Secure Your Future
Stock market roller coaster
Feb 14, 2008 10:56 AM
The recent volatility of the stock market quite naturally causes members to be concerned about the safety of their retirement funds. We cannot emphasize too strongly that our pensions are defined-benefit plans that are guaranteed and are not affected by market volatility.
The investment markets seem almost always to be in some state of flux. Different asset classes act in different ways historically and no one has ever demonstrated that they can regularly predict the direction of how different asset classes will perform. Hence, the Teachers’ Retirement System in all of its investments always maintains a broadly diversified array of asset classes in each of its funds. Currently, TRS has three investment funds that members can invest in.
Let us say up front, our pensions are guaranteed by the State of New York’s constitution. Article V, section 7 states that after July 1, 1940, benefits cannot be “diminished or impaired.” That is one of the reasons the UFT always fights against holding a constitutional convention — to prevent any meddling with that article.
The current volatility does not affect the payment or amount of our pension.
How are the three TRS Funds Invested?
Pension Fund (Fixed-Dollar Account) — This fund plays two important roles for members. It is the fund that provides the money to pay for our guaranteed pensions and it is the fund that also is used for the investment in the Fixed-Dollar Account.
It contains more than $37 billion and is very broadly diversified between asset classes such as bonds, stocks, real estate, private equity and cash.
Each asset class is further diversified. Stocks, for instance, include domestic and international, large-, mid- and small-capitalization stocks, growth and values stocks, etc. No matter how volatile the stock markets may be, our pensions are guaranteed, and the fixed-dollar annual rate of return will be 8.25 percent until at least June 30, 2009.
So therefore, short-term fluctuations in the stock market do not affect our pensions, nor do they affect the fixed-dollar rate of return, which is determined by statute.
Variable Annuity A — This is a broadly diversified stock fund for members who believe that a stock market investment over the long run will out-perform a fixed-dollar investment. This fund has earned 10.24 percent and 11.25 percent over the past 15 and 20 years, respectively. But it is volatile and can lose money as it did in 2000, 2001 and 2002.
The more than $15 billion in this fund are invested in a broad array of different classes of stocks similar to those invested in the fixed fund. There is a defensive sector in Variable A that is designed to help manage volatility. During times of negative returns in the stock market, Variable A is designed to lose less value. But investment in Variable Annuity A is directly affected by short-term fluctuations in the stock market.
Variable Annuity B — This is a type of stable fixed-income investment. It is designed to pay current interest rates and is now earning a bit over 4 percent per year. There are fewer than a half billion dollars invested in this fund. It is not affected by the volatility of the stock market. It is invested in insurance industry investments known as GICs (Guaranteed Investment Contracts) and short-term bonds.
If you decide to make changes in how you invest your TDA, you may do so during the month of February. Changes will begin in the quarter beginning April 1.
Thinking of retiring?
To follow up on some of the retirement information we discussed in the last issue, have you thought about how much income you will need in order to retire with the life style you have earned and deserve?
Will you need more than you earn now? The same? Less?
Think about it. Some things you pay for now you won’t be paying for in retirement. Your salary is taxed by New York State and local governments. Your pension is not.
You pay Social Security tax on your salary; you do not pay Social Security on your pension.
You contribute to a tax-deferred annuity from your salary; you cannot contribute to the TDA from your pension.
Generally, our pension is smaller than our salary. Therefore, you will be paying a smaller amount in federal income tax.
Check a recent check stub and see how much less in income you will need to provide the same take-home pay before and after retirement. Subtract your New York State and local income tax, your Social Security payments and your TDA contributions from your current gross salary. We will have more about planning for retirement income in future issues.
If you are sure you are going to retire after this term, call the UFT now at 1-212-598-6866 for a final consultation. If you are not sure, please take advantage of other UFT services to obtain the information you will need in order to have a secure retirement.
Protecting your loved ones
Money magazine had a snippet in its February 2008 edition that was very disconcerting. It said 57 percent of Americans do not have a will. Without a will you give up the right to decide how your estate is distributed. The laws in the state that you live in make the decision.
Even scarier is the fact that 69 percent of parents with children under 18 have no will. Think a moment — do you really want the courts to decide who should become the guardian of your minor children instead of you?
If you have no lawyer to help you draw up estate-related documents such as a will, a trust (if needed), a durable power of attorney, a living will, or a health care proxy, contact NYSUT Member Benefits at 1-800-626-8101 and ask about the NYSUT Legal Service Plan. Take this step necessary to secure your family’s future.
“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.
