Wednesday, March 27, 2019

Should You Annuitize Your TDA?



























One of the options teachers have is to annuitize the TDA when you retire.  There are two ways to annuitize.  The first, is to give it to an insurance company, which under current yields, give you approximately 6% for a 65 year old but be prepared to pay State and City taxes on the annuity.  The second,  is to leave the money with TRS which can give you an annuity, based on your retirement age and with no State and City taxes to pay.  The following annuity interest rate by TRS is as follows:


Age.......................Interest Rate

56.............................8.43%
57.............................8.51% 
58,,,,,,,,,,,,,,,,,,,,,,,,,,,,,8.61%
59.............................8.82%
60.............................8.93%
61.............................9.14%
62.............................9.43%
63.............................9.74%
64...........................10.07%
65..........................10.42%
66...........................10.79%
67...........................11.20%
68...........................11.63%
69...........................12.09%
70...........................12.59%
71...........................13.13%

The difference between a private annuity of 6% and the TRS annuity of 10.42% for a 65 year old educator shows that the difference is due to the profit the private annuity charges while TRS does not charge for the annuity.

Most retirees do not annuitize but put the bulk of their TDA in the Fixed Income option that gives a guaranteed 7% annually.  By not annuirizing the TDA, the educator retains control of their money while annuitizing the TDA means the educator loses control of their savings and once the educator dies, their is no money available to their beneficiaries except for that money that remained from the educator's contributions, minus the money already paid out in the annuity.

Should you annuitize your TDA contributions when you retire?   That decision is up to the educator.  If you choose the annuity option then keep it in the TDA where you will get more for your money as long as you live a long life since when you die, so does the annuity.


46 comments:

  1. What is taxed on TDA withdrawals during retirement?

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  2. Just federal taxes. However, once over 70 years of age, you must withdraw 3.45% of your TDA and pay federal taxes on that amount.

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  3. Anonymous1:04 PM

    3.65% must be a typo

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  4. at 70.5 the RMD is 3.65%

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  5. Anonymous7:48 PM

    If you don't go with the annuity whatever is in your tda can be left to someone when you die, correct? You won't lose a dime?

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  6. when you turn 70 the UFT invites you to a seminar on how to deal with the RMD. I learned a few things. Definitely worth going.
    I never understood the idea of annuitizing since you lose control of your TDA while you can still get 7%. I think you do pay state taxes when the RMDs go over 20G.

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    Replies
    1. How do you find out about the uft seminar ? I haven’t seen it in the retiree course offerings?
      Thanks

      Delete
  7. Thanks Norm for the information but the TDA is tax free from State and City taxes. There is no 20G limit.

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  8. Anonymous11:03 AM

    Keep in mind that after you cash in your TDA, you can reinvest the funds back in the stock market and it will continue to grow. Yes, you'll have to pay taxes on the interest, but you can potentially make A LOT more money investing privately with a financial advisor than by following the one-size-fits-all plan the city has chosen for you.

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  9. 11:03 AM : I think it is an Extreme longshot that a private financial planner can do better than 7% guaranteed tax deferred As you get closer to retirement, get all your TDA funds into the fixed account sit back and let the miracle of compounding interest work for you

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    Replies
    1. Is it true it doubles ? How many years does that take for a TDA deferral account to double ?
      Thank you

      Delete
    2. I cannot understand how anybody would choose to annuitize their TDA at retirement . At 7% fixed with basically no fees and no risk whatsoever what would be the decision? That is an interest rate that is almost unheard of and you get to keep your entire balance . Don’t forget you can start doing this at the age of 55 if you were retire that year

      Delete
  10. Anonymous4:47 PM

    The only guarantee you'll get from the finiancial advisor is that they will get to take 1% of your money a year, put it in their pocket and live well. Those "free steak dinners do't taste as good once you realize you're paying 10k a year for someone to "sell you things."

