July 24, 2024 • 19 mins
Do you know how much you can spend from your investment account once you retire? Some people choose to purchase an annuity for peace of mind. Plan 3 members have access to a TAP Annuity with a lifetime cost of living adjustment (COLA). Find out more about this and other unique advantages of the TAP Annuity.
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Episode Transcript
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(00:05):
Welcome back to Fund Your Future with DRS.
And this episode is especiallyfor all of our Plan 3 members.
So we know that one of the challengesof saving for retirement
can be trying to figure out how muchyou can spend from your investment account
once you retire.
And to help with this,some people choose to purchase an annuity.
And for those who don't know,
(00:26):
an annuity kind of workslike a reverse life insurance policy.
You pay a lump sum, say $25,000,
and that guaranteesyou monthly income for your lifetime.
And the more money you pay upfront,the larger your monthly payment will be.
And there's all sorts of options out therefor annuities from private companies
(00:46):
and DRS.
But Plan 3 membershave access to a TAP Annuity
that has a lot of great benefitsthat other annuities don't.
So today we have Malia from our team hereto help us
learn more about the TAP Annuity.
Welcome, Malia.
Thank you.
So Malia, sometimeswhen people hear the word annuity,
(01:08):
it provides like an immediatenegative reaction.
Can you tell us just kind ofat a high level, why a Plan 3 member
might want to be aware of this featurewithin their plan?
Yeah, that's such a great questionbecause I know for a lot of customers
that's their initial
reaction is they're used to hearingabout annuities in a private sector space
or through insurance companies,which typically have a lot of hidden
(01:31):
tricks and bells and whistles or coststhat they may not be aware of.
And so it definitely has thatjarring reaction for them.
The first and foremost thingthat I want to say about the TAP Annuity
is that it is guaranteedthrough the state of Washington.
So the same people who are paying youyour defined benefit,
so that pension that you're getting from
working, that you contribute,or that your employer contributed to
(01:51):
and you earned service credit on
-- the same funding forthat is what pays you your TAP Annuity.
So I think that's something
that is really great for peopleto hear about that they are not aware of.
I think that a lot of peopletend to think that these are being offered
by our record keepers,or maybe we have a contract with a private
insurance company,but it is through the state of Washington.
(02:12):
And so that's one thing that I thinkis really important for people
to understand that this is basicallygiving you the option to take that money
that you've put in that's been invested
and be able to turn it into essentiallya second pension
that you're getting from usfor the rest of your lifetime.
That's great.
So, you know, I mentioned in the openingthat,
we know that the TAP Annuityhas a lot of great benefits.
(02:34):
Can you tell us a little bitabout what makes the TAP Annuity unique,
and maybe why it's a little bit betteroption than others?
Sure.
So again, like I said, it's
administered by the state of Washington,which means that it basically follows
all the same featuresas your regular pension benefit.
So that includes thingslike your ability to name a survivor,
(02:57):
which is basically where you pick someone,whether it's a spouse or not.
And you will get an actuarial reductionbased on your difference in age,
but they can receive a lifetime benefitfor the rest of their life after you die.
There's also the balancerefund upon death.
So if you put $500,000 into the annuityand you pass away
(03:17):
after only 200,000 has been paid outto you, that remaining 300,000
would be paid out to your beneficiaryif you elected no survivor, for instance.
So you said, I just want to getthe maximum amount for my lifetime.
You know that what you're going to put inis guaranteed to be paid out
to someone that you name or yourself,depending on how long you live.
And I think the most attractive featureof our TAP Annuity is that you get
(03:41):
a guaranteed 3% cost of living adjustmentevery year for the rest of your lifetime.
And if you pick a survivor,like I mentioned earlier,
they get that guaranteed 3% increasefor the rest of their lifetime as well.
And that is incredibly unique.
Even our pensions, actually,the cost of living adjustment is based off
(04:02):
of consumer price index, inflation,all kinds of factors.
Versus the TAP Annuity, We say no.
“You're just going to get that 3% increaseevery year for the rest of the lifetime
of the annuity.” That's awesome.
And you'd
mentioned that other annuities don't offerthis cost of living adjustment.
Some do, some don't.
It's not a typical feature that you see.
(04:23):
A lot of timesyou're either paying for that increase, so
you're actually taking a smaller monthlybenefit to get it later down the line.
Or it's all based off of inflation,but this one is the only one
that I've seen where it's just guaranteed3%, this is what you get
for the rest of the lifetimeof the annuity.
