3 Surprising Things Every NYSTRS Tier 4 Teacher Needs to Know

Surprise #1

Your Pension is very valuable.

This isn’t really a big secret, but did you know it could have a value of over $1,200,000!

Now you can’t actually receive $1,200,000, but that is how much a 55 year old wanting to collect $65,000 a year for life would need to pay to replicate this income from an immediate annuity.

.…but if you were to pass away before retiring, your family may only receive up to 3x your salary.

Part of which might even be taxable!

Hypothetical Example:

For a teacher making $70,000 per year that passes away, the family might receive $210,000 from NYSTRS instead of the future potential value of $1,200,000.

That’s almost a million dollar difference!

This example is for illustrative purposes only. Actual results will vary. The information shown is hypothetical, does not reflect actual results and is not a guarantee of future results.

The main point here is that there is a risk present that many aren’t aware of. If you die before you file for benefits, the value of that pension could drastically decrease for your spouse and family. There are some ways to cover this risk, including life insurance, so again, it is important that you reach out to your financial planner and discuss these things and ask some questions. Is this a risk worth taking? If not, what can/should we do about it? Are you at risk of this situation happening to you?

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Surprise #2

There is a Cost of Living Adjustment (COLA) on your pension, but it is only on the first $18,000 of your pension.

Yes, you will receive that check each and every month up until your death, but what it buys could go down each year with the rate of inflation. For example, NYSTRS retirees received an increase of $18/month to their pension for 2017.

Over a 25 to 40 year expected retirement small increases like this simply may not keep up with inflation. The good news is this is a challenge that can be addressed with some planning. So if you dream of not working and enjoying your later 50s and 60s, you can plan for this. This is why saving for your retirement with a Roth IRA or a 403b could be so important.

Inflation is the rise of prices of goods and services, as happens when when spending increases relative to the supply of goods on the market.

Surprise #3

Working 30 years could make a huge difference

Hypothetical Example:

Let’s see what it could look like for a teacher with a Final Average Salary of $100,000 and wants to retire at age 55.

At age 55:

• 29 years x 2% credit = 58% then 58% x 73% (age reduction percent at age 55) = 42.3% or $42,300 a year

At any age with 30 years of service:

• 30 years x 2% credit (no age reduction) = 60.0% or $60,000 a year

That’s almost an $18,000 a year difference in the Pension amount!

This example is for illustrative purposes only. Actual results will vary. The information shown is hypothetical, does not reflect actual results and is not a guarantee of future results.

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As a bonus below I have listed some fast facts on NYSTRS Tier 4.

Tier 4 Fast Facts

• Joined the retirement system between 9/1/1983 and 12/31/2009
• You are required by law to contribute 3% of your salary until you have been a member for 10 years or accrue 10 years of total service credit, whichever comes first.

Pension Calculations

• Uses the 3 year Final Average Salary
• Service Credit Pension Factor:
• Less than 20 years = 1²⁄₃% per year
• 20 to 30 years = 2% per year for all service
• 30 or more years = 60% plus 1½% for each additional year over 30 years
• If you retire prior to age 62 and have less than 30 years of service, you will receive a percentage of the pension factor based on your age at retirement as follows: (The percent is prorated by month.)

Age     Percent                               Age      Percent

55      –     73%                              59      –     85%
56      –     76%                             60      –     88%
57      –     79%                             61       –     94%
58      –    82%                             62       –    100%

The following examples show how working one more year and attaining 20 years of service (when all years are at 2%) and 30 years of service (when there is no age reduction) will significantly increase your pension factor:

Attaining 20 Years

• At age 55: 19 years x 1²⁄₃% = 31.6% then 31.6% x 73% (percent at age 55) = 23.1%
• At age 56: 20 years x 2% = 40% then 40% x 76% (percent at age 56) = 30.4%

Attaining 30 Years

• At age 55: 29 years x 2% = 58% then 58% x 73% (percent at age 55) = 42.3%
• At any age: 30 years x 2% (no age reduction) = 60.00