    If the long term rise in the market is 3% or 4% a year as is predicted *no one really knows* then, your FA takes 1/3 of your gains. Financial advisor = sales person. Many are convinced their "guy" knows more than others. Index funds beat the actively managed funds and FA's most of the time.

    You would be smarter indexing other funds and using the TDA as your fixed component of your portfolio.

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  11. Anonymous6:10 PM

    I am still a bit confused.

    I want to retire at 58 years old with a 20 year pension. (Life is short!)

    If I leave the money in TDA can I withdraw that 7% we are getting penalty free each month/year or does that 7% have to stay there to avoid tax penalties?

    I want to keep the TDA money under my hand and pass it on to my kids, so I do not want to lock it up in something that will disappear when I croak.

    How do I do that?

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    Replies
    1. You can do that but they do with hold taxes. If you withdraw 20 thousand you will get 16. 20 percent taxes held

      Delete
  12. Anonymous8:10 PM

    Should we move all into fixed or should we let some sit in formerly know as A forever?
    I only put into fixed at this point, but I have a chunk of money in ‘A.’

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  13. Most financial advisors would recommend a 60& stocks and 40% in fixed. However, since the Fixed Income gives 7%, I would recommend that people nearing retirement should put 75% in the Fixed Income Fund and 25% in the various stock funds.
    You can withdrawal any amount you want from your TDA once you reach 55 years of age and only pay fedeal tax.

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  14. Anonymous9:59 PM

    When I retire should I move everything into fixed?

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  15. You don’t pay an extra penalty before 59.5 years for early withdrawal with the federal taxes ?

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  16. I gave a question when you retire the default for federal taxes is married and theee exemptions
    What is best for filing your taxes ? Should you change it if you need that income at that amount every month ? What do you recommendation ?

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  17. Anon 11.03

    If you have a working spouse and due to the new tax plan with a SALT cap of $10,000. I suggest you take one exemption not three.

    TDA allows you to take the money at 55 with no penalty.

    If you take the 7& interest and divide it by 72, it would take 10 years to double.

    Call the UFT headquarters to find out when the next retirement seminar is given.

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    Replies
    1. Chaz can you explain again how you got 10 years to double ? If you take 7% interest and divide it by 72 ?
      Let’s say for example I retired with 400k total in the TDA at fixed rate tda deferral status

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  18. In my 16 years in the nycdoe , I've learned more about my pension , TDA and retirement from Chaz then any other person by far. I sincerely thank you . 9 more years to go .

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  19. Anonymous9:29 AM

    Agree with above...the performance over the years of "professionals" managing private portfolios is p_ _ s poor. The given guaranteed 7% is truly a worry free gift. Enjoy it while it's still there...it might not be there long term.

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  20. Anonymous12:08 PM

    There is a Bronx principal currently looking for a new UFT rep for next year. His/her UFT rep is retiring and none of his/her staff want the position. This is a school that joined the Bronx plan and needs a very compliant UFT rep who will go along with the principal's plan, boost the principal's ego and sing the principal's praises or just plainly kiss the principal's ass 24 hour a day and do whatever the principal wants even though it will go against the teachers' interests.

    If anyone is interested please email me ASAP. Position needs to be filled by May 1st.

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  21. Anonymous1:26 PM

    12 08
    I will do the job but i want my salary doubled...if approved im in

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  22. Thank you Chaz for answering my questions , you gave so much knowledge in so many areas !!!
    I am single , so still wanted to know if I can take the three exemptions . I used to get great refunds but this year since I retired in July 2018 I was told those days are over for refunds . I did 26 years I just couldn’t do another year :( I was exhausted mentally and physically !! I wish I could of stayed a bit longer since only 57 years old
    Another thing once you get your pension alicatiob does TRS go back and do adjustments ? A friend told me that her pension is being increased by $500 have you heard of this after he just retired in July 2018 ?
    Thank you for all you do !!

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  23. Anon 10:39

    oops. It should have berm 72/7.