So Malia, at DRSwe have a number of different ways
(04:43):
people can increase their pension amount.
And as you mentioned,
using your investment account as a Plan3 member and converting it to a TAP
Annuity is one wayto increase your pension amount.
But we have some other options
where people can purchaseadditional service credit,
or they can purchase an additional annuitywhen they retire.
And those features are opento both Plan 2 and 3 members.
But could you tell us a little bitabout what the differences
(05:05):
are between the TAP annuityand some of those other
like purchase service creditthat a Plan 2 or 3 member could do?
Sure.
So first and foremost we'll just get itout of the way: funding source.
And what that means with the TAP Annuityis, you can only use the money
that’s in your investment accountto purchase this TAP Annuity.
Now, some peoplemay not have enough in there.
(05:26):
Or maybe they have, moneythat they've invested outside in an IRA
or something like that.
Those are the kinds of fundsthat can be used for a purchase service
credit, or potentially a purchaseadditional annuity.
Second, the biggest thing isthat the TAP Annuity is a separate check
from your monthly benefit,and you actually don't need
to be eligible for a monthly benefitto get a TAP Annuity.
(05:50):
So you could decide to leave workingwhen you're 40 years old,
clearly not eligible to retire,but you have enough money.
The minimum is 25,000 for a TAP Annuityin your Plan 3 account,
and you could start drawing a lifetimemonthly benefit at that time.
Versus purchase service creditor purchase additional annuity.
Because that tacks on to your retirementbenefit, you have to be eligible
(06:13):
to draw that lifetime monthlybenefit through the pension side.
So those are only at the timethat you retire
and they get added to that benefit.
It is not a separate check.
So those are kind of the key differences.
In additionto what I had alluded to earlier
about the cost of living adjustment,purchasers credit purchase
additional annuitybecause it's part of your monthly benefit.
(06:34):
Cost of livingadjustments are based on inflation,
and it's not that guaranteed3% like you get with the TAP Annuity.
And the one thing that I also think is oneof the most attractive features as well,
is with your retirement benefit, when youstart drawing it, if you go back to work,
it may stop depending on how many hoursyou work or what you're doing.
(06:55):
There's all kinds of rules around thatwhich you can find on the DRS website,
but for the TAP Annuity,it will continue if you go back to work.
So that's something that's kind of nicefor people to know about.
Is that once you start getting it,it's yours for life.
Yeah.
And one of the other featuresI've heard as well is that
you can also purchasethis TAP Annuity at any age.
(07:18):
Do you want totalk a little bit about that.
Yes, exactly.
So likeI said you don't have to be eligible
for the pensionto be able to get your TAP Annuity.
You can do it at any age.
The one trick is you only get to do itonce in your lifetime,
so you don't get to stop workingwhen you're 40 and say, hey,
I'm going to go aheadand purchase this annuity,
but I'm not going to do
my whole account balancebecause I want to purchase one later.
(07:41):
Unfortunately, it doesn't work like that.
You only get one in your lifetime, so itis something that you need to think about.
Like if you want to do your full accountbalance or maybe just part of it,
but it's really, really great for our Plan3 members in particular,
because sometimes a lot of times
they want to stop working before65 or whatever age
they're eligiblebased on their service credit,
(08:03):
and they want to take advantageof something that's called indexing,
which there's lots of informationout on the DRS website about that,
where basically they get a more favorablebenefit if they delay drawing it.
But sometimes you need incomebetween when those two events occur
and the TAP Annuityyou can start at that time.
It's completely independentfrom your pension.
So that's something that's really nice.
(08:24):
And also I'lljust throw out there as well.
If you are a Plan 2 member,but you received Plan
3 funds as a beneficiary.
Maybe you had a spouse or a parentor someone that passed away and you have a
Plan 3 account from them, you can purchasethis TAP Annuity through that as well.
So that's just something that is kind ofa fun little fact about the TAP Annuities.
(08:46):
One of the things, Jenny,I think you and I have talked on
a previous episodeabout doing kind of a financial check in,
like a personal financial check in everysix months or every quarter, every year.
One of the things I actually do[is] I’m a Plan 3 member, I
look at my Plan 3 account balanceevery six months,
and I calculate how much would a TAPAnnuity be if I bought it right now
(09:06):
with the balance I have?
So, just kind of to see how much incomecould I replace today
with this Plan 3 balance that I have.
