Tag Archives: outstanding loan balance

Debt and Retirement

If you’re planning to retire in the near future, it’s a good idea to take inventory of the debts you owe. Why start your next life chapter burdened with debt and interest payments?

A high priority should be any loans you have taken from NYSLRS. You cannot pay off your loan after you retire. If you have an outstanding balance when you retire, it will permanently reduce your pension. For example, if a 60-year-old Tier 3 or 4 member of the Employees’ Retirement System retires this year owing $10,000, the annual reduction would be $560.50. And that reduction would continue even if the total reduction exceeds the amount owed. What’s more, at least part of the balance would be subject to federal taxes. Learn more about paying of a NYSLRS loan.
Debt and Retirement — How a NYSLRS Loan could affect your retirement
Another priority is paying off credit cards. The average American household with credit card debt owes more than $16,000 and pays about $1,300 a year in interest, according to a recent analysis of federal data.

Fortunately, getting a handle on your credit card debt has gotten easier. A recent federal law requires credit card statements to carry a “Minimum Payment Warning.” This tells you how long it will take, and how much it will cost, to pay off your balance if you only make minimum payments. It also tells you how much you need to pay each month to pay off the balance in three years.

If you have more than one credit card balance, most financial advisers recommend you pay as much as you can on the card with the highest interest. Pay at least the minimum, preferably more, on lower-interest cards until the high-interest card is paid off. But some advisers say it might be better to pay off the card with the smallest balance first. That will give you a sense of accomplishment, which could make the process seem less daunting.

Mortgage balances make up two-thirds of the $12.6 trillion in U.S. household debt. But should you strive to pay off your mortgage before you retire? Financial advisers differ on that question, so do your research to consider all the factors.

Read more about debt and retirement in our publication Straight Talk About Financial Planning For Your Retirement.

How an Unpaid NYSLRS Loan Can Affect Your Pension

As a NYSLRS member, if you have contributions on file with us, you may be able to take out a loan against them. However, you need to be cautious about this decision. If you retire with an outstanding loan balance, you cannot pay off your loan after you retire. In order to recover the funds that weren’t paid back before you retired, your pension benefit will be permanently reduced.

The amount of your pension reduction is based on three things:

  • Your age at retirement
  • Your loan balance at retirement
  • The type of your retirement (regular service or disability)

Outstanding Loan Balances & Permanent Pension Reductions for 2016

The permanent reduction you receive will be based on your retirement date. So, if you had retired in 2015 with an outstanding loan balance, the permanent reduction would be different than if you retire in 2016. Here are some loan reduction examples if you retire in 2016 with an outstanding loan:
2016 Unpaid Loan Reductions

How to Avoid a Permanent Pension Benefit Reduction

To avoid a permanent reduction, you can increase the amount of your loan payments so your loan is paid in full before you retire. Though loans are repaid through regular payroll deductions, you can make additional payments or pay your loan in full at any time. There are no prepayment penalties. You can also pay off your loan in a lump sum when you retire (before your effective date of retirement). If you wish to pay off your loan, we will tell you what the payoff will be at that time.

Make your check or money order payable to NYSLRS, write “loan payment” and your retirement registration number or the last four digits of your Social Security number on your check, and include your contact information in your cover letter to us. We will apply the payment to your loan and send you an acknowledgment letter. Payments should be mailed to:

NYSLRS
Attn: Accounts Receivable Unit
110 State Street
Albany, NY 12244

If you have any questions about loans or reductions, please visit our Loans page.