PLAN TODAY. ENJOY TOMORROW.

Investments Q & A with Teach and Retire Rich Author Dan Otter

Dan Otter, age 44, is author of the book Teach and Retire Rich and operates the 403(b)wise Web site at 403bwise.com.

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Inside:FA L L 2 0 0 9

Dan Otter is first and foremost a teacher. He was introduced to teaching over a decade ago by his wife, then a second grade teacher. Dan often helped out in his wife’s classroom and really enjoyed his time with the kids, so she suggested he become a teacher himself. Dan has since taught grades three, four and five in California and grades five and six in Maryland. He currently lives in New Mexico, where he teaches financial literacy part time to high school students.

Like many teachers, Dan has been approached in teachers’ lounges and classrooms by salespeople selling

retirement products with high fees. Dan found such products unsuitable and the methods used to sell

them misleading. These were the motivating factors that pushed Dan into a new aspect of his teaching career—educating fellow teachers about their retirement finances.

Most people who teach don’t think they will get rich. Why do you think they can?It depends on how you define rich.

Will you be able to afford a mansion and a new Mercedes—no,

that’s probably not going to happen. But if you’re looking for a rewarding career with a comfortable retirement, a teacher with supplemental savings can retire in really good shape.

How important is a supplemental savings plan to achieving a comfortable retirement?This is where understanding how your CalSTRS plan works is so important. I encourage all of your readers to spend some time with the retirement payout estimator calculators on the CalSTRS Web site. Ask yourself: Is this—generally 60 to 80 percent of your final year’s salary—enough to retire comfortably? I suspect for most of us it isn’t, which is why contributing to a supplemental savings plan is so important.

Ideally, how much money should be contributed to a supplemental savings plan?Ideally, you would max out at least one of the plans, preferably the one that offers the best investment products at the lowest prices. Even if you can contribute only $5,000 annually, that’s still $5,000 you have socked away for retirement. Plus, you have reduced your taxable income by a corresponding amount.

What is the most important piece of advice you would give teachers regarding their retirement?Understand the workings of the retirement plans available to you: first, the CalSTRS Defined Benefit program you are enrolled in automatically upon employment; and second, the two supplemental savings plans you can choose to participate in— the 403(b) and the 457.

2 Keep Tabs on Your Credit

3 Contributions to Your Defined Benefit Supplement Will Change

4 Test Your Financial Literacy

5 Dear CalSTRS: A Teacher Asks About CalSTRS Investments

5 Pension Confidence Poll

6 Build Supplemental Savings Today

7 Teacher Feature

Your Money Matters

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You work hard to earn a living and save toward retirement. Don’t put that hard work at risk by falling prey to identity theft.

In 2007, 9.9 million U.S. residents were victims of identity theft, including more than a million Californians. The total cost of identity theft in 2008 was $48 billion.

Identity thieves steal your personal information and use it for illegal purposes without your knowledge. The following tips can help lower your risk of becoming a victim of identity theft:

1. Protect your Social Security number. Don’t carry your Social Security card in your wallet. If your health plan or other accounts

use your Social Security number, ask the company for a different number.

2. Don’t give out your personal information unless you made the contact. “Phishing” scammers contact potential victims posing as banks, stores or government

agencies. Don’t respond to a request to verify your account number or password. Legitimate companies do not request such information that way.

3. Shred or tear up papers with personal information before you throw them away. Shred credit card offers and “convenience checks” that you don’t use.

4. Open your credit card bills and bank statements right away. Check carefully for any unauthorized charges or withdrawals and report them immediately.

Call if bills don’t arrive on time because it may mean that someone has changed contact information to hide fraudulent charges.

5. Protect your personal information on your home computer. Create strong passwords that include a combination of letters, numbers and symbols. Use

firewall, virus and spyware protection software that you update regularly.

6. Ask questions whenever you’re asked for personal information that seems inappropriate for the transaction. Ask how the information will be used and if it will be shared. Ask how it will be protected.

Explain that you’re concerned about identity theft. If you’re not satisfied with the answers, consider going somewhere else.

