Montana Educators: Many Ways to Take Your Pension

Story by Jesse Ramos, for Montana 55

I have had the privilege of working with many school teachers here in Montana. I have learned that with your busy schedules, many of you have not had the opportunity to learn much about your Montana Teachers’ Retirement System pension. I know how overwhelming and intimidating the pension book can be. I am writing this article to break down one of the most important parts of your pension, choosing how to take it.

When is this information applicable to me? This is the most common question I get from clients regarding this topic. The primary concern of my younger clients is they are simply too young to worry about this. On the surface, this may seem true as some of them are years from retirement. However, this notion couldn’t be further from the truth. The more time you plan and prepare for your retirement the more lucrative your retirement will be. The cost of procrastination with this piece of your pension can end up costing tens of thousands of dollars over the course of your retirement.

There are six different ways of taking your pension upon reaching retirement; all serve unique purposes based on each individual’s situation. The payable for member only option is the highest payout option. This is the pension payout in the most basic form, you get a monthly check for your entire life. Whether you live for one year after your payments begin, or 40 years, it is irrelevant. You are paid the monthly amount until you die, at which point the payments stop. However, this option only pays while the pension holder is alive, this can present a problem for a surviving spouse if he/she has become reliant upon the pension check to survive. To combat this issue there are several options available to the pension holder. A monthly cost is deducted from what the payable for member only option would normally pay out. The joint and full (the most expensive option) is what I refer to as the “Cadillac” of the spousal protection options. If the pension holder passes away, the full amount of the pension check carries over to the spouse for the remainder of his/her life. Joint and two-thirds is one step down from the joint and full option. This costs slightly less but reduces the benefit received by the spouse to two-thirds the amount received prior to the pension holder passing away. Joint and one-half is the least expensive option, however, this leaves only one-half the original monthly amount to the surviving spouse.

There are also two additional options, which payout for a certain period of time regardless of the length of the pension holder or spouse’s life. If the pension holder is deceased, or both the pension holder and spouse have deceased, these payments will carry on to beneficiaries of your choice for a specific length of time. The first option, 10-year term, is the cheapest of all the protection options. This option pays for 10 years regardless of whether or not the pension holder or spouse is alive for the entire 10 years before the payments stop. The next step up from this option is the 20-year term option, which guarantees the pension payout for 20 years.

What happens if a spouse predeceases the pension holder in the spousal protection options?

If the spouse passes away after several years of retirement the added costs for their protection are not reimbursed by the pension fund. However, the pension holder can revert back to the payable for member only option and receive added income for the remainder of their lifetime. A good way to look at the added cost for all of these protection options is to recognize the fact that they are more or less premiums for a life insurance policy. You are paying money to protect against the financial impact of your death. The reason for the additional cost is additional risk taken on by the pension fund to cover your spouse or loved-ones. The additional cost you pay helps protect against the added risk, for overall stability of the pension fund.

All of these protection options serve unique purposes based on marital status, life expectancy, additional retirement savings and retirement income of the spouse. Choosing these options is one of the most important parts of your retirement and should not be taken lightly. You should consult with the Montana TRS staff, a financial professional and your family before making this decision. All of these
options can provide a great benefit when chosen correctly, and can pave the way for a happy retirement with peace of mind knowing that your family is protected. My office is located in Missoula, please feel free to reach out to me with any further questions.

Disclosure: Neither Northern Rockies Financial Group nor the Guardian Life Insurance Company of America are in any way affiliated with any school district, individual school or with the Teacher Retirement System of Montana. Refer to your school district, individual school or TRS with any benefits questions relating to your specific situation. 2016-32655 Exp 12/18

Jesse Ramos works for Northern Rockies Financial Group in Missoula, assisting teachers across Montana with understanding and maximizing their pensions. Jesse can be reached at jesse_ramos@glic.com or 406-728-6699 with any questions.

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