Because as Malia said,
it's one of the huge advantages of the TAPAnnuity is I could start it at 45,
or 55, or 72 or it's any different age.
And so it gives you some more flexibleon thinking about
(09:28):
income replacement, and making surethat you kind of have all your bills paid.
That's the other thing.
I think sometimes people look at withthe TAP Annuity is: “I need to have $1,500
more of monthly incometo cover my set fixed expenses.”
So then I can go purchasea TAP Annuity for that amount
and then have my additional fundsavailable to me,
(09:49):
because I want to go buy a boator motorhome or something.
It's a great segueway to say that on the DRS website,
on our calculators page,we have a Plan 3 TAP Annuity Calculator.
That's exactly right, what you're saying,Seth.
I think when people make their plan choiceor maybe the choice was made for them,
depending on what plan they're inand who they are, we talk about
(10:12):
how Plan 3, one of the hugestbenefits of it is flexibility.
And I think this isone of the most misunderstood features
of just how much flexibilityyou get by being a Plan 3 member.
A lot of times I've seen Plan 3 memberswho actually end up getting more
because of a TAP annuityand their investments doing so well
than if they had been in Plan 2.
(10:33):
But you get that option, just like yousaid, where if you have $500,000
in your account,you don't have to buy it for all 500,000.
You can say, “I need guaranteed
income of $2000 or whatever amount,just like you said,
and I'm going to keep that other $300,000for if I have a medical emergency.
Or maybe I just want to go on a monthlong vacation to Tahiti or whatever
(10:56):
it may be.
You get that flexibility,you get that control,
and this option is one of the reasonswhy it's so important to be engaged
with your retirement from an earlier age,especially as Plan 3, just like Seth
said, paying attention to that balancebecause that is half your retirement
and you get the choices to decidewhat you're going to do with that.
(11:16):
It's really key when people are thinkingabout purchasing an annuity.
This is really the point that peopleare trying to figure out is, “would
I rather have the guaranteethe stability of the guaranteed income,
or would I rather have the flexibilityof this lump sum of money
that is in my investment account?”And that's a really personal decision.
(11:36):
It depends on what other guaranteed incomeyou have from a pension
or Social Security.
It depends on whatother investment accounts you have
and that that flexibility for more liquidkind of lump sums, amount of money.
So there's really no rightanswer for people.
You have to look at your total overallfinancial picture
when you're making these decisions.
(11:57):
But it is a really beneficial featureto have in Plan 3
that, as Malia said, many people overlookor forget about or don't realize.
And it's one of the reasonswe wanted to have this episode.
Yeah, especially,you know, just a shout out.
I'm sure most people listening tothis are people
who are nearing retirement,but if anybody is listening
who is making their plan choicesor thinking about it,
(12:18):
you know, really think about howthis can be such a benefit for you
to help supplement that income.
Because our lifestyles have changedso much over the last so many years.
We have people who nowno longer own their own homes.
By the time they're retiredor they have children in college,
and you need that guaranteed monthlyincome to make sure your needs are met.
(12:38):
And so those are important thingsto take into consideration
as well as you're making these decisions.
That's great.
So yeah, we've talked about howthis is obviously a really good option.
And it almost sounds too good to be true.
Can you talk a little bitabout how the state can offer this?
That's a great question, Jenny.
and you're not the only onewho has had this question, for us before,
(13:02):
because it does almost feel likeif you sign today,
you're going to get this awesome thing.
And so, the best way that I liketo explain it is it's a win-win situation.
So you as the customer are goingto get that option of being able to say,
“I want this guaranteed income for life.
I want to be able to get the 3% increase
that's going to increase for the restof my lifetime and any survivors.”
(13:23):
the state gets to keep the moneythat you used to purchase
and continue to invest it.
And the thingthat's important to remember is
we have people who are startingin the pension system
who are 18 years old, so we will be ableto invest this for the next 50, 100,
150 years, however long it is,and get the gains and losses on that.
So again, it's a win-win.
(13:44):
We have the time to ride outthe waves of the market
as the statethat you may not have the time to do
when you're making these crucial decisionsin your retirement years,
and maybe you need that more stable incomewhere you don't have as much
risk tolerance.
So again, it's kind of a win-win.
You get that lifetime income.
We get to continue to invest that moneywell beyond when you
(14:06):
would have been able to.
Malia,where would somebody want to go...so
they listened to this episode,they want to go do some more research.
They want to think aboutwhat other resources are available
for peopleto learn more about the TAP Annuity,
where should they goor where should they ask questions?
