11:57  
So the the one thing I really loved about the way Andrew broke that down, and the reason why I value his experience, is that I wanted a financial planner, this is coming from Dave Ramsey, with the heart of a teacher. So someone who can really explain to you where your money is going. What better person to do that than an actual teacher or someone who has that passion for teaching other people about their money. And so I loved your explanation. And I really think there's so much value with working with someone who's able to break those concepts down and differentiate on various levels.

JoDee  12:37  
Okay, so I have a question. There's kind of this like idea that pensions and retirement are like this bonus, this huge bonus when you're a teacher, or you work in the police force, or the postal community, like, there's this idea that if you want a good retirement, you have to be in that profession. And not every teacher wants to stay in the profession. Not every policeman wants to stay in the profession or a postal worker. So what do you have to say about people that are transitioning from a place like being a teacher with a pension plan, with retirement in mind? Like, is it possible?

Andrew  13:16  
It is. And it's important to realize that even though a teacher pension plan, postal worker, federal employee, you name it, they're not perfect. They're really good. They're really not perfect. And they're far... they're getting, dare I say, worse and worse. But then you think about the workforce. So I had a friend who was a teacher, and now she's working somewhere. I think she's working in educational tech. So she has an IRA. She has a retirement account, or 401k rather, I should say. It's just different. Now, there are benefits that come with being a teacher, you know, there's like benefit life insurance, and, you know, there's options for cheaper disability. And I get it. But you know, you're able to contribute a little bit more to 401k. You control the investments. You work with your employer, maybe your employer is also cash matching. That's a big thing that teachers look for is the cash match, right? Your employer might be doing that same thing. It might be more heavily invested. It's planning for the person who is retiring at near a retirement age, that's a benefit. And, you know, your opportunity to leaving teaching as much as I love teaching. You know, unfortunately, the salary isn't all there. So you might be making more in the, in the outside world. If you're making more on the outside world, you're putting more towards retirement, you have more retirement accounts, more opportunities to save. So it's, it's scary, but it's doable.

JoDee  14:49  
I think that's what some people need to hear is that it is achievable. That you can make these long term plans as they are set up in the teaching profession as one of the benefits. But it's meeting with a financial advisor can give you that long term plan that perhaps was already mapped out for you before, as you were in the classroom. So if they were to approach you and say I need help, I'm thinking about staying or I'm thinking about going, can you help me understand the trajectory of my, my life in terms of finances?

Andrew  15:24  
Yeah, so on a teacher side of that, my job's done. It's so easy. And I hate to say that as a financial advisor, that that part's easy. In the state of Virginia, all you have to do is log on to your VRS account, Virginia Retirement System account. And it literally tells you how much longer you have until your retirement. It says you're 30 years for your full benefit or your unreduced benefit, I should say that's kind of the term that VRS uses. So you can go on, log on. And one other side of that is that the VRS is like not the most user friendly website. That's okay. When it says it in big bold letters, it says this is the amount of money you will receive on this day when you retire. So that job's done. When I meet with someone outside of that, or even a teacher who's planning on leaving. The best part that I find about Federal Prep is, we're a financial advisory firm. So let's say you have a goal for retirement. You don't know where to bring your money. You know, you're confused, you don't know if you should go to a major bank and put your IRA through there, your 401k through there. You can bring your retirement money to us. We're a financial advisory firm. We have portfolio managers. We do this for a living. I'm retiring someone tomorrow. They're rolling their money. They want to do an IRA.  They want to create this. We can meet with professional portfolio managers, not the 12 options you have through the VRS, but the 6000 options that you have through us. We're not going to give you all 6000 options because your head will explode. But we can facilitate that with our professional money marketers and help you decide what you want... how you want your money to grow, to a certain point.

JoDee  17:10  
That's really what I was curious about. Because I know that the number, seeing the number is only a piece of the puzzle. When I see my retirement number, I also want to know what is that number going to get me. How is it going to support me by have a mortgage? Or maybe if I want to travel when I retire? Like, what is the plan along with that dollar amount? What are my limitations? What am I capable of doing? And if I'm not capable of doing the things I want to do, what do I need to do between now and then to be able to do the things I want to do in retirement?