Source: California Office of Information Security and Privacy Protection

Protect Yourself Against Identity TheftKeep Tabs on Your Credit

One of the best ways to protect yourself from identity theft is to monitor your credit history. You can get one free credit report every year from each of the three national credit bureaus: Equifax, Experian and TransUnion. Request all three reports at once, or spread out your requests and order from a different bureau every four months. Order your free annual credit reports by phone at 877-322-8228 or online at annualcreditreport.com.

What should teachers in their 40s be doing now to reach their retirement goals?I happen to be in this age group, and here’s what I am doing: maximizing all supplemental retirement plans available to me. I also have term life insurance and a living will to protect my family in the event of an untimely death.

Members who attend the CalSTRS workshop Demystifying CalSTRS receive a free copy of Dan Otter’s book Teach and Retire Rich. To register for a workshop in your local area, go to CalSTRS.com and select Counseling/Workshops.

Dan Otter does not speak on behalf of or otherwise represent CalSTRS.

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CalSTRS Mission: Securing the financial future and sustaining the

trust of California’s educators

Teachers’ Retirement BoardDana Dillon, Chair

Jerilyn Harris, Vice-ChairKathy BruggerJohn Chiang

Michael GenestHarry Keiley

Roger KozbergBill Lockyer

Jack O’ConnellPeter ReinkeBeth Rogers

Carolyn Widener

Jack Ehnes, Chief Executive Officer

Christopher J. Ailman, Chief Investment Officer

Vonnie Madigan, Communications Director

David Lindgren, Editor

Statements in this publication are general and the Teachers’ Retirement Law is complex and specific. If a conflict arises between information contained in

this publication and the law, any decisions will be based on the law.

Your Money Matters is published once a year for active CalSTRS members and Cash Balance participants. Send your comments or suggestions to:

Editor, Communications, M.S. 34 P.O. Box 15275

Sacramento, CA 95851

printed on recycled paper

2 CalSTRS.com

If you’re like most people in public education, your retirement income will come from three main sources:

• YourCalSTRSretirementbenefit• Yoursavings• Yoursupplementalinvestments

(403b, 457, IRA)

You are eligible for your CalSTRS retirement benefit once you reach age 55 with at least five years of service credit—or age 50 with 30 years of service credit.

With 29 years of service and retirement at age 61, the median CalSTRS benefit replaces 62 percent of a member’s final salary.

Contributions to Your RetirementYou, your employer and the State of California all contribute to your secure financial future.

You contribute 8 percent of your earnings:

• 6percentgoesintotheDefinedBenefit account to help finance your retirement benefit.

• 2percentgoesintoyourDefinedBenefit Supplement account through December 31, 2010. After this date, your entire 8 percent contribution will go into the Defined Benefit account.

Your employer contributes 8.25 percent of your earnings to CalSTRS.

Each year the State of California also contributes a percentage of the annual earnings of all members to CalSTRS.

How Your Benefit Is CalculatedYour primary retirement benefit is based on a formula—not on how much money you contribute or how well CalSTRS investments perform. This formula consists of your service credit, your age and your final compensation.

How Your CalSTRS Defined Benefit Works

Service CreditService credit is the number of school years, including partial years, that you have worked and paid into CalSTRS:

• Youearnservicecrediteverydayyou work or are on paid leave.

• Youcanearnupto1.00servicecredit for every year you teach. If you work less than full time, your service credit for the year may be less than 1.00.

If you earn extra service credit for additional duties, your CalSTRS contributions and most of your employer’s contributions that exceed one year will go into your Defined Benefit Supplement account.

Age FactorAge factor is a percentage based on your age at the time you retire. The age factor is set at 2 percent at age 60. It is decreased if you retire before age 60 and increased quarterly to a maximum of 2.4 percent if you retire after you turn 60.

Final CompensationFinal compensation is one year of your highest earnings if you have 25 or more years of service credit, or the average of your three highest consecutive years of earnings if you have fewer than 25 years of service credit at retirement.

As your years of service and salary increase, your retirement benefit will grow. It is guaranteed for your lifetime.

You can choose to provide a lifetime monthly benefit to someone after your death. If you do, your benefit will be reduced based on your age and your beneficiary’s age.

