Retirement on your horizon? Here are things to consider

Jan 31, 2008 10:49 AM

The 55/25 bill is moving toward passage. We hope the bill will be enacted early in the legislative session. As you know, enactment of this bill will allow those members who are age 55 and have 25 years of service to retire without a reduced benefit as early as June 30.

This is a permanent improvement in the law for those who opt in. No one should feel the need to rush into retirement because they’re afraid they would lose the benefit. UFT members will be able to retire under the provisions of the law next year or the year after or whenever.

Moreover, no one should retire unless fully prepared to do so. While it’s impossible to predict the future, longevity tables tell us that a 55-year-old has a life expectancy of 30 years or so. You must plan for this third of your life as thoroughly as you planned for the working third of your life. You never want to run out of money before you run out of life. You never want to rush into retirement unless you are prepared for it.

There are many matters you have to think about related to your retirement. Many of them are lifestyle matters: how do you want to spend the rest of your life? These are, of course, individual decisions. Here are some of the financial considerations you should think about (some of these are matters we can help with, see below):

• How much income will I need?
• Where will it come from?
• How long must my income last?
• How large will my pension be?
• Should I use the retirement system benefit to provide for my dependents or heirs? That is, should I take a maximum retirement allowance or a reduced pension with one of the options that provide for dependents or heirs?
• Should I remove a lump sum of money from the Qualified Pension Plan (QPP)?
• What should I do with my tax-deferred annuity?
  1. Leave it with the Teachers’ Retirement System as a deferred TDA account?
  2. Leave it with TRS and collect it as an annuity (a second lifetime income)?
  3. Remove it from TRS and invest it elsewhere?
  • Have I checked with the Social Security administration as to the effect on my future Social Security if I retire at my current age?
  • What are my health insurance choices after retirement?
  • For Tier I and II members — should I invest the Annuity Savings Fund and Increased-Take-Home-Pay in the fixed or variable plan?

The UFT can help you with the decisions you have to make and the answers to many of your questions, except for Social Security. Make sure to attend one of the pension clinics series (see schedule at left).

If you have definitely decided to retire, immediately call to make an appointment for a final pension consultation. The number is 1-212-598-6866. This is a once-in-a-career consultation so please be sure that you are going to retire at the end of this school term. We suggest that if appropriate, your spouse or significant other attend with you so that you can make the most appropriate decisions.

The final consultation will cover:

• an estimate of your retirement allowance;
• a discussion of lump-sum distributions you may take from the QPP;
• a discussion of your TDA choices;
• guidance on filling out required forms;
• an overview of retiree health insurance and Welfare Fund benefits;
• an explanation of income tax related to your retirement allowance;
• a description of UFT services for retirees; and
• any last-minute questions you may have.

In the next several issues, this column will discuss many of the matters mentioned above, as well as other matters related to your retirement, in more detail.

TRS notes

Investment results — TRS investment programs had modest to good results in 2007. We will have more details in a subsequent issue but preliminary results show that Variable Annuity B earned about 4 percent, Variable Annuity A earned about 5.5 percent and the Fixed Dollar Account earned 81/4 percent.

The period to change investment elections in the TDA is Feb. 1 to Feb. 29 (yes, it’s a leap year).

Missing beneficiary documentation — Young members think they are immortal. Statistics from the beginning of 2007 through June 30, 2007, show only 45 percent of new members returned designation of beneficiary forms. This puts their loved ones at great financial peril. The TRS reached out to all members without designations on file in the third quarter 2007 Quarterly Account Statement. To date, there is no report on the response to that reach out. If you have not filed designation of beneficiary forms for the QPP and TDA, do so now.

Pension Protection Act of 2006 — A provision of the PPA allows non-spouse beneficiaries to roll over QPP or TDA death benefits to an Inherited IRA account. Up until now, only spouse beneficiaries had the right to roll over these benefits. This new right should be examined by the beneficiaries of deceased TRS members.

What a difference UFT persistence makes — In July and August 2007, 1,705 TRS members retired; by November 1,529 were on the final payroll and the other 176 were getting advance checks. Our older members remember that as late as the 1990s it took many, many months to get on the final payroll and there were no advance checks.

Schoolwide performance bonus — This new source of income will also increase members’ Final Average Salary if it is earned in the FAS calculation period. So not only is there a one-time monetary gain from this UFT-negotiated benefit but, like the Energizer bunny, it keeps on giving in retirement.

“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.