Being a NYC teacher can result in a very comfortable retirement, if the teacher invests wisely and makes it to full retirement age. We have a pension, a 403(b) plan, and Social Security. All three are exempt from New York State and Local taxes. Assuming a teacher works 25 years and retires at 62, they will receive 50% of their Final Average Salary (FAS), less if they select a spouse to get part of the pension (about 40%). NYC teachers will also get Social Security, starting as early as 62 (reduced benefit). The combination of the two will probably account for 50% or more of the teacher's retirement income. The remaining 50% will come from the teacher's various savings accounts. For NYC teachers that may be primarily their TDA,
A July 2011 study by Financial Researcher Wade D. Plau showed that if a person saved an average of 16.62% of their salary annually, that person will have saved the equivalent of 50% of his or her necessary retirement income. Add that to our pension and Social Security and the NYC teacher can expect to achieve a 100% replacement income in retirement Therefore, if the NYC teacher can last to their full retirement age of 62 or 63, they can expect a financially conformable retirement.
Of course there are a couple of cavorts. First, how many NYC teachers will reach their full retirement age? According to a study which I used in a previous post, only 33% of Tier 1-IV teachers in NYC reached that goal. With the punitive teacher evaluation system and Charlotte Danielson being used to determine teacher effectiveness and the vastly inferior Tier VI pension plan, the percentage of teachers reaching their full retirement age is probably closer to the teens for newer teachers.
Another issue is the improving economy. Fewer college graduates are going into the low paying education field and even less want to be a classroom teacher. Moreover, many existing teachers leave the high stress classroom environment for greener pastures, be it to the suburbs or outside of the education field. Finally, the poor quality of NYC school administrators and the lax student discipline rules makes teaching in the NYC classroom a hostile environment. Consequently, few newer teachers will stick it out for the long term despite the rewards of a comfortable retirement 20 to 30 years down the road.
The bottom line, if you can make it to full retirement age, the NYC teacher will have a financially comfortable retirement but realistically we are talking about the minority of teachers that can stick it out and are smart enough to save at least 16.62% of their paycheck.
Chaz, most teachers are not going to work 20-30 years. If they start at age 22 and have to retire at 62, that is 40 long ass years. I know that the majority of teachers at my school are not planning on staying for the long haul. They told me they are gonna change careers entirely or go take a teaching job in the suburbs. Face it, Tier 4 is the last of the teachers in NYC who are gonna be able to retire in this system.
ReplyDeleteThat's why they're so desperate to ATR and terminate people. Because each time they succeed, another Tier IV position is gone forever.
DeleteWould age 55 and at least 25 years of service be considered "full retirement age" for those in the 25/55 plan?
ReplyDelete"Caveats", not "covorts"
ReplyDeleteMany teachers don't know about their other option for retirement plan. It is the NYC Deferred Compensation Plan, open to all NYC workers.
ReplyDeleteMany don't know that unlike other workers, NYC teachers can invest taxed deferred up to $36,000 annually, double the $18,000 most other workers are limited to.
Many don't know that they can contribute to both the TDA and the NYC Deferred Comp.
Our union doesn't tell us about this great opportunity, but take advantage of it if you can!
Don't forget you can add $6500 per year to a Roth IRA. $5500 for those under 50.
ReplyDeleteThe Roth goes a long way since you pay NO taxes on any gains. Ever!
What you're saying is completely true. I know that everybody must say the same thing, but I just think that you put it in a way that everyone can understand. I'm sure you'll reach so many people with what you've got to say.
ReplyDelete751,
ReplyDeleteBeing an atr and termination are 2 separate things.
This is something many teachers don’t understand
I know that. An ATR is a fully salaried teacher. I know. However, they take people out of their comfort zone and therefore many ATRs retire before they had planned to. So for every ATR that retires because of being made an ATR, then they succeeded in eliminating that Tier IV position forever.
DeleteDiblasio wants to divest our pension funds from fossil fuel companies' stock. That includes some of the most highest earning stocks in history like Exxon. Just as the Energy sector is in the beginning of a comeback and their stocks are rebounding nicely, our pensions will not enjoy all the financial gains.
ReplyDeleteInvestment decisions for our pension should be based on maximizing returns and not based on politicians' social views.
