Life is filled with important financial decisions. “How big a house do I need?” “Should I buy a new car or a used car?” “Should I borrow money to pay for my son’s wedding?”

Life is filled with important financial decisions. “How big a house do I need?” “Should I buy a new car or a used car?” “Should I borrow money to pay for my son’s wedding?”

When you retire, you have another important decision to make: “Should I take the Maximum Retirement Allowance or select an option that provides for beneficiaries but reduces my monthly pension check?”

As with many other major financial decisions, there isn’t a right answer. It depends upon your situation and your finances.

Retirees who select the Maximum Retirement Allowance receive the maximum amount of money a retiree is entitled to collect on a monthly basis for the rest of his or her life. It makes no provisions for dependents, heirs or beneficiaries. When the retiree passes away, the Teachers’ Retirement System has no obligations to the estate.

This choice might be appropriate if a retiree has no dependents or plans to provide for dependents, beneficiaries or heirs in some other manner, such as life insurance.

A retiree who wishes to provide financial security to survivors has another choice. He may choose a reduced monthly payment in exchange for a continuing benefit to beneficiaries after his death.

These retirees have two choices:

• Continuing Payment Option, aka the Joint Survivor Option: This choice protects two people until they both die – the retiree and a single beneficiary.
• Guaranteed Number of Payments or a Term-Certain Option: This choice guarantees a certain number of retirement payments to one or more beneficiaries.

Continuing Payment Option

In the event of a retiree’s death, the Continuing Payment Option provides a benefit to the beneficiary for the rest of his or her life. The “cost” of this option depends on the ages and associated life expectancies of the retiree and the beneficiary. The cost to protect a person older than the retiree is usually lower than the cost to protect a person younger than the retiree.

This option is generally, but not necessarily, used to provide for a spouse or dependent. The cost of this option is based on two lifetimes and two life expectancies, so the name of the beneficiary cannot be changed after retirement.

You get to choose how much of a benefit your survivor will receive. It can be the same amount you received while you were alive. But remember: The larger the benefit to the beneficiary, the higher the cost of the option.

Please note: You can buy a supplemental benefit to this option called a Continuing Payment Option with a pop-up provision. (It’s also known as a Joint Survivor Option with a pop-up provision.) This supplemental benefit protects the retiree in the event the beneficiary passes away first. The provision allows the retirement allowance to rise to the maximum benefit for the remainder of the retiree’s life.

Guaranteed Number of Payments

A Guaranteed Number of Payments, also known as a Term-Certain Option, provides a retiree with a reduced monthly retirement allowance for a certain term. The retiree may choose either five years (60 months) or 10 years (120 months).

If the retiree dies before the term is up, the beneficiary collects the money for the remainder of the 60-month or 120-month period.

The cost of this option is based on the age of the retiree and the length of the guarantee. The beneficiary may be of any age and the name of the beneficiary may be changed at any time. In addition, more than one beneficiary may be included.

‘Right’ choice is strictly personal

The decision to choose one of these payment plans is strictly personal. No one-size answer fits all our members. (That’s why we’ve negotiated choices for you!)

During your preliminary UFT retirement consultation, the consultant will discuss the choices in a general way. At your final consultation, the consultant will get more specific based on a number of factors including:

• Your assets and liabilities;
• Your beneficiary’s financial dependence on you and the ability to manage money;
• Future Social Security benefits due to you and your beneficiary;
• The standard of living you wish to maintain in retirement; and
• Your health and the health of your beneficiary.

You should discuss this decision with your spouse or significant other as well as your UFT pension consultant. Generally speaking, the decision to take the Maximum Retirement Allowance or one of the options is irrevocable.

Please don’t ask!

New retirees, or those about to retiree, frequently ask UFT pension consultants how TRS’ various retirement choices, as discussed above, compare with the products offered through private insurance companies. This is an inappropriate question. The UFT consultants are not in a position to comment on these products. The converse is true as well. You should not ask insurance reps about TRS choices. They are not qualified to provide answers and may, indeed, inadvertently provide incorrect or misleading information.

Final pension consultation

If you plan to retire at the end of this school year, you should have a final pension consultation. If you haven’t yet made an appointment, call 1-212-598-6866 to arrange a final pension consultation in your UFT borough office.

Some of the financial decisions you have to make will affect your family, so we urge you to bring your spouse, partner or significant other to the consultation.