This morning I had a couple that are clients come to my office to review their potential retirement plan and income. As usual, I asked them to please bring any other account statements, 401k accounts, 403b accounts, last year's tax return, social security statements, and any potential pension documents/calculations they had (we really try to review everything and leave no stone unturned).
While going over each separate item with them, I turned to the wife (whom I had not previously met) to discuss her TRS pension. I had been told in the initial meetings she was an educator and would have a TRS pension, and we even had a rough in-house estimate for the potential pension. I soon came to find out that while she would have a TRS pension, she was actually teaching in a hospital setting and was no longer covered by TRS. Well, suddenly my well researched and reviewed plan was not correct at all.
Why Did This Matter?
The TRS pension system is based on years of service (credits) and the average of your highest two consecutive years of salary. That is it.
If you no longer covered by TRS, want to draw your pension, and are under 60 years of age and do not have 30 credits, then your pension is reduced based on your age.
If you are no longer covered by TRS, want to draw your pension, and are 60 and over, your pension is not reduced. More importantly though, your pension benefit does NOT grow for waiting past 60 either.
My client left being covered by TRS years ago and turned 60 late last year, so while she may have missed a few months of receiving her pension, thankfully it was not too long that she did not receive this benefit. By the way, she promised to call today to get the ball rolling.
Note - The client had an estimated pension benefit from TRS's website showed what her benefit would be at 12/2019 (20 months from now), and it was exactly the same as the one I did for starting in 5/2018. There was a disclaimer at the end of the estimate that it is the former employee's responsibility to start the pension process, and TRS would not pay benefits that were missed by the former employee. Had the client waited until 12/2019, more than two years of benefits would have been lost!
Ramifications
The clients mentioned above are truly wonderful people that unknowingly omitted a detail in our prior meetings. This does not happen often thankfully, but it does clearly state the importance of understanding all of the various benefits you have and/or disclosing everything to your financial advisor for them to help you get all of the benefits.
While going over each separate item with them, I turned to the wife (whom I had not previously met) to discuss her TRS pension. I had been told in the initial meetings she was an educator and would have a TRS pension, and we even had a rough in-house estimate for the potential pension. I soon came to find out that while she would have a TRS pension, she was actually teaching in a hospital setting and was no longer covered by TRS. Well, suddenly my well researched and reviewed plan was not correct at all.
Why Did This Matter?
The TRS pension system is based on years of service (credits) and the average of your highest two consecutive years of salary. That is it.
If you no longer covered by TRS, want to draw your pension, and are under 60 years of age and do not have 30 credits, then your pension is reduced based on your age.
If you are no longer covered by TRS, want to draw your pension, and are 60 and over, your pension is not reduced. More importantly though, your pension benefit does NOT grow for waiting past 60 either.
My client left being covered by TRS years ago and turned 60 late last year, so while she may have missed a few months of receiving her pension, thankfully it was not too long that she did not receive this benefit. By the way, she promised to call today to get the ball rolling.
Note - The client had an estimated pension benefit from TRS's website showed what her benefit would be at 12/2019 (20 months from now), and it was exactly the same as the one I did for starting in 5/2018. There was a disclaimer at the end of the estimate that it is the former employee's responsibility to start the pension process, and TRS would not pay benefits that were missed by the former employee. Had the client waited until 12/2019, more than two years of benefits would have been lost!
Ramifications
The clients mentioned above are truly wonderful people that unknowingly omitted a detail in our prior meetings. This does not happen often thankfully, but it does clearly state the importance of understanding all of the various benefits you have and/or disclosing everything to your financial advisor for them to help you get all of the benefits.
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