How much will I earn from the state when I retire?

Here's what the state pension provided for state teachers per month in 2015, on average (courtesy of Wes Machida):

  • Contributory: $3,096
  • Non-contributory: $2,298
  • Hybrid: $2,653

Note that these numbers are averages, so your results will vary. We recommend using the State's retirement calculator to figure out your specific pension benefit.

These amounts, when combined with Social Security and your own TSA or IRA, comprise a person's retirement income.

RMDs, IRAs and more: understanding taxation in retirement

It is a truism that we cannot escape death and taxes.  Let's talk about taxes! In the eyes of the IRS, there are three types of accounts: taxable, tax deferred and tax-free. Savings accounts at banks are examples of taxable accounts. The interest growth is taxable for the year that the interest is earned. Tax free accounts include Roth IRAs and certain State Bond accounts. In these accounts, the funds are deposited after tax and the growth is tax free.

Tax-deferred accounts are accounts in which 1) the funds are deposited into the account pre-tax, and the interest growth is deferred – this includes IRAs, 403B, 457, and 401k. These accounts present tax issues in retirement.

Because the contributions are pre-tax and the growth is deferred, there comes a time when the tax bill has to be paid. That time usually arrives when the employee is 70 and half.  At this age the employee must make the first required minimum distribution (RMD). Using a formula, the IRS sets the minimum amount that the employee must withdraw (distribution) from their account. This RMD occurs each year, with the distribution having to made before Dec 31 of each year.

Welcome to the Windward Financial blog

As we look to 2017, we must understand that many of the governmental medical and retirement plans may be changed by the incoming Trump administration.  I am not going to recite how the 2016 presidential election occurred, rather I want to focus on the IMPACT of the proposed Republican changes to Medicare, Social Security, and Obamacare.  It is important to realize that the Republicans have been touting these changes for many years. Now that they control the Congress, the Executive Branch and many State houses, we should assume they will implement these changes.  What do these changes mean for us in Hawaii, as State and County employees preparing for, or already living in, retirement?

Over the next several weekly sessions, we will look at the proposed changes and to to figure out what it means for us.

Obamacare:  The Affordable Care Act (referred to as Obamacare) took a  long and tortuous journey to its birth a few years ago. Since then, the Republicans have pushed the idea of revoking and replacing the plan.  All that we already know.  

Now that they are in charge, the Republicans will have the opportunity to do just that- revoke and replace it.  Except that there are two parts of the present plan most politicians agree they want to keep: the provision that younger people can remain on their parents medical plan and, most importantly, that people with "pre existing health conditions" can not be separately cost rated or denied coverage. Pre-existing conditions would be diabetes, severe heart problems, cancers, etc.  Pre existing conditions determinations  are used within the insurance industry to limit or deny coverage if, at the time of enrollment, the person has an illness or health condition that will require immediate high cost care.  Taking on large numbers of persons  with a pre-exisiting condition can financially ruin an insurance carrier, forcing the carrier to raise costs across the board. In  the worst case scenario, too many examples of pre-existing conditions will force the carrier to withdraw from the market place, cancelling the insurance for all its policy holders.

Providing coverage for persons with pre-existing conditions requires more premium from healthy people who rarely use their medical coverage.  This is why the healthy-young are required to buy health insurance under the Individual Mandate provision of the ACA.  And, this is one ACA provision that many people hate, and one key ACA provision Republicans want to kill off.  Understandably, when rising health care costs fall on those that don't use their plan, and they are forced to buy the coverage, resentment follows.  

The problem is that removing the Individual Mandate means that insurance carriers can not provide care to people with pre-existing conditions.  There is not enough money to do so.

The current (Dec 2016) talking point is that the Republicans will kill off Obamacare in early 2017, but replace it in a few years.  This approach may not sit well with insurance carriers who cannot accurately gauge costs over the next few years.  We may see carriers leave the market, and therefore terminating medical coverage for thousands if not millions of people.