Andrew  17:52  
Right, so that's kind of where our portfolio managers figure that out. So we have a list of things like okay, when you retire, what do you want to do? What is.. what do you want to do with this money? Do you have a plan? Do you have an idea? Ironically, usually someone says, I don't know. That's what they always say, right? Go I don't know. And I say okay. You're probably going to want to travel. You might have a grandbaby. You might have this, you might want to do that. You might want to buy that car. So let's plan that when you retire, and remember, if you have an IRA, or a 401 K, you can access that before 59 and a half. So 60 about, right? So we need to get you to that point. How are we going to get you there? And then we got to talk about how can you get your money, possibly in perpetuity, kind of like you had when you were with your pension plan? What vehicle or financial instrument can we use to create that quote unquote, pension feel? And then from there, we can say, Okay, now you're getting a salary. Then you're going to reach a certain point where you're gonna get start collecting Social Security. But to go to your point of how can you predict that I'm gonna need this amount of money to do this? The answer is there's really no way. You can count on a fact of inflation that happens. We've been the biggest inflationary period since the 80s right now. But we can't predict that, Oh, yeah, maybe we'll get 1%. Did we think that in 2019, we were going to have this inflationary period? We had no idea. No idea. But you can know that the stock market's gonna move at a certain percentage. It's gonna go up. It has to, theoretically, right? There's no golden number. There's no way I can say, you know, your $125,000 now, that's going to buy you this in 20 years because we all know it's not.

Ali  19:47  
Yeah, and for our, for our financial nerds like me, I'm just I love learning more about financial planning, what my options are, and understanding, I think, as you explained the benefits of working with a financial adviser is that it can really help give you a plan and an understanding of what either benefit or what sacrifice or what you know, what you're gonna get if you transition out of a pension plan, for example. And I think the biggest thing that I didn't know would happen, for me personally, is that you're right. If you leave teaching, and your income increases, you can contribute more to retirement. You have more control over how you're contributing to retirement. So let's say, you know, you want to retire before 59 and a half. You might have a spouse that's older than you or something like that. You can also choose to maybe save money in a different way, and not like have it all being only a retirement specific account. So that you're planning, you're planning for that. Whereas with a pension, you have to teach for X amount of years, you can't pull it out until you're at... some states have like an equation, like you have to have taught for this many years and be this age, and then pull it out. There's just so many variables and factors, which is why personal finance is so personal. That you have to, you have to know your own situation. 

JoDee  20:32  
So Andrew, if I wanted to use your services, what do I do? Does it cost anything? How do I get in touch with you?

Andrew  21:17  
So when you get in touch with me, we set up a meeting. To meet with me, to call me cost $0. So that's if you want to have your first financial meeting with me, there's no charge for that. I'll probably throw you seven business cards, and I'll say, hey, please hand these out to the people that you know, but there's no charge, no financial charge. And then after that, we might have a follow up meeting. There's no charge for that either. The ways that a lot of financial planners do make money, obviously, is when, you know, if you decide that one of the things in your plan is to have life insurance, or to transfer money into a brokerage account or an IRA with us. Obviously, there are fees within there. And that's how I would make my living.

JoDee  22:00  
So to approach you, and to discuss my financial situation with you, from the get go is free? It's

Andrew  22:09  
It's free. Because if you cannot sit in a Panera, or Starbucks, or my office for whatever, and you can't pay me, but you don't trust me. You're looking at a guy, you're giving me money, but you really don't trust me. That doesn't make sense to my brain. I'd rather you sit with me, have the conversation and I gain your trust. That's more important to me than just getting a check for $50 just to sit with me.

Ali  22:39  
For those who are interested in transitioning out of teaching, I hope this episode helped you kind of have a better understanding of the landscape and what options you have when you ask that question, What about my pension? So thank you so much, Andrew for your time today. If you want to connect with Andrew, you can email him at Akerper@federalprep.com or find him on Instagram and TikTok at financial prep for teachers. And that'll be in the show notes. Thank you

If you liked The Great Teacher Resignation, give us a five star rating and follow us on Instagram, Facebook, Apple Podcasts, Spotify, Google Podcasts, Amazon Music and Audible. Today's episode was written and recorded by me Alexandra Simon and my co host JoDee Scissors. Executive produced by Teacher Brain. Produced and edited by Emily Porter. Original Music: Emoji by Tubebackr. Special thanks to our sponsor, Paper Planes Ed.