Calculate your projected retirement benefit using the calculator at CalSTRS.com/calculators.

Track Your ProgressKeep tabs on your Defined Benefit information in two simple ways:

1. Your annual Retirement Progress Report

Each December, you will receive your Retirement Progress Report. The report summarizes:• Theservicecredityouearned

for the previous school year.• Yourtotalaccumulatedservice

credit.

• Thenamesofyourone-timedeath benefit recipients.

• Accumulatedcontributionsand interest in your Defined Benefit and Defined Benefit Supplement accounts.

• Twoestimatesofyourretirement benefit when you turn age 45.

2. Your personal information available on myCalSTRS

myCalSTRS provides safe, secure member information around the clock. The online service allows you to:• Updateyourpersonal

information.• Checkyourbeneficiary

information.• Viewandprintcopiesofyour

Retirement Progress Reports.• Calculateyourprojected

retirement benefit.

Service Credit x Age Factor x Final Compensation = Your Member-Only Retirement Benefit

Contributions to Your Defined Benefit Supplement Will ChangeEach month, you contribute 8 percent of your salary to CalSTRS— 6 percent is credited to your Defined Benefit (DB) account and 2 percent is credited to your Defined Benefit Supplement (DBS) account.

Starting January 1, 2011, CalSTRS will credit the entire 8 percent of your monthly contribution to your DB account, and you will no longer make regular contributions to your DBS account. You will still contribute to your DBS account if you receive a salary bonus or if you earn more than one year of service credit.

The Teachers’ Retirement Board will sponsor legislation to create new opportunities for members to contribute to their DBS accounts. If this legislation is successful, CalSTRS members will be able to voluntarily contribute post-taxdollarstotheirDBSaccounts. To continue building supplemental retirement savings in the meantime, CalSTRS encourages you to participate in a supplemental savings plan such as CalSTRS Pension2®.

FALL 2009 CalSTRS.com Your Money Matters 3

Test Your Financial LiteracyUse the following quiz to help develop your financial knowledge basics. Learn more at mymoney.gov.

What’s the difference between saving and investing?a. Savings are dollars that are safe and you can get to at anytime.b. Investments are monies used in a way that carries risk but also

the potential for higher returns than savings.c. Investments often come with fees and expenses.d. All of the above.

How do financial professionals get paid?a. A percentage of the value of the assets they manage for you.b. An hourly fee.c. A fixed fee.d. A commission on the investments you buy from them.e. All of the above, depending on the professional.

Federal and state laws protect investors by requiring financial professionals to:

a. Pay profits on a portion of the investments they sell.b. Repay investors who have lost money.c. Register with government agencies.d. Pay dividends on stocks at least once a year.

How many months’ living expenses is recommended for an emergency cushion in case you lose your job?

a. One year.b. Three to six months.c. One to three months.

What is the rule of 72?a. You should retire by age 72. If you save $100 a month, you can

retire by age 72.b. The time it takes for your money to double is 72 divided by the

interest rate.c. The amount of money you’ll need to have saved for retirement is

72 multiplied by your annual income.

If you invest in a variety of ways in order to lessen your risk of losing money, this investment strategy is known as:

a. Diversification.b. Saving.c. Compounding.d. Risk tolerance.

See answers on page 5.

Glossary of Financial Terms403(b)A 403(b) is a tax-deferred investment plan that most public school districts offer to their employees. It’s named after section 403(b) of the Internal Revenue Code. Your contribution is deducted from your pay check before it is taxed, so you see a savings right away. CalSTRS Pension2® offers a 403(b) plan. 457A 457, often called a tax-deferred compensation plan, is similar to a 403(b) but with different rules. It’s named after Internal Revenue Code section 457(b). CalSTRS Pension2 offers a 457 plan.

Asset AllocationAsset allocation is a strategy in financial planning in which investors distribute their investments among various types of asset classes, such as stocks, bonds, real estate and cash. Asset allocation often is based on investment goals or age because different asset classes have different levels of risk and expected returns. CalSTRS Pension2 offers Easy Choice Portfolios that combine risk tolerance and retirement target dates.