So first and foremost,I would say definitely
check out on the DRSwebsite, so, drs.wa.gov.
(14:28):
If you go into the plan sectionand you pick your plan,
there's a really great FAQkind of about the TAP Annuity,
where it's going to tell you
all the details that we probably didn'tmention about this option
that's available to youand what you can do.
There's also a video out therefor you to be able
to watch to get more informationabout the TAP Annuity, as well as that
(14:49):
all important annuity calculator, whereif you log in to your online account,
and you can just click on your Plan3, get your balance
and be able to plug that balance in or rundifferent scenarios for yourself.
So the DRS website is such a great placefor articles
and videos,as well as accessing that calculator.
If you have kind of more direct questionsabout it, you can always call DRS
(15:13):
to find out how it might workin addition to your monthly benefit.
Maybe you need that information as well.
But when it comes time to actuallypurchase it, you say, “Hey, I'm ready,
this is what I want to do.”Then you will work with our record
keeper, which is Voya Financial,and you can call them,
or you can go online to their siteto be able to do the TAP Annuity purchase.
(15:35):
That's fantastic.
So one question that I hadwas about taxes.
So obviouslyif I have my money in the stock market
and I'm taking that out,I'm paying taxes on that money,
do I have to paytaxes on my income from a TAP Annuity?
Yes. So your TAP
Annuity again it's basically turning itinto like a second pension.
(15:56):
It'll work exactly like your pension does
where you pay taxes on itin a form of income.
So what that means is whatever amountyou decide for your TAP Annuity.
So if that's $2,000 a month or whateverit comes out
to be based off of your purchase,that's just reported as income to the IRS
and based on your individual tax bracket,you will owe taxes
(16:18):
just like you would with a paycheck.
Basically.
So that is one thing that's really nicewhen you take something out as a lump sum
and you say, “I'mgoing to take $50,000 out to buy...
whatever....
a new car with” you are paying taxeson that $50,000 all at one time.
So that is one benefit of the TAP
Annuity as well as you're spreadingthese payments out for a lifetime,
(16:38):
which can help lower that tax burdenthat you might get, as opposed to,
taking it as a lump sum.
But again,really the best place to find out
what kind of taxes you would owe andall of that, is to talk to a tax advisor.
Sure.
I just really appreciate the pointthat you made earlier Malia,
that Plan 3 does have more flexibility and
(17:01):
sometimes that flexibility and complexitycan feel overwhelming to people.
But in a lot of ways,the best thing you can do is learn more
about your plan, learn about what
the options are,and learn about the way it works
and figure out how to make it workthe best for you.
And for some people, the TAP Annuityis going to be a really wonderful option.
For other people,it might not make as much sense,
but we really want to make surepeople understand
(17:22):
and know that they have this benefitwithin their plan.
Exactly.
And because, you know,
I just want to point out too,
there's people who may have retirementsfrom other places,
whether they worked in the private sectoror maybe they worked for another state
or, you know, the city of Seattleor Tacoma or something.
And those plansdon't have this TAP Annuity option,
(17:43):
but they may have something likewith deferred compensation accounts
or something like that,different annuities that are available.
And so that's why it's important to findout more about what features are there.
Sometimes with those types of annuities,they don't truly pay for your lifetime,
versus ours will.
So if you live to be 120 years old,you will get that monthly
benefitall the way until you're 120 years old.
(18:05):
And it doesn't ever stop.
So again,it's just something to think about that
our annuity has a very uniqueand special feature.
And just because you've heard the termannuity kind of thrown around
in the retirement space before,do your research, look into it.
And really only you can decidewhat is the best choice for you.
We can't guide you on that becausewe don't know your life circumstances,
(18:27):
but definitely do your research on it.
And this is a really great productfor a lot of people out there.
That's fantastic.
Well, thank you so much, Malia.
That's very insightful today.
All right. Thank you. Thank you.
Thanks for listening.
And now we'd love to hear from you.
What topics would you like to hear about?
What questions do you have for us?
(18:48):
Send an email to drs.podcasts@drs.wa.gov.
That's drs.podcasts@drs.wa.gov.
The Department of Retirement Systemsprovides this podcast as a public service,
but it's neither a legal interpretationnor statement of DRS policy.
References to any specific productor entity do not constitute
(19:08):
an endorsement or recommendation.
The views expressed by guests are theirown, and their appearance on the program
does not imply an endorsement of themor any entity they represent.
