Retirement can seem a long way off when you’re in your 20s, 30s or even 40s. But the decisions you make when you’re young can help ensure you have a secure retirement.
National Retirement Security Week, which was Oct. 20–26, is intended to prod U.S. citizens to save for retirement. The earlier you begin saving, the better.
Most UFT members will have a defined-benefit pension to provide financial security. UFT members enrolled in the Teachers’ Retirement System or the Board of Education Retirement System also have access to a voluntary savings plan administered by the retirement systems that supplements the defined-benefit pension plan.
Started in 1970, the Tax-Deferred Annuity is one of the most popular benefits the UFT has won for its members. More than 120,000 in-service members and retirees participate.
The TDA enables members to save money as they defer federal income taxes on those savings and earned interest until they’re older. This lowers the income taxes they pay during their working years.
New York State and New York City also defer state and city income taxes on TDA savings. Members who live in other states, however, should consult a tax adviser because laws vary by state.
The TDA is an excellent way to save, but it is intended for retirement. There are tax repercussions and penalties on withdrawals before retirement. It’s best to have other savings for emergencies.
The IRS currently allows annual contributions of up to $19,000 for members under age 50 and up to $25,000 for those who are 50 or older. Members who wish to save more than that should explore the city’s Deferred Compensation 457 Plan. Call 212-306-7760 or visit nyc.gov.
TRS members may invest TDA contributions in seven Passport Funds:
- Fixed Return Fund
- Diversified Equity Fund
- Balanced Fund
- International Equity Fund
- U.S. Equity Index Fund, starting Jan. 1, 2020
- International Equity Index, starting Jan. 1, 2020
- Sustainable Equity Fund (formerly known as the Socially Responsive Fund)
BERS members may choose between a Fixed Return Fund and a Diversified Equity Fund.
Taxes owed upon withdrawal
Once you are retired and collecting your pension, you may withdraw the money without a penalty. This is another advantage for members; most other tax-deferred vehicles do not allow you to withdraw without penalty until age 59½. If you remain on payroll, you may withdraw the money without penalty at age 59½ or later. Please note: When you withdraw the money, you will owe taxes on it.
Never invest in something you don’t understand. There is detailed information on the TDA and the Passport Funds on the TRS website at www.trsnyc.org.
The union provides security
Experts say a financially secure retirement depends on four pillars:
- Social Security
- Health insurance
- Personal savings
This is sometimes referred to as the four-legged stool to help people visualize the significance of those elements. Planning ahead can affect your decision about when to retire. It can be the difference between choosing when to stop working and being forced to work well past the time you want to.
Because of the union, UFT members enrolled in TRS or BERS have all four components of a financially secure retirement. We have a defined-benefit pension, we’re entitled to Social Security even though we’re government workers, we have health insurance as retirees (which supplements Medicare when we turn 65) and, thanks to the TRS/BERS Tax-Deferred Annuity program, we can have substantial personal savings if we choose.
The unit value is computed during the latter part of each month.
|Diversified Equity||Balanced Fund||Int'l Equity||Inflation Protection||Socially Responsive|
This column is compiled by Tom Brown, David Kazansky and Debra Penny, teacher-members of the NYC Teachers’ Retirement Board.