Tag Archives: Personal Savings Plan

Tier 6 Benefits – A Closer Look

Tier 6 members (those who joined NYSLRS since April 1, 2012) are eligible for a lifetime pension benefit with 10 years of credited service. And that pension can replace a portion of your salary throughout your retirement.

Your NYSLRS pension will be based on your Final Average Salary (FAS) and the number of years you work in public service. FAS is the average of the five highest-paid consecutive years. For most members, those higher-paid years come at the end of their careers. Since retirement is still some years in the future for most of you, we won’t focus on the dollar amount of your FAS today. But we can look at what percentage of that salary would be replaced by your pension if you continue in the system until retirement age.

For Tier 6 members of the Employees’ Retirement System (ERS), the benefit is 1.66 percent of your FAS for each year you work, up to 20 years. (Benefit calculations for members of the Police and Fire Retirement System vary based on plan.) At 20 years, the benefit equals 1.75 percent per year (for a total of 35 percent). After 20 years, the benefit grows by 2 percent per year.

Financial advisers say you will need to replace between 70 to 80 percent of your salary to maintain your lifestyle during retirement. Let’s see how we can get there.
Tier 6 Salary Replacement
NYSLRS Pension: Say you begin your career at age 30 and work until your full retirement age of 63. That’s 33 years of Service Credit. You’ll get 35 percent of your FAS for the first 20 years, plus 26 percent for the last 13 years, for a total benefit that would replace 61 percent of your salary. If you started at age 25, and continue till 63, you’d get 71 percent of your FAS. If you didn’t start till age 35, you’d still get 51 percent at 63.

Social Security: You also should factor in Social Security. We know, you may have heard that Social Security might not be there for you, but the situation isn’t that dire. According to the Social Security Administration, under current law, payroll taxes will cover about 79 percent of benefits by 2034. Social Security now replaces about 36 percent of the wages of a typical worker who retires at full retirement age. So even if benefits take a hit – and that’s a big IF – Social Security might still replace around 25 to 30 percent of a typical worker’s pay.

Savings: Retirement savings can also replace a portion of your income. How much, of course, depends on how much you save. The key is to start saving early so your money has time to grow. If you haven’t already looked into the New York State Deferred Compensation Program, please consider doing so now.

Spending Changes in Retirement

Just like starting your first job, getting married or having kids, retirement will change your life. Some changes are small, like sleeping in or shopping during regular business hours. Others, however, are significant and worth examining ahead of time…like how much you’ll spend each month or each year.

An Employee Benefit Research Institute study offers some good news for prospective retirees. Household spending generally drops at the beginning of retirement — by 5.5 percent in the first two years, and by 12.5 percent in the third and fourth years. On the other hand, a significant portion of households — nearly 46 percent — actually spend more in the first two years of retirement.

So, have you considered how you’ll spend money once you retire?

Prepare a Post-Retirement Budget

Like a fiduciary choir, financial advisors all sing the same refrain: Start young; save and invest regularly to meet your financial goals. If you do, making the switch from saving to spending in retirement can be easy. But, in order to plan, you need a budget.

The first step toward a post-retirement budget is a review of what you spend now. For a few months, track how you spend your money. Don’t forget to include periodic costs, like car insurance payments or property taxes. By looking at your current spending patterns, you can get an idea of how you’ll spend money come retirement.

Then, consider your current monthly income, and estimate your post-retirement income. If your post-retirement income is less than your current income, you might want to plan to adjust your expenses or even consider changing your retirement plans.

We have monthly expense and income worksheets to help with this exercise. You can print them out and start planning ahead for post-retirement spending.

Monthly budgeting worksheets (PDF)

Monthly Worksheets (PDF)

For those of you who carry smart phones, Forbes put together a list of popular apps for tracking your daily spending. All of them are free, though some do sell extra features. Many of them can automatically pull in information from your bank and credit card accounts, but if you’d rather avoid that exposure or if you use cash regularly, we recommend you try an app that lets users enter transactions manually.

Welcome New Members

Welcome to new members of the New York State and Local Retirement System (NYSLRS).