Views and opinions expressed by DRSemployees are those of the employees,
and do not necessarily reflect the view ofDRS or any of its officials.
Welcome back to Fund Your Future with DRS.
And this episode is especiallyfor all of our Plan 3 members.
So we know that one of the challengesof saving for retirement
can be trying to figure out how muchyou can spend from your investment account
once you retire.
And to help with this,some people choose to purchase an annuity.
And for those who don't know,
(00:26):
an annuity kind of workslike a reverse life insurance policy.
You pay a lump sum, say $25,000,
and that guaranteesyou monthly income for your lifetime.
And the more money you pay upfront,the larger your monthly payment will be.
And there's all sorts of options out therefor annuities from private companies
(00:46):
and DRS.
But Plan 3 membershave access to a TAP Annuity
that has a lot of great benefitsthat other annuities don't.
So today we have Malia from our team hereto help us
learn more about the TAP Annuity.
Welcome, Malia.
Thank you.
So Malia, sometimeswhen people hear the word annuity,
(01:08):
it provides like an immediatenegative reaction.
Can you tell us just kind ofat a high level, why a Plan 3 member
might want to be aware of this featurewithin their plan?
Yeah, that's such a great questionbecause I know for a lot of customers
that's their initial
reaction is they're used to hearingabout annuities in a private sector space
or through insurance companies,which typically have a lot of hidden
(01:31):
tricks and bells and whistles or coststhat they may not be aware of.
And so it definitely has thatjarring reaction for them.
The first and foremost thingthat I want to say about the TAP Annuity
is that it is guaranteedthrough the state of Washington.
So the same people who are paying youyour defined benefit,
so that pension that you're getting from
working, that you contribute,or that your employer contributed to
(01:51):
and you earned service credit on
-- the same funding forthat is what pays you your TAP Annuity.
So I think that's something
that is really great for peopleto hear about that they are not aware of.
I think that a lot of peopletend to think that these are being offered
by our record keepers,or maybe we have a contract with a private
insurance company,but it is through the state of Washington.
(02:12):
And so that's one thing that I thinkis really important for people
to understand that this is basicallygiving you the option to take that money
that you've put in that's been invested
and be able to turn it into essentiallya second pension
that you're getting from usfor the rest of your lifetime.
That's great.
So, you know, I mentioned in the openingthat,
we know that the TAP Annuityhas a lot of great benefits.
(02:34):
Can you tell us a little bitabout what makes the TAP Annuity unique,
and maybe why it's a little bit betteroption than others?
Sure.
So again, like I said, it's
administered by the state of Washington,which means that it basically follows
all the same featuresas your regular pension benefit.
So that includes thingslike your ability to name a survivor,
(02:57):
which is basically where you pick someone,whether it's a spouse or not.
And you will get an actuarial reductionbased on your difference in age,
but they can receive a lifetime benefitfor the rest of their life after you die.
There's also the balancerefund upon death.
So if you put $500,000 into the annuityand you pass away
(03:17):
after only 200,000 has been paid outto you, that remaining 300,000
would be paid out to your beneficiaryif you elected no survivor, for instance.
So you said, I just want to getthe maximum amount for my lifetime.
You know that what you're going to put inis guaranteed to be paid out
to someone that you name or yourself,depending on how long you live.
And I think the most attractive featureof our TAP Annuity is that you get
(03:41):
a guaranteed 3% cost of living adjustmentevery year for the rest of your lifetime.
And if you pick a survivor,like I mentioned earlier,
they get that guaranteed 3% increasefor the rest of their lifetime as well.
And that is incredibly unique.
Even our pensions, actually,the cost of living adjustment is based off
(04:02):
of consumer price index, inflation,all kinds of factors.
Versus the TAP Annuity, We say no.
“You're just going to get that 3% increaseevery year for the rest of the lifetime
of the annuity.” That's awesome.
And you'd
mentioned that other annuities don't offerthis cost of living adjustment.
Some do, some don't.
It's not a typical feature that you see.
(04:23):
A lot of timesyou're either paying for that increase, so
you're actually taking a smaller monthlybenefit to get it later down the line.
Or it's all based off of inflation,but this one is the only one
that I've seen where it's just guaranteed3%, this is what you get
for the rest of the lifetimeof the annuity.
So Malia, at DRSwe have a number of different ways
(04:43):
people can increase their pension amount.
