Secure Your Future

Economic woes cause many to put off retirement — but not us

May 8, 2008 6:19 PM

According to the Wall Street Journal, retirement planners are seeing large numbers of older workers put off retirement as the housing and stock market troubles continue.

Many Americans, hurt by the economic downturn, have had to change course abruptly. The ranks of those 65 and over in the work force rose, meaning that 212,000 more workers over the age of 65 are holding jobs now than in April 2007.

With their homes worth less, fewer people feel confident enough to retire. Combine this with the drop in the stock market, which older people cannot as easily recover from as younger people, and many older Americans are working longer specifically because of the economic fallout of the past 12 months.

Many current retirees feel that theirs may be the last generation that even gets to retire. According to a poll taken by the Alliance for Retired Americans, only 12 percent of retirees believe their children will be better off than they are.

Now for the good news: Teachers’ Retirement System members, even though they are younger than the 65-year-olds described above, are still retiring at the same pace as previous retirees. The major reason is that we have a defined benefit pension plan, which is something that only a minority of Americans outside of public employment or a heavily unionized industry have.

Ready, set, retire

Lots of members talk about wanting to retire. Things are tough in schools and now with the passage of 55/25, there is a great deal of talk about stopping work.

But only about 20 percent of TRS members who are over age 55 have five or more years of service. For those members, we would like to discuss “Retirement Readiness” — a term a large investment company is using. We will use the term to define when a TRS member is financially ready for retirement. It leaves out emotional factors, job satisfaction and other factors that members may view as being as important as financial security.

Studies show that half of all working Americans older than age 55 have less than $50,000 saved for retirement. This, plus unwarranted nervousness over Social Security, the disappearance of defined benefit (traditional) pension plans, high and rapidly growing health care costs and increases in longevity are all coming together to create a “perfect storm” for Americans planning for retirement.

Over the last century, life expectancy has increased from age 50 to age 80. It is predicted that by 2046, a 25-year-old woman will have a life expectancy of age 100. Today, one in five Americans will live into their 90s. As we have previously reported, there are 13,263 retired members of the TRS who are age 80 and older including 137 centenarians. The financial requirements to support this trend are very substantial.

Lots of work must be done to get working Americans ready for a successful retirement:

• they must participate in their employers’ savings program;

• they must defer enough of their salary to provide a livable retirement income replacement ratio;

• they must understand investment diversification;

• they must have a comprehensive investment menu that does not create “analysis paralysis”;

• they must provide for a health care program in retirement; and

• after retirement, they must expertly balance the withdrawal of money from their retirement account balances in an appropriate ratio so that they have enough money to supplement their Social Security and live a satisfying lifestyle and not run out of money before they run out of life.

TRS members, on the other hand, have a much easier time achieving “Retirement Readiness.” Both Social Security and the pension are designed to provide income for the rest of a retiree’s life. Neither program will stop providing payments for life. The TDA can be used if needed to supplement Social Security and the pension. This is very different from having only Social Security and savings to provide a lifetime stream of payments.

Retirement experts tell us that on average retirees can live a financially secure life if they replace 75 to 85 percent of their pre-retirement income. A little more in early retirement, the go-go years, a little less in mid-retirement, the go slow years, and perhaps a little more again during late retirement, the no-go years.

If a TRS member retires before Social Security age, the income comes from the pension and if needed supplementation from the TDA. At Social Security age, additional income kicks in and the need for supplementation from the TDA may cease. As inflation affects retirement income as one ages, TDA supplementation can start again.

If a TRS member retirees after Social Security-eligible age then chances are no supplementation from the TDA account is initially needed and the account can continue to grow and be there to supply protection against inflation.

Backing up all of this financial security for TRS retirees is a comprehensive health insurance program, which, after Medicare eligibility, provides a Medicare supplemental plan.

With the general population having very little retirement security and diminishing health care coverage, we have our work cut out for us. Not only must we defend what we have, but we must support less fortunate working Americans in their desire to have the same kind of “Retirement Readiness” that we have.

Final consultation

Remember, if you plan to retire at the end of this school year, you should have a final pension consultation. If you have not made an appointment for one, call 1-212-598-6866 to arrange for a final consultation in your borough office. Since retirement is a long-term event, it is important that if you are married you bring your spouse to the consultation.

Investment changes

May is the month that in-service Tier I/II members, as well as in-service and deferred TDA participants, can elect investment changes.

“Secure your future” is compiled and written by Mel Aaronson, Sandra March and Mona Romain, teacher-members of the NYC Teachers’ Retirement Board. For further information on items discussed, call your UFT borough office or the TRS. BRONX: 1-718-379-6200; BROOKLYN: 1-718-852-4900; MANHATTAN: 1-212-598-6800; QUEENS: 1-718-275-4400; STATEN ISLAND: 1-718-605-1400; Teachers’ Retirement System: 1-888-8NYC-TRS (692-877), www.trs.nyc.ny.us.