CalSTRS Defined BenefitYour primary CalSTRS retirement benefit is a guaranteed monthly benefit based on a formula, not on the amount of money in your account.

Service Credit x Age Factor x Final Compensation = Your Retirement Benefit

CalSTRS Defined Benefit SupplementYour Defined Benefit Supplement provides additional income for you at retirement. You will receive your Defined Benefit Supplement funds at retirement, if you receive a CalSTRS disability benefit or if you are no longer a CalSTRS member and request a refund. In the event of your death, your named beneficiaries will receive the funds.

CalSTRS Pension2®CalSTRS Pension2 provides four supplemental savings plans administered by CalSTRS working with TIAA-CREF. CalSTRS Pension2 investments are managed separately from your Defined Benefit contributions.

Compound InterestCompound interest, or compounding, is when the interest earned on your original investment is added to your original money so that you are earning interest on your total balance—your original investment plus all previous interest earned.

Financial PlannerFinancial planners are professionals who look at every aspect of your financial life—savings, investments, insurance, taxes, retirement and estate planning—and can help you create a detailed financial plan to meet all your financial goals.

Investment AdviserMost financial planners are investment advisers. Investment advisers are professionals who manage investment portfolios. Before hiring a financial professional, visit the California Department of Corporations at corp.ca.gov/education_outreach and the Securities and Exchange Commission at sec.gov/investor/pubs/invadvisers.htm.

Lifecycle FundsLifecycle funds, also known as target date funds, are mutual funds that have a risk profile designed to follow you throughout your working life and retirement. These funds frequently start out with aggressive investments and automatically grow increasingly conservative as you grow older. CalSTRS Pension2 Easy Choice Portfolios are similar to lifecycle funds but are also risk calibrated.

Tax-DeferredWith a tax-deferred account, you pay taxes on your contributions or investment earnings at a later date, such as when you withdraw funds in retirement. Paying taxes later when your income may be smaller could mean your tax bill will be less.

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4 CalSTRS.com

Dear CalSTRS:As a high school economics teacher, I often discuss the financial news of the

day with my students. Lately, our discussions have been dominated by the unsure nature of the current economy. Not coincidentally, I’ve become more and more concerned about my own finances, including my retirement

fund. Is it possible to access and review CalSTRS investment portfolio? Signed—

Economically Curious

Dear Curious:First, your CalSTRS retirement benefit is secure. Your benefit is a contractual right protected by provisions of the United States and California Constitutions. Further, your benefit is based on a formula, not investment returns or the amount in your account.

This past year CalSTRS acted to manage market volatility and to take advantage of opportunities presented by the financial meltdown. CalSTRS investments are poised for recovery following the economic crisis. Proactive steps taken

at the height of the crisis have helped prepare CalSTRS for the coming economic recovery.

However, it is clear that contributions to your CalSTRS retirement benefit by the State of California and your employer must increase in ordertomaintainitslong-termviability.

Now, to answer your question—yes, you certainly can access and review CalSTRS investment portfolio. To do so, simply visit CalSTRS.com/investments. There you can find extensive information regarding CalSTRS portfolio, including the current asset allocation and quarterly financial reports.

Several financial reports are available at CalSTRS.com/Help/forms _publications/pubs.aspx, including the annual Summary Report to Members.

Keep Connected Online with myCalSTRSUsing our secure online member Web site, myCalSTRS, you can get information about your CalSTRS accounts anytime, day or night. With myCalSTRS, you can:

• Ask questions about your accounts and receive prompt, confidential answers.

• View and print copies of your Retirement Progress Reports.

• See your beneficiary information.

• Change your e-mail address.

If you haven’t already registered for myCalSTRS, sign up today by going to CalSTRS.com and following the simple instructions.

dear CalSTRSA Teacher Asks About CalSTRS Investments

Answers to: Test Your Financial Literacy

1. d. All are true. Before you invest, consider how a decrease in the value of your investment will affect you. Visit mymoney.gov to learn more.

2. e. Ask your financial professional ahead of time how he or she gets paid. It may be a combination of these.