And as you mentioned,
using your investment account as a Plan3 member and converting it to a TAP
Annuity is one wayto increase your pension amount.
But we have some other options
where people can purchaseadditional service credit,
or they can purchase an additional annuitywhen they retire.
And those features are opento both Plan 2 and 3 members.
But could you tell us a little bitabout what the differences
(05:05):
are between the TAP annuityand some of those other
like purchase service creditthat a Plan 2 or 3 member could do?
Sure.
So first and foremost we'll just get itout of the way: funding source.
And what that means with the TAP Annuityis, you can only use the money
that’s in your investment accountto purchase this TAP Annuity.
Now, some peoplemay not have enough in there.
(05:26):
Or maybe they have, moneythat they've invested outside in an IRA
or something like that.
Those are the kinds of fundsthat can be used for a purchase service
credit, or potentially a purchaseadditional annuity.
Second, the biggest thing isthat the TAP Annuity is a separate check
from your monthly benefit,and you actually don't need
to be eligible for a monthly benefitto get a TAP Annuity.
(05:50):
So you could decide to leave workingwhen you're 40 years old,
clearly not eligible to retire,but you have enough money.
The minimum is 25,000 for a TAP Annuityin your Plan 3 account,
and you could start drawing a lifetimemonthly benefit at that time.
Versus purchase service creditor purchase additional annuity.
Because that tacks on to your retirementbenefit, you have to be eligible
(06:13):
to draw that lifetime monthlybenefit through the pension side.
So those are only at the timethat you retire
and they get added to that benefit.
It is not a separate check.
So those are kind of the key differences.
In additionto what I had alluded to earlier
about the cost of living adjustment,purchasers credit purchase
additional annuitybecause it's part of your monthly benefit.
(06:34):
Cost of livingadjustments are based on inflation,
and it's not that guaranteed3% like you get with the TAP Annuity.
And the one thing that I also think is oneof the most attractive features as well,
is with your retirement benefit, when youstart drawing it, if you go back to work,
it may stop depending on how many hoursyou work or what you're doing.
(06:55):
There's all kinds of rules around thatwhich you can find on the DRS website,
but for the TAP Annuity,it will continue if you go back to work.
So that's something that's kind of nicefor people to know about.
Is that once you start getting it,it's yours for life.
Yeah.
And one of the other featuresI've heard as well is that
you can also purchasethis TAP Annuity at any age.
(07:18):
Do you want totalk a little bit about that.
Yes, exactly.
So likeI said you don't have to be eligible
for the pensionto be able to get your TAP Annuity.
You can do it at any age.
The one trick is you only get to do itonce in your lifetime,
so you don't get to stop workingwhen you're 40 and say, hey,
I'm going to go aheadand purchase this annuity,
but I'm not going to do
my whole account balancebecause I want to purchase one later.
(07:41):
Unfortunately, it doesn't work like that.
You only get one in your lifetime, so itis something that you need to think about.
Like if you want to do your full accountbalance or maybe just part of it,
but it's really, really great for our Plan3 members in particular,
because sometimes a lot of times
they want to stop working before65 or whatever age
they're eligiblebased on their service credit,
(08:03):
and they want to take advantageof something that's called indexing,
which there's lots of informationout on the DRS website about that,
where basically they get a more favorablebenefit if they delay drawing it.
But sometimes you need incomebetween when those two events occur
and the TAP Annuityyou can start at that time.
It's completely independentfrom your pension.
So that's something that's really nice.
(08:24):
And also I'lljust throw out there as well.
If you are a Plan 2 member,but you received Plan
3 funds as a beneficiary.
Maybe you had a spouse or a parentor someone that passed away and you have a
Plan 3 account from them, you can purchasethis TAP Annuity through that as well.
So that's just something that is kind ofa fun little fact about the TAP Annuities.
(08:46):
One of the things, Jenny,I think you and I have talked on
a previous episodeabout doing kind of a financial check in,
like a personal financial check in everysix months or every quarter, every year.
One of the things I actually do[is] I’m a Plan 3 member, I
look at my Plan 3 account balanceevery six months,
and I calculate how much would a TAPAnnuity be if I bought it right now
(09:06):
with the balance I have?
So, just kind of to see how much incomecould I replace today
with this Plan 3 balance that I have.
Because as Malia said,
it's one of the huge advantages of the TAPAnnuity is I could start it at 45,
or 55, or 72 or it's any different age.
And so it gives you some more flexibleon thinking about
(09:28):
income replacement, and making surethat you kind of have all your bills paid.
