Need to Know: Retirement Options

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    The UFT has long provided members with some of the best retirement options out there, although these have been severely curtailed for the newest members given that the Tier VI pension costs more (4.85% contribution for one’s entire working years) and takes longer to reach full pension status. If you hang out in the teacher’s lounge enough, you’ve undoubtedly heard a veteran teacher tell you to ‘max out your TDA’ because the tax deferral one gets from putting into TDA and the interest rates and investment options one has with TDA are unbeatable. What isn’t often discussed in enough detail is what to do with the money you’ve socked away in the TDA account once it is there.

    In his excellent and highly recommended “The Smartest Investment Book You’ll Ever Read,” Daniel Solin makes an essential point about investing which he drives home again and again because it is so vital to grasp it: no one, not even the big shots on Wall Street who are paid well to pretend otherwise, know what’s going to happen to the stock market from day to day or even year to year. Actively managed mutual funds and other investment products charge their customers a lot to put so-called ‘experts’ in charge of trying to guess which stocks will rise and which will not. The profits generated by active funds are rarely better than those earned by index funds which simply track the movements of the U.S. or global stock markets, and the fees which active funds charge are guaranteed to eat up much of the potential return.

    For us teachers with a TDA account, this means that some options are better than others. For those who like to play it safe, the guaranteed 7% from the fixed rate fund is worth considering. For those looking for higher returns and willing to take short term risks in the stock market, the U.S. equity index fund and International equity index fund have low fees (.05% and .02% according to the TRS website) and allow one to gradually earn a profit by investing a month at a time into indexes which will fall and get cheaper when markets are down and rise to be worth more when they rise. For us busy educators, this also means we can just invest the money and let it grow rather than have to worry about how a particular active fund is managing our hard-earned dollars.

    There is no guarantee when it comes to markets, and we should all remember 2008 as a cautionary tale since many a retirement was delayed by the last financial crash. However, decades of trends show us that if you choose to take the risk, you’re much better off with low fees and not trying to guess the market and just let your money grow.

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