!)You can take out money from TDA at 591/2 still work.
ReplyDeleteCan you put in 20,000 and withdraw 20,000? So you can avoid city and
state taxes on 20,000?
Chaz can you do articles on
ReplyDelete1)How to take out money from retirement accounts.
I'm a good saver but how not to give it back in taxes.
What are the options for the deferred comp plan? Do they have guaranteed returns like the tda fixed?
ReplyDeletethank you Anon 8:42 and Anon 11:27 for adding that info - I invest in those as well
ReplyDeleteThe NYC Deferred Comp Plan has many options for investing, including target funds. With target funds you choose a date in the future when you think you will need to withdraw money. Say you choose the 2040 Fund, your money will be invested in 90% stocks and 10% bonds this year, but as you come closer to the target year, your money is invested more conservatively, more bonds.
ReplyDeleteThere is no fixed rate fund like the TDA, but they do offer Roth options on all there funds, which I think is superior that the TDA, which is before tax.
Anon 10:09 - there isn't a guaranteed option (that is only in th4e TDA). think of the DCP as an option 401k that can be used to supplement what you are already saving.
ReplyDeleteI actually started with the DCP as this is my second job and I was more familiar with 401ks than annuities. I always got good returns though...it depends on your risk tolerance.
FYI The TDA limit for 2018 is 18,500. So you can save 37,000 for 2018.
ReplyDeleteThe deferred compensation 457 plan has a catch up provision that allows you to invest $12,000 more in your last 3 years before retirement . It is called DAR. That means we can invest $60,000 total in each of our last three years and if you do it after-tax, that money will never be subjected to tax when you take it out in retirement.
ReplyDelete7:16. Yes, age 55 with at least 25 years is considered full retirement for those in the 25/55 program. For each year you work after 25 adds 2% to your pension.
ReplyDeleteQuestions about the 457 plan—
ReplyDelete1. Do we pay NYC and NY taxes when we collect (not roth)?
2. If we do both TDA and 457, which do they deduct first from paycheck?
3. What happens if you aren’t sure when your last 3 years are going to be? I want to get to age 55, but then I might go a year or two or three after that (I figured I can walk at any time because I will have 30 years at 55).
Serious question.
ReplyDeleteAside from how bad things are in the clssroom(bad) and admin(they too suck), what more proof is needed with tier 6 sucking how this is not a good profession anymore?
With Janus and tier 6, will the Uft exist in 20 years when tier 4 people are gone?
No way any 22 year old can make it 40 years.
Murderers don’t get that
Chaz, what are your thoughts on SHIP? The UFT Supplemental Health Insurance Plan. It sounded good when the could reimburse prescriptions, but now there's a conflict, and drugs are not covered in any way. Mostly, it seems to cover things already covered by insurance or Medicare. To me, not worth the cost... What do you think?
ReplyDeleteIf Gov. Cuomo gets his way and changes the income tax to a payroll tax, as proposed in his new budget, will our pension still not be subjected to NYS State income taxes?
ReplyDeleteYou can call NYC Deferred Compensation at (212) 306-7760, they usually pick up right away and I find the people there to be very helpful and patient.
ReplyDeleteI put in for 25/55 when it was offered to us, I retired a month after my 25th year, that was the first of december 2017. iT WAS THE BEST THING THAT i EVER DID! I will make almost as much as I made when I was working. For my family and I, my retirement is beneficial in so many ways. The time that I spend with them, and getting away from ALL of the DOE BS is wonderful.... Goodbye Tension- Hello Pension!
ReplyDeleteGood for you. Congratulations.
DeleteThere is a proposal in Albany, NY, to increase the amount of withdrawals from private pension plans that would not be subject to NY State income tax from the present $20,000 to $40,000.
ReplyDeleteIt was stated in the article below that the present $20,000 tax free number was established in 1981. If inflation was applied to the $20,000 it would equal $52,000 in today's value.
https://www.newsday.com/news/region-state/bill-seeks-tax-break-on-private-pensions-to-keep-retirees-in-ny-1.11611424
Chaz do you know when trs pays us our 7% interest?
ReplyDelete1. SHIP is a bargain. Dental reimbursement alone makes it with it
ReplyDelete2. No matter how Cuomo characterizes payroll tax, pensions will remain tax-free