That's the other thing.
I think sometimes people look at withthe TAP Annuity is: “I need to have $1,500
more of monthly incometo cover my set fixed expenses.”
So then I can go purchasea TAP Annuity for that amount
and then have my additional fundsavailable to me,
(09:49):
because I want to go buy a boator motorhome or something.
It's a great segueway to say that on the DRS website,
on our calculators page,we have a Plan 3 TAP Annuity Calculator.
That's exactly right, what you're saying,Seth.
I think when people make their plan choiceor maybe the choice was made for them,
depending on what plan they're inand who they are, we talk about
(10:12):
how Plan 3, one of the hugestbenefits of it is flexibility.
And I think this isone of the most misunderstood features
of just how much flexibilityyou get by being a Plan 3 member.
A lot of times I've seen Plan 3 memberswho actually end up getting more
because of a TAP annuityand their investments doing so well
than if they had been in Plan 2.
(10:33):
But you get that option, just like yousaid, where if you have $500,000
in your account,you don't have to buy it for all 500,000.
You can say, “I need guaranteed
income of $2000 or whatever amount,just like you said,
and I'm going to keep that other $300,000for if I have a medical emergency.
Or maybe I just want to go on a monthlong vacation to Tahiti or whatever
(10:56):
it may be.
You get that flexibility,you get that control,
and this option is one of the reasonswhy it's so important to be engaged
with your retirement from an earlier age,especially as Plan 3, just like Seth
said, paying attention to that balancebecause that is half your retirement
and you get the choices to decidewhat you're going to do with that.
(11:16):
It's really key when people are thinkingabout purchasing an annuity.
This is really the point that peopleare trying to figure out is, “would
I rather have the guaranteethe stability of the guaranteed income,
or would I rather have the flexibilityof this lump sum of money
that is in my investment account?”And that's a really personal decision.
(11:36):
It depends on what other guaranteed incomeyou have from a pension
or Social Security.
It depends on whatother investment accounts you have
and that that flexibility for more liquidkind of lump sums, amount of money.
So there's really no rightanswer for people.
You have to look at your total overallfinancial picture
when you're making these decisions.
(11:57):
But it is a really beneficial featureto have in Plan 3
that, as Malia said, many people overlookor forget about or don't realize.
And it's one of the reasonswe wanted to have this episode.
Yeah, especially,you know, just a shout out.
I'm sure most people listening tothis are people
who are nearing retirement,but if anybody is listening
who is making their plan choicesor thinking about it,
(12:18):
you know, really think about howthis can be such a benefit for you
to help supplement that income.
Because our lifestyles have changedso much over the last so many years.
We have people who nowno longer own their own homes.
By the time they're retiredor they have children in college,
and you need that guaranteed monthlyincome to make sure your needs are met.
(12:38):
And so those are important thingsto take into consideration
as well as you're making these decisions.
That's great.
So yeah, we've talked about howthis is obviously a really good option.
And it almost sounds too good to be true.
Can you talk a little bitabout how the state can offer this?
That's a great question, Jenny.
and you're not the only onewho has had this question, for us before,
(13:02):
because it does almost feel likeif you sign today,
you're going to get this awesome thing.
And so, the best way that I liketo explain it is it's a win-win situation.
So you as the customer are goingto get that option of being able to say,
“I want this guaranteed income for life.
I want to be able to get the 3% increase
that's going to increase for the restof my lifetime and any survivors.”
(13:23):
the state gets to keep the moneythat you used to purchase
and continue to invest it.
And the thingthat's important to remember is
we have people who are startingin the pension system
who are 18 years old, so we will be ableto invest this for the next 50, 100,
150 years, however long it is,and get the gains and losses on that.
So again, it's a win-win.
(13:44):
We have the time to ride outthe waves of the market
as the statethat you may not have the time to do
when you're making these crucial decisionsin your retirement years,
and maybe you need that more stable incomewhere you don't have as much
risk tolerance.
So again, it's kind of a win-win.
You get that lifetime income.
We get to continue to invest that moneywell beyond when you
(14:06):
would have been able to.
Malia,where would somebody want to go...so
they listened to this episode,they want to go do some more research.
They want to think aboutwhat other resources are available
for peopleto learn more about the TAP Annuity,
where should they goor where should they ask questions?
So first and foremost,I would say definitely
check out on the DRSwebsite, so, drs.wa.gov.
