The Tennessee Retirement System, known also as RetireReadyTN, is one of the best-run state retirement systems in the country. Employees are split into a few intuitive categories, and understanding what you can expect to receive in retirement is fairly straightforward. If you want to consult an expert to discuss how to build your retirement plan, SmartAsset’s free financial advisor matching tool can pair you with up to three advisors who serve your area.
Types of Retirement Systems in Tennessee
While there are four entries in the below table, the different plans in the Tennessee Retirement System are quite similar. For employees hired on or after July 1, 2014, the plans are practically identical, with the exception of the Optional Retirement Plan (ORP).
Tennessee Retirement Systems
|Plan Title||Eligible Employees|
|Public Employee Retirement Plan||– Full-time state and local employees hired on or after July 1, 2014|
|Legacy Pension Plan||– Full-time state and local employees hired before July 1, 2014|
|Teacher Retirement Plan||– Full-time teachers hired on or after July 1, 2014|
|Teacher Legacy Pension Plan||– All full-time employees hired before July 1, 2014|
|Optional Retirement Plan (ORP)||– Faculty and exempt employees of public colleges and universities|
Overview of Tennessee’s Retirement Systems
Public Employee Retirement Plan
Employees in this plan and their employers will contribute to TCRS, the defined benefit plan, as well as a 401(k) plan. While your contribution amount to TCRS is set by law, you’re free to contribute as much or as little as you want to the 401(k). Once you reach the vesting requirement of five years, you’ll be entitled to a monthly benefit as well as survivor and disability coverage.
Legacy Pension Plan
Employees hired before July 1, 2014 are in the legacy plan, and a key difference from the Public Employee Retirement Plan is that they aren’t enrolled in a 401(k) plan by default. Enrolling is still an option made available, but you must elect to do so yourself. Another key feature is that you aren’t required to contribute any of your salary to TCRS, but you’re still entitled to retirement benefits once you reach the five-year vesting requirement.
Teacher Retirement Plan
Features of this plan are the same as those of the Public Employee Retirement Plan, where employees and employers contribute to both TCRS and individual 401(k) plans. The vesting requirement is also five years, at which point you will be entitled to your monthly benefit along with disability and survivor coverage.
Teacher Legacy Pension Plan
For teachers hired before July 1, 2014, the Teacher Legacy plan won’t automatically enroll you in a 401(k) plan, similar to the Legacy Pension Plan. However, this plan differs in that teachers are required to contribute 5% of their salary to TCRS.
Optional Retirement Program
This is a defined contribution plan open to faculty and exempt college and universities. As a member, you have a choice between multiple investment options, meaning you can customize the plan to your own risk preferences and financial goals.
Retirement Taxes in Tennessee
Federal income tax can be put off with most retirement plans, but it will always catch up eventually. Pension plans are no exception. When you put money toward a pension fund, you’re usually doing so with pre-tax dollars. In a sense, this will allow you to contribute more, which means greater interest. However, your funds will be taxed once you begin to receive payments in retirement. If you prefer to keep the tax man at bay even longer, you can roll your pension over into an alternative retirement account like a 401(k) plan. If you do that, you’ll just pay the taxes when you begin to make withdrawals from that account.
If you’d rather pay your taxes while you’re working instead of when you’re retired, you have two options. You can have the taxes withheld from your paycheck or you can make estimated tax payments. Estimated tax payments are those you make four times a year that you calculate to be roughly what you would owe in taxes. While this route requires some math on your part, the withholding option involves little to no work for you. You may also get a refund or a charge after tax season if it’s determined that too much or too little was withheld.
Tennessee is one of nine states in the U.S. with no income taxes.
Current Financial Health of the Tennessee Retirement System
The Tennessee Retirement System is in excellent financial condition. According to the most recent 2021 financial report, the fund had its most successful year of investment returns ever, reaching a 25% return. The report also indicates that for every $100 paid out to beneficiaries, $67 of it comes directly from investment returns.
Tips for a Less Stressful Retirement
- Navigating the complexities of retirement accounts and what you’ll need to supplement your pension can be a lot to keep straight. Finding a financial advisor that can explain the ins and outs of each option can reduce a lot of the headache of planning for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- As your pension will likely need supplementing in order to maintain your lifestyle in retirement. Having a concrete set of financial goals will help you to determine what you need to save and the steps you can take to get there.
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