One of the most important decisions a UFT member makes at retirement concerns the defined-benefit pension.

The Teachers’ Retirement System allows members to choose how much of their benefit to receive: Members may take the maximum retirement allowance for which they’re eligible. Or, they may take a smaller amount and, if they die first, survivors receive a benefit.

It’s wonderful to have choices, but making them can be difficult because variables come into play, including how much money a member has saved in a Tax-Deferred Annuity, the age and health of the member or potential beneficiaries, and other financial assets the member has.

To complicate matters, insurance companies sell life insurance as an alternative to a TRS pension option that provides survivor payments. If you’re interested in pursuing this avenue, we urge you to compare life insurance policies as well as the cost of a policy versus taking a TRS option. Sometimes it makes sense. But remember: What works for your friend may not be the right solution for you.

Members frequently ask UFT pension consultants to compare TRS options with life insurance policies. We cannot do that, but we can provide you with the information to help you make a choice. The most important thing you can do is to meet with a UFT pension consultant to get the facts pertaining to your situation.

At this meeting, you’ll consider:

• Your assets and liabilities.
• Your beneficiary’s financial dependence on you and his or her ability to manage funds.
• Your Social Security benefits.
• The standard of living you and your beneficiary wish to maintain in retirement as well your beneficiary’s standard of living in the event of your death.
• Your health and your beneficiary’s health.

TRS does build some flexibility into the process. To give you plenty of time to make an informed choice, you have until one business day before your retirement to select a TRS option. You then have 30 days from your first day of retirement to change your mind. But after that, TRS options cannot, under ordinary circumstances, be changed.

Insurance companies make the following pitch: Take the maximum allowance and provide for beneficiaries through life insurance. They say you can pay premiums with the difference between the maximum and the reduced optional allowance. That may work for some. But for most people, the after-tax difference between the maximum payment and an option is rarely enough to purchase an adequate insurance policy to provide a lifetime of income.

The second most important thing: If you are considering life insurance, make sure you are eligible for the policy before you make any decision about your TRS options. Insurance companies can turn you down based upon your health. We don’t want you locked into a TRS choice only to discover you’re ineligible for life insurance.

There’s a third point to consider: If you buy an insurance policy, you must plan how your survivors will invest the payout to provide a lifetime of income. That can be tricky unless you’re a knowledgeable investor, familiar with the many available investment products. It is a bad idea to leave this planning for the surviving beneficiary. It’s too stressful a time to be making such important decisions.

Here are other factors to consider if you’re thinking about a life insurance policy versus a TRS option:

• Will the policy be less expensive than the TRS option after tax ramifications?
• Do you plan to live in New York State? TRS’s retirement allowance and beneficiary payments are not subject to New York city or state income taxes. If you plan to live in another state, check that state’s laws on taxable income.
• Will insurance give your beneficiary a lifetime of income at least equal to the amount she would have received from the TRS option regardless of when you die?
• Will the insurance agent put all the risks in writing so you have proof of what you were told?

At your final UFT pension consultation, you will receive an estimate of your TRS benefit. Do not ask an insurance agent to calculate TRS’s figures. They are not qualified to run the numbers. Similarly, the UFT pension consultant may not provide you with the price of a life insurance policy, even an estimate. If you want to compare TRS’s figures to private insurance, consult a reputable insurance salesperson or financial planner.

If you plan to retire by July 1, please call the UFT Pension Department at 1-212-598-6866 to arrange a meeting for a final pension consultation.

Ultimately, with the proper research and a thorough understanding of the choices, you will make the right decision for your family. Then you’ll have time to enjoy a well-earned retirement.

The UFT’s pension clinics are aimed at those members thinking about retiring within five years, but all members are welcome to attend. These clinics are only one way the UFT educates its members about how to prepare for a financially secure retirement.