NYSLRS is here to help you plan for a financially secure retirement. Your retirement may be far in the future, but decisions you make now will have a big impact on your later years. Here are a few things you should know:

How Pensions Work

A NYSLRS pension is a defined benefit plan. Under this type of plan, once you are eligible for a pension and apply for retirement, you will receive a monthly payment for your lifetime. Your pension benefits are determined by a preset formula set by law. However, many employees in the United States, particularly in the private sector, are enrolled in 401(k)-style plans. The ultimate value of a 401(k) plan is based on the contributions made and investment returns. While 401(k) plans and other individual retirement accounts are a way to supplement your pension and Social Security payments, they do not provide the same level of security as defined benefit plans. Unlike your pension, these plans do not guarantee a lifetime benefit. Learn more about how pensions work.

New Members Checklist

Service Credit

Your NYSLRS pension will be based on factors such as your tier, retirement plan, age at retirement, final average salary, and service credit. One year of full-time employment with a participating employer is equal to a one year of service credit. Part-time employment is prorated. You may also be able to buy service credit for previous public employment or military service, which in most cases would increase your pension.

Start Saving Now

Because having a defined benefit pension plan is only one part of building a financially secure future, it’s essential that you save additional money for retirement. State workers and employees of participating local governments can take advantage of the New York State Deferred Compensation Plan. You can start by having as little as $10 deducted from each paycheck. You may choose how your money will be invested from a variety of options. Because of how compound interest works, the earlier you start saving, the better off you’ll be.

More Information

You’ll find more information in our booklet Membership in a Nutshell. We also publish booklets about specific retirement plans. If you know which system you’re in (Employees’ Retirement System or Police and Fire Retirement System) and your tier, you should be able to find your plan. If you are not sure what plan you’re in, ask your employer.

Compounding: A Great Way For Your Money to Grow

Financial security just doesn’t happen – it takes planning. When planning for retirement, it’s important to start saving and investing early. After working hard to earn your money, you want your money to work hard for you too. The more time your money has to grow, the better off you’ll be.

Compounding is one way for your money to earn money. When your money is compounded, it increases in value by earning interest on both the principal and accumulated interest. This is a little different from earning simple interest. Let’s see how they both work.

How Simple Interest Works

Simple interest is a return that pays you a certain percentage based on every dollar you put in your account.

Let’s say you opened a savings account with $100 in January. If the bank paid 5 percent annual interest on that deposit, you’d receive five cents for every dollar in your savings account for the whole year. At the end of the year, you’d have $105. That’s $5 more than the principal amount you started with. Any interest you’d earn after the first year would still be based on the principal amount of $100.

How Compounding Interest Works

While you receive some extra money with simple interest, compounded interest can give you more bang for your buck.

Compounding interest

Let’s look at the above example again, but use compounded interest this time. If that $105 remained in your account, and the bank paid out another 5 percent interest, by the end of the second year you’d have $110.25 in your account. That $105 increased by $5.25. Not only did you earn interest on your original $100 in year one, you earned interest on year one’s interest. That’s the great thing about compounding. In just two short years, your money has earned $110.25. If we were still using simple interest, you’d only have $110 after two years.

If you’re thinking about boosting your personal savings for retirement, look into accounts that use compound interest. The sooner you can start saving, the more time your money can grow.

Other Sources:
How to Calculate Simple and Compound Interest

Who Are Financial Planners?

When you’re preparing for retirement, you want to avoid costly mistakes. And while hiring an attorney or accountant may help, think about hiring a financial planner too. A financial planner can help you develop a practical plan to help you meet your retirement goals.

What Do Financial Planners Do?

Financial planners do not manage your money. According to the Financial Planning Association of Massachusetts, financial planners assess your current financial health. They examine your assets, liabilities, income, and more. They help you develop a realistic plan to meet your goals by looking at your financial weaknesses and strengths. With their help, you can put your plan into action and keep track of its progress. If your goals change over time, they can also help you adjust your plan.

Choosing a Financial Planner

Retirement-Savings_5-Rules-to-RememberIf a financial planner has a CFP next to his or her name, that means they are a certified financial planner. Certified financial planners have passed a national test given by the Certified Financial Planner Board of Standards. The certification test covers:

  • Insurance
  • Investments
  • Taxation
  • Employee benefits
  • Retirement and estate planning

Certified financial planners must also abide by a code of ethics.

