One of the things I used to do with every teacher I coached was how to read their retirement pension report.
You know that envelope you get every year that most teachers file in the circular file, the trash can.
It really is important to review it each year to make sure everything is correct.
Having a little help makes reading the reports much easier.
Note: Your report may not list the items below in the same order, but should include most if not all of the same information.
PERSONAL INFORMATION The first thing on most reports is your personal information: name, social security number and date of birth.
This is easy to skip right over, but you want to make sure your retirement paycheck goes to the right person.
SERVICE HISTORY Next is your service history, which lists all of your years of employment or the last five years.
You need to make sure that this is correct, especially prior to retirement.
You don't want to spend your last six months of teaching trying to prove that you have 30 years of employment.
The next area of most reports is the salary detail for the previous year.
You also want to make sure this is correct, so that your retirement paycheck is based on your actual pay.
It might seem hard to believe, but anytime humans are involved mistakes happen.
Make sure yours is correct.
VESTING Your report may also include information about vesting, which simply means when you're eligible for retirement benefits or a lump sum if you stop teaching or move to another state or pension plan.
Think of vesting as "ownership".
Most states have 5-10 years experience to be fully vested.
Check your pension statement or your retirement pension website to see the vesting requirements.
BENEFICIARIES Your beneficiary is the person who will receive either a lump sum or monthly income in the event of your death.
Making sure this information is accurate is crucial.
You do not want your family member trying to prove that they are the beneficiary when you are gone.
This scenario could be a legal nightmare.
Upon retirement, you will have to choose a survivor option, which we'll discuss later.
DEATH BENEFITS The section below beneficiary information shows the amount and type of payment your beneficiary would receive in the event of your death before you retire.
This is listed either as a lump sum, a monthly payment, or both.
Keep in mind that income taxes will come out of either of these amounts.
RETIREMENT BENEFITS Next is your retirement benefits section.
The first area usually lists three projections: your first eligible retirement date, age 62, and age 65.
Your first eligible retirement date is based on the minimum years of service or minimum age, which ever comes first.
This is usually 30 years of service for most teachers.
The projections for age 62 and 65 coincide with the usual ages that most teachers become eligible for Social Security.
The retirement projections listed are usually listed in terms of monthly income, annual income, and projected lifetime payments (the amount you will make if you live an average lifespan).
It's important to note that most retirement projections listed are assuming you are taking the maximum benefit, which means you are not choosing a survivor option.
The survivor options are listed later in the report.
These projections are also listed before taxes are taken out.
To see the difference of taxes, look at what the report said you made last year and compare it to what you actually brought home.
Now that will make you sick at your stomach.
The last thing a few states will include is lump-sum benefit information.
This option allows you to take a certain number of years of retirement income at once.
The number of years will depend on the state, and some will let you choose.
I don't recommend lump-sum benefits except in a few extreme circumstances where the teacher is single, has no children, and is in very poor health.
DISABILITY BENEFITS The next section lists disability benefits.
The Ordinary Disability Retirement Benefit is listed first.
This is the amount you would be paid if you became disabled off the job and could not return to teaching.
The only reports that don't list any benefit in this section are those where the teacher isn't vested in the state plan (usually five years of service or less).
The other type of disability benefit listed is Accidental Disability Retirement Benefit, which is if you are injured on the job.
There are usually two amounts listed here: one that includes Social Security and one that doesn't include Social Security.
The idea is to show the income you would receive before age 62 without Social Security and after 62 with Social Security should you become disabled.
There are two things that are often confused about state disability retirement benefits.
The first thing you need to understand is that you must be declared permanently disabled by a doctor to qualify for this benefit, which is very unusual.
Most disabilities are temporary - usually 2 years or less.
When you think about this it makes sense, as an injury or sickness is usually temporary.
Another thing to understand is that if you are declared permanently disabled, you are treated as if you retired early.
So you do not receive the disability benefit and retirement, but one or the other.
Also don't forget that the disability projections listed are before taxes are taken out, just like all the other projections listed.
