By Gary Harbin
Reprinted from February 24, 2024 TRS Newsletter.
With some frequency, I hear concerns about Kentucky’s teachers and Social Security that I want to address because some common perceptions aren’t reality. For teachers as individuals, the value of the TRS retirement benefit in almost all cases outweighs any reductions on Social Security benefits because of federal law. While the water-cooler talk may be that these transfer teachers are losing something, the truth is they’re gaining much more.
Let’s take the example of a mid-career teacher who started in 2023 outside Kentucky at age 24. After teaching 20 years contributing to Social Security, this educator moves to Kentucky and works 18 years in Kentucky as a TRS 4 member without having to pay Social Security tax. The teacher retires at age 62 in 2051. This teacher likely also will have retirement income from the prior state and or an individual retirement account, but this comparison will exclude those. These examples also are in today’s dollars – salary inflation will increase what this person sees.
The TRS benefit for this teacher is about $27,000 at retirement. Retiring at 62, this teacher also will get about $11,300 in Social Security benefits. The Social Security amount is reduced $5,000 by a federal law, called the Windfall Elimination Provision (WEP), from the $16,300 it would have been. The total initial retirement income combining TRS and Social Security would be $38,300.
Even if the person had remained in Social Security their entire career and without any WEP reduction, the Social Security benefit at 62 would be about $25,000, still less than the combined benefits of $38,300 they’ll get from TRS ($27,000) and the reduced Social Security ($11,300).
This example also assumes that the normal retirement age under Social Security – currently 67 for all but the oldest current workers – doesn’t change. And that may not be a good assumption because Social Security is headed toward not having enough money in a decade to pay promised benefits. The choices to fix Social Security include increasing Social Security taxes, lowering benefits, raising retirement eligibility ages and or any combination of these. If Social Security retirement ages are increased, the benefits of being in TRS would be even greater.
One more aspect to remember: TRS provides this teacher with access to retiree health care because they have 15 years or more of service. Medicare in most cases wouldn’t be available until 65.
Not being in Social Security isn’t only better for teachers – it saves them as taxpayers and all Kentucky taxpayers. Studies have shown, currently, that the cost of an equal benefit from Social Security and a supplemental retirement plan requires about 25% of pay compared to requiring 15% of pay in TRS. That would cost the state at least $500 million more annually if all teachers were subject to Social Security, assuming their take-home salaries wouldn’t be cut.
In conclusion, the advantages of TRS for the mid-career teacher shown above are even greater for the full-career TRS Kentucky teacher. The average Social Security benefit in Kentucky is $18,842 a year compared to the average TRS annuity of $40,697. Social Security’s website warns that “Social Security was never meant to be the only source of income for people when they retire.” The great news for teachers is that the TRS benefit is designed to be sufficient as a sole source.