Do Your Research

Choosing a financial planner is like hiring any other professional. Make sure you do your research so you can make a well-founded decision. While we can’t offer specific advice about hiring a financial planner, there are some things you should keep in mind:

  • Check credentials, educational background and experience.
  • Find out if he or she is a member of the Certified Financial Planner Board of Standards.
  • Get referrals from people you trust – ask friends, relatives and business associates.
  • And finally, don’t be afraid to ask questions:
    • Do they research the financial products they recommend?
    • Do they offer a free consultation?
    • Are they paid by fee, commission, or salary?

What is Your Net Worth?

Using Financial Literacy to Plan for Retirement

Becoming familiar with your finances is an essential part of retirement planning. By understanding how you spend, save, or invest your money, you can plan ahead and work for the type of lifestyle you want in retirement. Once you’ve retired, you can continue to check your saving and spending to keep making good financial decisions for the future.

One important step you can take is to figure out your net worth. Your net worth shows your current financial status, like reading a report card for your finances. You can see where you’re doing well or where you can improve. Once you have that information, you can get a head start on retirement planning.

“Worth” Noting: According to the Wall Street Journal, in 2010, the average net worth per person in America was $182,000. By comparison, according to Forbes, the net worth of Microsoft’s co-founder Bill Gates was $76.8 billion as of August 27, 2015.

How to Calculate Net Worth

The way to calculate your net worth is simple:

net worth = total assets – total liabilities

Your total assets are items of value that you own. These can be things like:

  • Your house
  • Bank accounts
  • Stocks
  • Bonds
  • Investments

Total liabilities are money that you owe. If you still owe money on a mortgage, credit cards, or loans, these all add up to your liabilities. (This net worth article from the Wall Street Journal has other assets and liabilities to consider.) If your total liabilities (what you owe) equal more than your total assets (what you own), you’d have a negative net worth.

Why Net Worth Is Important To Retirement Planning

Your net worth will change over the course of your life. A negative net worth might not mean you’re in financial trouble, it just means at that moment in time you have more debts than assets. This means you’d need to start thinking of ways to increase your assets and/or lower your liabilities to work with your financial goals. If you make a habit of checking your net worth, you can start seeing how financially secure you are (and could become) as you plan for retirement.

Gen X Struggling with Retirement Security

Generation X turns 50 this year and according to a survey by AARP, they may be more anxious about retirement than Baby Boomers. Gen X has been feeling the pinch for a while. They’ve seen the rise of 401(k)s replacing traditional pension plans and have the added burden of taking care of their children and aging parents. Even though Gen Xers have “more time” to plan, the biggest concern among them is not saving enough for retirement. The survey, High Anxiety: Gen X and Boomers Struggle with Stress, Savings and Security, looked at New York voters from age 35 to 69. And as the survey shows, anxiety is running high in Generation X: This lack of retirement confidence could stem from several reasons. In New York, 20 percent of working Gen Xers don’t have access to a workplace retirement savings plan. Because of this, 31 percent of Gen Xers without access aren’t confident they’ll ever retire. If their employer offered a plan, 80 percent stated they’d be likely to use it. But even out of those with access, 37 percent aren’t saving for retirement through a workplace plan. Many Gen Xers also cite their current expenses as an obstacle to saving for retirement:

  • 59 percent say they have no money left after paying for bills.
  • 56 percent are paying for their children’s education.
  • 44 percent have lost a job or taken a pay cut.
  • 44 percent have too much debt to pay off.
  • 37 percent are caring for an elderly parent or relative.

AARP Proposes State-Run Retirement Savings Program

In May, AARP reported on the findings of this survey at a retirement readiness event in Albany. “We know Boomers are worried, but the fact that Generation Xers are even more worried is cause for alarm and reflection,” said Beth Finkel, the state director of AARP in New York. “Since an uncertain financial future for New Yorkers is an uncertain financial future for the state, it is vital that these worries be addressed.” Americans are 15 times less likely to open a retirement savings plan on their own compared to if their employer offered one. To help address this and other concerns, AARP is calling for a state-sponsored retirement savings program. Deputy Comptroller Thomas Nitido represented NYSLRS at the event. He agreed that such an system could be useful, but workers would still face the challenge of finding extra money to put aside after paying bills. He also said that New York State Comptroller Thomas P. DiNapoli would prefer to see a federal solution to the retirement issue. However, that was “unlikely” given the political mood of the U.S. Congress.

