A very common question from the teachers/administrators who are covered by the Texas Teachers’ Retirement System (TRS) is: “Should I take the partial lump sum option, or PLSO?”
If you are lucky enough to be considering the PLSO (lucky for two reasons: first, you are nearing retirement, and second, the PLSO is actually available to you– some TRS employees do not have the option) then you definitely want to determine if taking a lump sum along with your annuity payments would be right option for you.
It’s an important decision that can’t be reversed, so it’s worth doing a little research and consulting with a financial advisor.
Texas TRS Retirement: What is a PLSO?
First, let’s talk about what taking the PLSO means to you. When you look at your TRS Retirement benefits, you will find you have a number of options on how you want to structure your monthly payments.(see annuity payment options by clicking HERE)
Some TRS members also have the option to take a lump sum out of the TRS retirement along with receiving a monthly income. You can take up to three years of annuity payments up front and TRS reduces the amount of each annuity payment option. This lump sum, or PLSO could be a great benefit to the TRS retiree.
Each retiree’s situation is different. Let’s talk about what you should consider before deciding on taking the PLSO.
Texas TRS Retirement: Reasons you might not want to take the PLSO
- You want the highest amount of monthly, guaranteed income possible. When you take the lump sum, TRS reduces your monthly payment options. Some clients might need the maximum monthly income to cover living expenses.
- You want to simplify your retirement. Some retirees like the simplicity of getting their monthly check from one place each month.
- You like to spend money. If you think getting a large sum of money might not be a good option for you, then decline the PLSO. You won’t be able to call TRS and ask them to give you an advance if you want to take all your friends on that month-long cruise to the Caymans.
Texas TRS Retirement: Reasons the PLSO might be a good option for you:
- You want flexibility in retirement. Taking the partial lump sum gives you the choice of what to with a portion TRS retirement. You might want to pay off your house or consumer debt. It also gives your retirement plan an additional cushion should any unexpected expenses come up.
- ·You are in a higher tax bracket. You might have other income from a spouse’s retirement or investments. If you take the PLSO, you can defer more of your retirement into tax-deferred accounts (like an IRA), meaning you’ll most likely pay less income tax now than if you were taking the maximum monthly payments.
- You don’t need the additional income each month. If you have other investments, social security or retirement income from a spouse, you might not need the additional income each month. If you put more into tax deferred accounts like we mentioned above, the lump sum could increase in value. You could then access the funds later if your retirement income needs were to increase.
- You want to leave more to your kids or charity. If you decline the PLSO, you’ll have only monthly the income provided by one of the five annuity payment options. Once you and your selected beneficiary (possibly a spouse) pass, the income stream will end. The lump sum option could allow you to leave some of your retirement to your kids or a charity.
Again, it’s important to weigh your options when considering if the PLSO is the right choice for you. If you are a TRS employee and want us to help you weigh your options, fill out the form below.