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    Replies
    1. I still don’t understand the term 72/7 let’s say for example you retire with 400k in your TDA
      You are saying in 10 years it’s 800k ?
      Also did you read the whole paragraph I wrote you ? You didn’t comment on that thanks

      Delete
  24. Anonymous8:35 AM

    I just retired. I was really not interested in annuitizing, but when I asked at TRS, they didn't really give me a figure on how much I would receive if I annuitized. I was told that I would find out when I got the first "check". When I went to my final consult, the UFT rep (who was horrible, rude and impatient) had no information....it wasn't that big a deal for me, but I would have liked to know. Not sure if this is everyone's experience, but wanted to put it out there if people are considering annuitization of the TDA.

    One question I do have is how do they calculate interest on the TDA? Annually? Monthly?

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  25. Anonymous6:29 PM

    I informed my uft representative that I'm thinking about retiring. I asked her about certain information. Instead of her hearing me out, she kept saying all you have is twenty years, you can't retire. I will complete my years before having the age. I'm stressed out, tired and sick of being harassed. She's telling me I can't. I believe she is wrong. At this point, I have no problem losing some money for peace. She said I would have to resign. I believe this information is incorrect. Please inform.
    Thanks.

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    Replies
    1. @6:29 PM. I'm in a similar boat. Your UFT rep needs to take classes so that they can better inform you. They are inaccurate. Peace of mind is more valuable than any amount of money. Good luck

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    2. Yes that’s incorrect. I retired with 20 years at age 58. My pension is not as big as some one who was 62 at retirement I believe the penalty is 5% per years. And 20 years gives you 40% of you final average salary then minus the age penalty.

      Delete
  26. You can retire with a reduced pension at 55 and with 20 years of City employment.

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  27. Anonymous7:01 PM

    Sorry you had that experience , so many people do , so don’t feel bad . It’s such a stressful job with very little supper from administrators . I felt no one cared . I had to leave after 25 years I couldn’t make it any longer

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  28. Just go see a pension consultant and they will tell you everything

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  29. Anonymous7:06 PM

    Be done with this stressful job it’s no getting better

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  30. Anonymous8:30 PM

    Thanks

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  31. Anonymous4:01 PM

    Never resign. Retire .
    Of course pension will be reduced. Get part time gig in something you love to do. Enjoy your life now .
    And

    Fuck em all
    Big and small

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  32. Anonymous9:58 AM

    So the advice seems to be NOT to annutize the TDA at retirement because you lose control over it for the sake of a couple hundred dollars extra in your pension check.

    Rather, we should keep control of the TDA when we retire and withdraw as we will (while it grows every year) and then keep that large chuck of change to pass on to our children creating generational wealth.

    Got it!

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  33. Retiring right behind you12:45 PM

    Sound like the plan

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  34. Need advice are you better to take out money from your TDA and hold off getting SSA at 62 and try to wait it out until 65-66 years of age assuming you are in good health
    Can I or anyone else care to share their opinion on this very important topic , we are expected to live long lives after we retire

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  35. Anonymous9:28 AM

    What about deferred comp? Do u have to wait until 591/2 or can you start withdrawing when you retire at 55? Thanks

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  36. Anonymous5:17 PM

    Hi Chaz -- thanks for the great blog. Most comments go against annuitizing a TDA, but I didn't see this scenario discussed:

    - a teacher has 35 years of service and retires at age 70 1/2
    - a good TDA balance has been accumulated
    - upon retirement there will be a good pension
    - If the TDA is annuitized at age 71, TDA distributions plus pension plus Social Security will provide a nice income
    - there are no children to provide for
    In this situation, is annuitizing a reasonable choice? Is there a better approach?
    Thanks again

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  37. I am in similar the situation just described: My pension will be small (only 10 years service, retiring at 63) but a sizable TDA balance (maxed contributions every year). I am single, no kids. Leaving money to charity or neices/nephews is attractive, but annuitizing can get me 10% instead of 7% on the TDA, which for me is an additional 10K annual. I think it makes sense for me, especially since I am in very good health.

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