Adviser Opportunities in Serving the K-12 Education Market

There are more than 6 million employees in school districts across the country, presenting a broad opportunity to help these professionals, and their significant others, with their retirement planning needs.

According to the National Tax-Savings Association, only about one-third of educators have started a supplemental retirement plan such as a 403(b)/457 in their respective school district. This gap presents a tremendous need for financial education and coaching, as their once fail-proof retirement, based on state-provided defined benefit plans (pensions), are being changed dramatically or terminated altogether in many states. School districts are doing their part to help their employees, but there is room for additional guidance and assistance.

By way of background, a 403(b) is similar to a 401(k) plan, except a 403(b) plan is designated for public school districts, higher education institutions and nonprofit organizations. A 403(b) plan offers a variety of advantages, including pre-tax or Roth contributions, tax-deferred accumulation, catch-up contributions and employer matching, that can help teachers and administrators down the road to retirement. 

Educators, now more than ever, should be working with a financial representative to create and execute a retirement plan that can last several decades in retirement and ensure their financial future. Financial service representatives focused on the K-12 education market have found a renewed urgency to help educational professionals with their retirement planning needs, given current economic challenges like higher interest rates and inflation. 

Educator Market Retirement Challenges 

Jim Kiley

Retirement readiness for today’s educators has become a challenge. Educators have long relied on pensions as a safety net and the primary source of income in retirement. However, with higher life expectancies, market volatility and other demographic factors, these defined benefit pension plans are now facing cutbacks and, in some states, termination. K-12 employees will need to supplement their reduced state pension and Social Security payouts with voluntary retirement savings through payroll deduction 403(b)/457 plans to cover the savings and retirement income gaps. 

Early in their careers, education professionals have many competing financial priorities, but they also have the greatest ability to grow assets over time, thanks to the power of compounding. Younger educators and school workers should strive to save as much as possible while still meeting their financial obligations, but all financial situations are personal and dependent on factors like paying higher-interest debts, such as student debt, first.

By mid-career, educators are hopefully well on the path to retirement, with an understanding of what the future holds in the way of pension income, potential health-care costs in retirement and the effects of inflation on the value of the dollar. Mid-career professionals should focus on preserving retirement assets. They should also look to increase their savings rates along with their salary growth, maximizing their opportunities during these critical years.

Late-career educators have many important decisions to make. When to retire? When to begin taking pension payments? What distribution option or how much to contribute? Financial professionals can assist by offering up solutions that focus on generating retirement income educators can use, as well as smart planning to retire on their terms. Financial professionals can also help make the most of state-provided plans and additional income sources.

Another challenge facing school employees is that, unlike the private sector, Social Security isn’t a given. When the program was first created in 1935, it was not available to public sector workers. States were eventually given the responsibility to decide if public employees would be able to participate, and not all can. This limits those workers’ retirement income sources to their pension and 403(b) account. By running a simulation for a teacher’s retirement income, a financial professional can provide critical insights into what retirement could look like and, if an income gap is found, suggest solutions to close it up. 

Business Building Opportunity 

A financial services career focused on the education markets can offer the following advantages: 

• Access to 500-1,000 or more potential prospects per school district;
• Accumulation of a significant client base quicker than most traditional methods; and
• Ability to build a practice through financial planning with clients over time. 

Other opportunities will often present themselves as you seek to serve a household’s retirement needs. A teacher’s spouse may need guidance of their own, such as setting up a savings plan via a SEP, Simple IRA or Solo K, or they may be looking to consolidate their various 401(k)s into an IRA and more.

To cite an example from my past: I was working with the superintendent of a school district and helped him set up his 403(b) plan with monthly investments. He introduced me to his wife, who had just sold her law practice. She did not have a retirement plan in place. I worked with her to set up a non-qualified annuity account with a sizable investment balance.

Many initial 403(b) clients led to a much bigger household opportunity and a long-lasting relationship that helped support the couple’s retirement  and ancillary investment goals. 

Conclusion 

Serving our nation’s educators and their school district colleagues can be a rewarding career. These professionals are facing challenges relating to their pensions, the lack of Social Security, paying off student loans and more, and they need help to establish a viable retirement plan. The K-12 marketplace offers the rich potential of a diverse market full of additional opportunities, including household relationships. 

K-12 employees will need to supplement their reduced state pension and Social Security payouts with voluntary retirement savings through payroll deduction into 403(b)/457 plans to cover the savings and retirement income gaps.

Retirement plan providers offer resources, including educational materials, comprehensive tools and a range of products and strategies that can help meet different retirement needs.

Jim Kiley is head of Eastern sales at Security Benefit.