3. c. California financial professionals who offer or sell investments are required to register with the California Department of Corporations. They also may be required to register with the Securities and Exchange Commission. Visit corp.ca.gov (select Public Affairs, then Finance and Lending Education and Investor Education). Financial planners who sell annuities must register with the California Department of Insurance. Visit insurance.ca.gov (select Check License Status).

4. b. Many experts today recommend an emergency fund of three to six months’ expenses.

5. b. The rule of 72 is an easy way to calculate how many years it will take to double your money with compounding. Simply take 72 and divide it by the interest rate you are earning. If you are earning 4 percent, you will double your money in 18 years.

6. a. Diversification in financial planning is a strategy to manage your risk by spreading out your investments into different asset categories, such as stocks, bonds and cash. A number of plans, including CalSTRS Pension2®, offer diversified portfolio investment choices. All investments are subject to risk, even diversified portfolios.

Pension Confidence Poll

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How confident are you that your pension will be there when it is time to retire?

Choices Responses Percentage

Very confident 614 35%

Somewhat confident 630 36%

Not too confident 322 18%

Not at all confident 204 11%

(Percentages are rounded.)

CalSTRS conducted an online poll between March 19, 2009, and July 3, 2009, and posed this question: As a current educator, how confident are you that your pension will be there when it is time to retire? There were 1,770 total responses.

FALL 2009 CalSTRS.com Your Money Matters 5

Build Supplemental Savings Today

You can begin a supplemental savings account—through easy payroll deductions—at any age and reap higher rewards by starting early.

Dollars invested now will have time to grow through the power of compound interest. With compounding, you can generate earnings on the money you originally invested and earn even more on the earnings you are accumulating. Tap into the power of compounding by adding money to your investment each month.

You may begin by starting an automatic deduction from your paycheck into a savings account or investment plan. That deduction will become a regular expense you won’t miss and will make it easier to build wealth for the future.

Pre-Tax Savings AdvantagesWhen you contribute directly to a 403(b) or 457 supplemental savings plan through payroll deduction, you defer taxes on the money you contribute. You get more savings for your contribution dollar, and your earnings also grow tax-deferred.

The Importance of Supplemental SavingsAlthough your CalSTRS Defined Benefit is safe and guaranteed to last as long as you live, most retired educators need additional income to maintain a lifestyle that allows them to do the things they want. A supplemental savings plan helps you close the retirement income gap. Some things to consider:

• Theaveragecareerteacher’sbenefitreplacesabout 62 percent of final pay.

• Publicschoolteachersdon’tpayintoorreceiveSocial Security for public school employment.

• Manyretirededucatorshavetopaytheirownhealth care costs.

CalSTRS Pension2®CalSTRSPension2isaCalSTRS-administeredvoluntary supplemental savings plan, which includes 403(b) and 457 accounts. Investment portfolios are created by CalSTRS in cooperation with its financial planning consultants.

5 Great Reasons to Choose Pension2®1. Multiple investment choices:

• 403(b)• Roth403(b)• 457• RothIRA

2. Objective advice3. Planning services4. Low-costfees5. Flexible investing options

Get Started Today• Visitwww.Pension2.com.• E-mailPension2@calstrs.com.• Call888-394-2060MondaythroughFriday

from 8 a.m. to 5 p.m. PST.» Speak with a representative for more

information.» Receive phone support to enroll online.

Social Security, CalSTRS and YouCaliforniateachersinCalSTRS-coveredpositions do not contribute to Social Security and will not receive Social Security benefits for CalSTRS-coveredemploymentatretirement.

The Teachers’ Retirement Law was enacted in 1913, before the Social Security program was created. In 1955 California’s public educators elected to exclude themselves from the Social Security program, primarily because CalSTRS benefits were better.

Consider investing all or part of the 6.2 percent of your salary that would have gonetoSocialSecurityintoatax-deferred403(b) or 457 supplemental savings account.

For more information, read Social Security, CalSTRS and You, available at CalSTRS.com. Or visit the Social Security Web site at socialsecurity.gov.

6 CalSTRS.com

Teacher Feature“We’re asking parents for a lot more donations. If those things don’t come in, we have to pay out of pocket for those necessities.”

– Tani Russo

“By being creative about how we are reimbursed through the district and the PTA.”

