One of the biggest financial decisions many Texas educators and school administrators will ever make happens right before retirement:
Choosing their Teacher Retirement System (TRS) retirement option.
And honestly, one of the first questions I usually get from soon-to-be retirees throughout McAllen, Mission, Edinburg, Weslaco, Harlingen, Brownsville, La Joya, and the rest of the Rio Grande Valley is:
“What option do most people pick?”
I always find the question a little amusing — but I completely understand why people ask it.
Most people are not necessarily asking because they want to copy others. They are usually asking because retirement feels like a HUGE decision, and there’s comfort in knowing what others are doing.
The reality, however, is that there really is no “best” TRS retirement option for everybody.
Everybody’s financial situation, family situation, health concerns, income needs, and retirement goals are completely different.
That’s why understanding how the TRS options work — and how they fit YOUR situation — is extremely important.
Understanding the TRS Standard Annuity
The TRS Standard Annuity generally provides the highest monthly income available for the retiree during their lifetime.
For some retirees, this option makes perfect sense.
For example, I’ve worked with individuals who:
- are not married
- may not have children
- do not necessarily need to leave behind ongoing income
- primarily want to maximize their monthly retirement check
- want to ensure they remain financially independent and not become a burden to others
In some cases, if they are eligible for a Partial Lump Sum Option (PLSO), they may even choose to take the maximum allowed lump sum so they can enjoy retirement more fully while they are healthy and active.
For these individuals, maximizing lifetime income and flexibility may be more important than leaving behind survivor income.
Understanding TRS Joint & Survivor Options
On the other hand, I’ve also worked with retirees whose spouse depends heavily on their retirement income.
In those situations, selecting one of the TRS Joint & Survivor (J&S) options may make far more sense.
With these options, the retiree accepts a somewhat reduced monthly payment during their lifetime in exchange for helping ensure that their surviving spouse continues receiving income if the retiree passes away first.
For many married couples, this can provide tremendous peace of mind.
Especially when:
- one spouse relied heavily on the educator’s income
- there are limited additional retirement assets
- the surviving spouse may struggle financially alone
- pension income represents the majority of household income
While the monthly income is lower than the Standard Annuity, many retirees value the added protection for their spouse.
What About the TRS Period Certain Options?
Another option that sometimes gets overlooked is the TRS Period Certain annuity options.
TRS offers:
- a 5-Year Period Certain (60 months)
- and a 10-Year Period Certain (120 months)
This option can sometimes make sense for retirees who want some level of beneficiary protection, but do not necessarily want their monthly retirement income reduced as much as the Joint & Survivor options.
Here’s the simple way I usually explain it to clients:
The retiree is still guaranteed a monthly retirement check for the rest of their life.
However, the “period certain” clock begins running on the date they officially retire.
For example:
If a retiree selects the 10-Year Period Certain option and lives longer than 10 years after retirement, they will continue receiving their monthly TRS pension check for the rest of their life just like normal.
But if they pass away AFTER the 10-year period has already expired, the payments stop completely and no beneficiary continues receiving income.
On the other hand, if the retiree passes away DURING the selected period certain window, the named beneficiary would continue receiving the same monthly payment the retiree had been receiving until the remainder of that 5-year or 10-year period is completed.
After that timeframe ends, the payments stop.
Because these options generally reduce the retiree’s monthly income less than the Joint & Survivor options, they are sometimes selected by individuals who:
- may have shorter life expectancy concerns
- want to preserve more monthly income
- are not heavily dependent on leaving lifetime survivor income
- simply want some protection in case they pass away unexpectedly early in retirement
What About the Partial Lump Sum Option (PLSO)?
The Partial Lump Sum Option (PLSO) is another area that generates many questions.
For eligible TRS retirees, the PLSO allows them to receive a lump sum payment upfront in exchange for a permanent reduction in their monthly pension income.
Some retirees use the funds to:
- pay off debt
- build emergency savings
- pay off a mortgage
- travel
- help children or grandchildren
- improve their home
- create additional investment flexibility
But it’s important to understand something very clearly:
A larger lump sum today also means a smaller monthly retirement check for the rest of your life.
That tradeoff deserves careful thought.
There Is No “One Size Fits All” TRS Option
One of the most important things I try to explain to soon-to-be retirees is this:
Retirement planning is personal.
The “best” TRS option depends on things like:
- your health
- your spouse’s financial situation
- your retirement assets
- whether you have children
- your risk tolerance
- your monthly income needs
- whether you value maximizing income or protecting survivors
- your long-term retirement goals
And perhaps most importantly…
Once you choose your TRS retirement option, the decision is generally irrevocable.
That’s why it’s important to slow down and think carefully before submitting retirement paperwork.
Where Professional Guidance Can Help
TRS benefit counselors can absolutely help explain how the options work and provide retirement estimates.
However, they generally cannot tell you which option makes the most sense for your personal financial situation.
That’s where financial planning can become extremely valuable.
Sometimes retirees simply need a second set of eyes to help them think through the long-term impact of these decisions before locking themselves into an option for the rest of their lives.
As a CERTIFIED FINANCIAL PLANNER™ professional based in the Rio Grande Valley, I’ve helped many Texas educators and school administrators think through these retirement decisions over the years.
If you are approaching retirement and would like help evaluating your TRS options, Social Security decisions, retirement income planning, or overall financial picture, feel free to schedule a complimentary consultation.