Staying the Course: Talking to Your Financial Advisor About TCDRS

It's common to consult a financial professional to help you decide whether or not you're ready for retirement and taking the necessary steps to secure your future. Your TCDRS plan provides many unique benefits worth considering when you make long-term planning decisions — here's everything you need to know.

Story by Rebecca L. Bennett

Working with a financial professional can be a helpful step as you plan for retirement. Your advisor can assess your overall financial picture and help you implement strategies to address gaps that could affect your long-term security.

We encourage bringing your advisor to an Online Counseling session where you can work with a TCDRS representative to get on the same page before making any major financial decisions.

Here are some common topics we discuss with members and their advisors:

TCDRS Unique Plan Features

TCDRS is structured differently from most pension plans. It pays to understand these four key plan features:

• Compound Interest: For as long as you keep your money in TCDRS, your account will earn guaranteed 7% annual compound interest, even if you are no longer working for your TCDRS employer. This percentage is set by state law and will never fluctuate with the market, making it an important piece to consider in your retirement planning.

• Employer Matching: When you become eligible and choose to retire your TCDRS account, you will receive employer matching. The match rate could be anywhere from 100% (dollar-for-dollar) up to 250% ($2.50 per dollar), depending on your employer. If you withdraw or roll over your money, you forfeit this substantial benefit.

• Responsible Funding: With TCDRS, members and employers work together to fund members’ future benefits with every paycheck. TCDRS employers are required by law to make their full contributions every year, so the money will be there when you need it. We do not charge fees, and our portfolio is professionally managed.

• Lifetime Benefit: If you become eligible and choose to retire your TCDRS account, your benefit payments will continue for life. The money will not run out, and your payments will not stop regardless of market conditions. Depending on your benefit payment option, your benefit could also continue to a loved one.

You can learn more about how your TCDRS savings grow here and in our FAQs.

What to Know Before Withdrawing or Rolling Over

Withdrawing or rolling over the funds in your TCDRS account might seem like a good option, especially if you leave your TCDRS employer before getting vested. However, here are five reasons to consider leaving your account open for as long as possible:

• You’ll keep earning interest: Your account will continue to earn guaranteed 7% annual compound interest for as long as it stays open. At this rate, your money will almost double every 10 years.

• You can preserve service time and milestones: Keeping your account open preserves your earned service time and milestones. A beneficiary can still claim your Survivor Benefit even if you’re no longer working for a TCDRS employer when you pass away. Leaving the account open lets it grow with interest until you’re eligible to retire, helping you maximize your benefit and keep your employer match. If you’re not vested yet, you may still reach vesting later by combining service time with another TCDRS employer or a Texas public retirement system, so keeping the account open can still be a valuable option.

• You may forfeit significant benefits: If you withdraw or roll over your money, you will forfeit employer matching, which could have added significantly to your retirement nest egg. Closing your account also means missing the opportunity to earn guaranteed 7% annual compound interest and draw a lifetime benefit someday.

• It could increase your taxes and penalties: Your withdrawal will be subject to a minimum 20% withholding, and you may face a 10% withdrawal penalty at tax time. Rolling your funds into another tax deferred account can help you avoid tax penalties, but you’ll still forfeit employer matching and the opportunity to keep earning interest and become eligible to draw a lifetime benefit someday.

• It’s typically final: Once your withdrawal request is submitted, it cannot be canceled.  

You can learn more about withdrawals and rollovers here, or read more about your account portability options here and in our FAQs.

We are always happy to talk to your financial advisor with you or on your behalf to explain how the TCDRS plan works. Please give us a call at 800-823-7782 or schedule a free Online Counseling session to go over your options.

Personal Finance