– Tamara Freeman

“I’ve had to delve into my archives from teaching for 21 years—older resources I’ve been hoarding over the years.”

– Valerie Schmalenberger

Asked at Ridgepoint Elementary School in Sacramento, CA:

How are you dealing with fewer classroom resources available this year?

Purchase Additional Service Credit NowThe more service credit you have at retirement—earned or purchased—the greater your retirement benefit. It typically costs less if you purchase service credit earlier in your career rather than later.

• Purchase“permissive”servicecreditforeligibleserviceinout-of-stateorforeignpublicschools,certainactivemilitary leave, Peace Corps, Job Corps, maternity and paternity leave, sabbatical leave and leave approved under the Family and Medical Leave Act.

• Buynonqualifiedservicecreditthatisnotrelatedtoteaching, also known as “air time.”

• Redepositservicecredityoulostifyouleftpubliceducation, took a refund and then returned to CalSTRS membership.

• Purchase“nonmember”serviceforpart-timeorsubstitute work in a California public school system before you were a CalSTRS member or between refunding and becoming a member again.

See “Ways to Increase Your Benefit” in the Member Handbook or the brochure Purchase Additional Service Credit at CalSTRS.com.

Say Goodbye to Sit-Ups

Although sit-ups remain a common exercise to strengthen abdominal muscles, Dr. Stuart McGill, a professor of spine biomechanics at the University of Waterloo, has found they put undue pressure on the spine, causing back pain and stiffness. If sit-ups are still part of your exercise routine, consider replacing them with an abdominal exercise that protects the spine—the crunch.

According to Dr. McGill, to begin a good crunch exercise, lie on the floor with one leg straight and the other bent up at the knee. Place both hands under your lower back to support your spine. Do not curl or bend your back; instead, gently lift your head and shoulders until they no longer make contact with the floor. Hold briefly and relax your head and shoulders back down.

Please consult your physician before beginning any exercise regimen.

For more information about preventing and rehabilitating troubled backs, visit Dr. Stuart McGill’s Web site at backfitpro.com. A Useful Tool For You

Receive a free 2009 CalSTRS Member Handbook CD by sending an e-mail request to Communications@CalSTRS.com. This electronic version of the CalSTRS Member Handbook answers many of the questions you may have about your benefit coverage.

FALL 2009 CalSTRS.com Your Money Matters 7

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WEB SITES CalSTRS.comClick Contact Us to e-mail

403bCompare.com

www.Pension2.com

CALL 800-228-5453 7 a.m. to 6 p.m.Monday through Friday

866-384-4457 Home Loan Program

888-394-2060CalSTRS Pension2®Personal Wealth Plan

WRITE CalSTRSP .O. Box 15275Sacramento, CA 95851-0275

VISIT Member Services100 Waterfront PlaceWest Sacramento, CA 95605

FAX 916-414-5040 (new)

CalSTRS West Sacramento Headquarters may experience closures through June 30, 2010, due to ordered employee furloughs.

Please call to confirm business hours.

CalSTRS Resources

Participate in National Save for Retirement Week by inviting CalSTRS to your school for a Pension2 workshop.

CalSTRS Pension2 is a voluntary supplemental savings plan that offers 403(b), Roth 403(b), 457 and Roth IRA accounts. Investments are selected by CalSTRS in cooperation with its financial planning consultants. To request a free workshop at your school, call 888-394-2069 or e-mail Pension2@CalSTRS.com. Visit the Pension2 Web site at www.pension2.com.

October 18-24, 2009, has been congressionally endorsed as the second annual National Save for Retirement Week. Goals include:

• Increasing awareness of the need to save now for the future.

• Promoting the benefits of getting started saving for retirement early.

• Encouraging employees to take full advantage of employer-sponsored retirement plans by increasing contributions.

Celebrate National Save for Retirement Week with CalSTRS Pension2®

A Useful Tool For YouReceive a free 2009 CalSTRS Member Handbook CD by sending an e-mail request to Communications@CalSTRS.com. This electronic version of the CalSTRS Member Handbook answers many of the questions you may have about your benefit coverage.