MONTHLY BENEFIT PAYMENT PLANS This section lists your Retirement Survivor Options, which provide all or a portion of your income to any family members who are dependent on all or part of your retirement pension income.
The amount paid depends on the option you choose at retirement.
Your report lists the different Survivor Option projections at the same three retirement dates listed in the Retirement Benefits section, and just like the retirement projections, survivor options are usually listed in today's dollars.
If you look at the options you can tell that one provides your full retirement income (maximum option), but provides nothing to a beneficiary in the event of your premature death.
Another option provides less retirement income to you, but gives the same amount to your beneficiary in the event of your death.
Another option provides 50-70% of your income to your beneficiary, but is a little less expensive to purchase.
Some states also have revisionary options.
These options are the same as the first two we covered, but also include this revisionary feature.
With this feature, your pension will revert back to the Maximum Option if spouse or other dependent dies before you.
If you follow my pension maximization advice, which is discussed in more detail later in the Survivor Options chapter, you will not have to worry about the survivor options.
You will be able to take the Maximum pension option and still protect those dependent on your income.
ACCOUNT BALANCE INFORMATION The last section of most pension reports is your account balance.
This is the amount you have contributed, any contributions by your employer, and any payments you have made toward purchasing prior service (there is a whole chapter dedicated to prior service later in the guide).
There are usually two columns, Account Activity and Account Summary.
The Account Activity, or Current Activity, shows the contributions for the previous year.
It also shows the amount the account has grown due to the interest or investment performance of the account during the year.
The Account Summary shows the total contributions and total earnings in the account.
This information doesn't give you a projection of your retirement.
You should pay more attention to the Retirement Benefit section for a projection of your retirement in today's dollars.
The importance of the Account Balance is in the event you leave teaching or move to another state.
The account balance is the amount you would receive if you choose to cash out the account or transfer it to another state retirement plan.
I don't recommend cashing out the account because you will pay income taxes and a 10% early withdrawal penalty if you are under age 59 1/2.
It really is important to review this report each year to make sure it is correct, and to get a feel for your retirement situation.
You know that envelope you get every year that most teachers file in the circular file, the trash can.
It really is important to review it each year to make sure everything is correct.
Having a little help makes reading the reports much easier.
Note: Your report may not list the items below in the same order, but should include most if not all of the same information.
PERSONAL INFORMATION The first thing on most reports is your personal information: name, social security number and date of birth.
This is easy to skip right over, but you want to make sure your retirement paycheck goes to the right person.
SERVICE HISTORY Next is your service history, which lists all of your years of employment or the last five years.
You need to make sure that this is correct, especially prior to retirement.
You don't want to spend your last six months of teaching trying to prove that you have 30 years of employment.
The next area of most reports is the salary detail for the previous year.
You also want to make sure this is correct, so that your retirement paycheck is based on your actual pay.
It might seem hard to believe, but anytime humans are involved mistakes happen.
Make sure yours is correct.
VESTING Your report may also include information about vesting, which simply means when you're eligible for retirement benefits or a lump sum if you stop teaching or move to another state or pension plan.
Think of vesting as "ownership".
Most states have 5-10 years experience to be fully vested.
Check your pension statement or your retirement pension website to see the vesting requirements.
BENEFICIARIES Your beneficiary is the person who will receive either a lump sum or monthly income in the event of your death.
Making sure this information is accurate is crucial.
You do not want your family member trying to prove that they are the beneficiary when you are gone.
This scenario could be a legal nightmare.
Upon retirement, you will have to choose a survivor option, which we'll discuss later.
DEATH BENEFITS The section below beneficiary information shows the amount and type of payment your beneficiary would receive in the event of your death before you retire.
This is listed either as a lump sum, a monthly payment, or both.
Keep in mind that income taxes will come out of either of these amounts.
RETIREMENT BENEFITS Next is your retirement benefits section.
The first area usually lists three projections: your first eligible retirement date, age 62, and age 65.
Your first eligible retirement date is based on the minimum years of service or minimum age, which ever comes first.