(14:28):
If you go into the plan sectionand you pick your plan,
there's a really great FAQkind of about the TAP Annuity,
where it's going to tell you
all the details that we probably didn'tmention about this option
that's available to youand what you can do.
There's also a video out therefor you to be able
to watch to get more informationabout the TAP Annuity, as well as that
(14:49):
all important annuity calculator, whereif you log in to your online account,
and you can just click on your Plan3, get your balance
and be able to plug that balance in or rundifferent scenarios for yourself.
So the DRS website is such a great placefor articles
and videos,as well as accessing that calculator.
If you have kind of more direct questionsabout it, you can always call DRS
(15:13):
to find out how it might workin addition to your monthly benefit.
Maybe you need that information as well.
But when it comes time to actuallypurchase it, you say, “Hey, I'm ready,
this is what I want to do.”Then you will work with our record
keeper, which is Voya Financial,and you can call them,
or you can go online to their siteto be able to do the TAP Annuity purchase.
(15:35):
That's fantastic.
So one question that I hadwas about taxes.
So obviouslyif I have my money in the stock market
and I'm taking that out,I'm paying taxes on that money,
do I have to paytaxes on my income from a TAP Annuity?
Yes. So your TAP
Annuity again it's basically turning itinto like a second pension.
(15:56):
It'll work exactly like your pension does
where you pay taxes on itin a form of income.
So what that means is whatever amountyou decide for your TAP Annuity.
So if that's $2,000 a month or whateverit comes out
to be based off of your purchase,that's just reported as income to the IRS
and based on your individual tax bracket,you will owe taxes
(16:18):
just like you would with a paycheck.
Basically.
So that is one thing that's really nicewhen you take something out as a lump sum
and you say, “I'mgoing to take $50,000 out to buy...
whatever....
a new car with” you are paying taxeson that $50,000 all at one time.
So that is one benefit of the TAP
Annuity as well as you're spreadingthese payments out for a lifetime,
(16:38):
which can help lower that tax burdenthat you might get, as opposed to,
taking it as a lump sum.
But again,really the best place to find out
what kind of taxes you would owe andall of that, is to talk to a tax advisor.
Sure.
I just really appreciate the pointthat you made earlier Malia,
that Plan 3 does have more flexibility and
(17:01):
sometimes that flexibility and complexitycan feel overwhelming to people.
But in a lot of ways,the best thing you can do is learn more
about your plan, learn about what
the options are,and learn about the way it works
and figure out how to make it workthe best for you.
And for some people, the TAP Annuityis going to be a really wonderful option.
For other people,it might not make as much sense,
but we really want to make surepeople understand
(17:22):
and know that they have this benefitwithin their plan.
Exactly.
And because, you know,
I just want to point out too,
there's people who may have retirementsfrom other places,
whether they worked in the private sectoror maybe they worked for another state
or, you know, the city of Seattleor Tacoma or something.
And those plansdon't have this TAP Annuity option,
(17:43):
but they may have something likewith deferred compensation accounts
or something like that,different annuities that are available.
And so that's why it's important to findout more about what features are there.
Sometimes with those types of annuities,they don't truly pay for your lifetime,
versus ours will.
So if you live to be 120 years old,you will get that monthly
benefitall the way until you're 120 years old.
(18:05):
And it doesn't ever stop.
So again,it's just something to think about that
our annuity has a very uniqueand special feature.
And just because you've heard the termannuity kind of thrown around
in the retirement space before,do your research, look into it.
And really only you can decidewhat is the best choice for you.
We can't guide you on that becausewe don't know your life circumstances,
(18:27):
but definitely do your research on it.
And this is a really great productfor a lot of people out there.
That's fantastic.
Well, thank you so much, Malia.
That's very insightful today.
All right. Thank you. Thank you.
Thanks for listening.
And now we'd love to hear from you.
What topics would you like to hear about?
What questions do you have for us?
(18:48):
Send an email to drs.podcasts@drs.wa.gov.
That's drs.podcasts@drs.wa.gov.
The Department of Retirement Systemsprovides this podcast as a public service,
but it's neither a legal interpretationnor statement of DRS policy.
References to any specific productor entity do not constitute
(19:08):
an endorsement or recommendation.
The views expressed by guests are theirown, and their appearance on the program
does not imply an endorsement of themor any entity they represent.
Views and opinions expressed by DRSemployees are those of the employees,
and do not necessarily reflect the view ofDRS or any of its officials.
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