This is usually 30 years of service for most teachers.
The projections for age 62 and 65 coincide with the usual ages that most teachers become eligible for Social Security.
The retirement projections listed are usually listed in terms of monthly income, annual income, and projected lifetime payments (the amount you will make if you live an average lifespan).
It's important to note that most retirement projections listed are assuming you are taking the maximum benefit, which means you are not choosing a survivor option.
The survivor options are listed later in the report.
These projections are also listed before taxes are taken out.
To see the difference of taxes, look at what the report said you made last year and compare it to what you actually brought home.
Now that will make you sick at your stomach.
The last thing a few states will include is lump-sum benefit information.
This option allows you to take a certain number of years of retirement income at once.
The number of years will depend on the state, and some will let you choose.
I don't recommend lump-sum benefits except in a few extreme circumstances where the teacher is single, has no children, and is in very poor health.
DISABILITY BENEFITS The next section lists disability benefits.
The Ordinary Disability Retirement Benefit is listed first.
This is the amount you would be paid if you became disabled off the job and could not return to teaching.
The only reports that don't list any benefit in this section are those where the teacher isn't vested in the state plan (usually five years of service or less).
The other type of disability benefit listed is Accidental Disability Retirement Benefit, which is if you are injured on the job.
There are usually two amounts listed here: one that includes Social Security and one that doesn't include Social Security.
The idea is to show the income you would receive before age 62 without Social Security and after 62 with Social Security should you become disabled.
There are two things that are often confused about state disability retirement benefits.
The first thing you need to understand is that you must be declared permanently disabled by a doctor to qualify for this benefit, which is very unusual.
Most disabilities are temporary - usually 2 years or less.
When you think about this it makes sense, as an injury or sickness is usually temporary.
Another thing to understand is that if you are declared permanently disabled, you are treated as if you retired early.
So you do not receive the disability benefit and retirement, but one or the other.
Also don't forget that the disability projections listed are before taxes are taken out, just like all the other projections listed.
MONTHLY BENEFIT PAYMENT PLANS This section lists your Retirement Survivor Options, which provide all or a portion of your income to any family members who are dependent on all or part of your retirement pension income.
The amount paid depends on the option you choose at retirement.
Your report lists the different Survivor Option projections at the same three retirement dates listed in the Retirement Benefits section, and just like the retirement projections, survivor options are usually listed in today's dollars.
If you look at the options you can tell that one provides your full retirement income (maximum option), but provides nothing to a beneficiary in the event of your premature death.
Another option provides less retirement income to you, but gives the same amount to your beneficiary in the event of your death.
Another option provides 50-70% of your income to your beneficiary, but is a little less expensive to purchase.
Some states also have revisionary options.
These options are the same as the first two we covered, but also include this revisionary feature.
With this feature, your pension will revert back to the Maximum Option if spouse or other dependent dies before you.
If you follow my pension maximization advice, which is discussed in more detail later in the Survivor Options chapter, you will not have to worry about the survivor options.
You will be able to take the Maximum pension option and still protect those dependent on your income.
ACCOUNT BALANCE INFORMATION The last section of most pension reports is your account balance.
This is the amount you have contributed, any contributions by your employer, and any payments you have made toward purchasing prior service (there is a whole chapter dedicated to prior service later in the guide).
There are usually two columns, Account Activity and Account Summary.
The Account Activity, or Current Activity, shows the contributions for the previous year.
It also shows the amount the account has grown due to the interest or investment performance of the account during the year.
The Account Summary shows the total contributions and total earnings in the account.
This information doesn't give you a projection of your retirement.
You should pay more attention to the Retirement Benefit section for a projection of your retirement in today's dollars.
The importance of the Account Balance is in the event you leave teaching or move to another state.
The account balance is the amount you would receive if you choose to cash out the account or transfer it to another state retirement plan.
I don't recommend cashing out the account because you will pay income taxes and a 10% early withdrawal penalty if you are under age 59 1/2.
It really is important to review this report each year to make sure it is correct, and to get a feel for your retirement situation.
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