Retirement Savings and Confidence Continue to Decline

A new National Institute on Retirement Security (NIRS) report reveals that the median retirement account balance has dipped to $2,500 for working age American households, down from $3,000.

NIRS researchers discovered that some 62 percent of working households age 55–64 have retirement savings less than one times their annual income, which is far below what Americans need to be self-sufficient in retirement. NIRS reported that the typical near-retirement working household only has about $14,500 in retirement savings.

Retirement-CrisisEven after counting households’ entire net worth, the report revealed that two-thirds (66 percent) of working families still fell short of conservative retirement savings targets for their age and income, based on working until age 67.

Retirement Crisis Feared By Many

Another NIRS report found that an overwhelming majority of Americans – 86 percent – believe that the nation faces a retirement crisis. Nearly 75 percent of Americans are concerned about their ability to achieve a secure retirement. Some 82 percent say a pension is worth having because it provides steady income that won’t run out, while 67 percent indicate that they would be willing to take less in salary increases in exchange for guaranteed income in retirement.

Comptroller DiNapoli’s Position On Retirement Security

New York State Comptroller Thomas P. DiNapoli, the administrator of NYSLRS and trustee of the Common Retirement Fund, has long addressed the topic of retirement security and called it “an issue that we have to confront.” In remarks he delivered last June during a Retirement Summit at The New School’s Schwartz Center for Economic Policy, the Comptroller called attention to the “staggering” national retirement savings shortfall that’s between $7 trillion and $14 trillion.

Comptroller DiNapoli is encouraging “not just a discussion of the race to the bottom, but a broader discussion about retirement security.”

Top Five Pre-Retirement Goals For NYSLRS Members in 2015

This is the time of year when people set goals for themselves. At the New York State & Local Retirement System (NYSLRS), we believe in setting realistic financial goals, especially when it comes to preparing for retirement. Here are five goals we think you can achieve in 2015:

  1. Choose a sensible savings plan that works for you. There are several ways to save for retirement, including starting a deferred compensation plan like the New York State Deferred Compensation Plan. The most important part of developing a savings plan is to start early. The sooner you start saving, the more time your money has to grow. And if you’re nearing retirement age, “binge saving” is always an option worth considering. Check out our Weekly Investment Plan to see how making a weekly investment can grow by age 65.

  2. Track your current and future monthly expenses and income. We feature worksheets to help you prepare a post-retirement budget on our website. Keep track of what you spend now for a month or two to get an idea of how you spend your money. You should include periodic expenses, such as car insurance payments, or property and school taxes as well. Use another of our worksheets to help you summarize your current monthly income and estimate your post-retirement monthly income. Having a post-retirement budget can help you decide how to spend money in retirement, and if you’ll need to supplement your pension.

  3. Request a NYSLRS retirement estimate. A NYSLRS retirement estimate provides you with an estimation of what your pension could be based on the information we have on file for you. You should request an estimate 18 months before your anticipated date of retirement. Many members don’t request an estimate because they don’t know their exact retirement date, but don’t let that stop you. It’s a good way to determine how retirement ready you are. At the very least, you should use our online Benefit Calculator to estimate your pension based on information you enter. Have your Member Annual Statement handy to help fill in key information.

  4. Pay off your NYSLRS loans, if you have any. An outstanding loan balance at retirement will permanently reduce your NYSLRS retirement benefit. You cannot make loan payments after you retire, and the reduction does not go away after we recover the funds. Visit our website for information about making additional payments or increasing your loan payment amount.

  5. Consult a financial planner or accountant. Financial planners don’t manage your money, but will assess your present financial condition and develop a practical plan to meet your specific goal and needs.

If you ever have any retirement-related questions, please contact us. And Happy New Year!

For New Members – A Quick Peek at your NYSLRS Retirement Benefits

If you recently became a public employee in New York, you’re relatively new to the New York State & Local Retirement System (NYSLRS). You should know that you are covered by a retirement plan that provides important retirement benefits. And, while pension benefits top the list, there are other NYSLRS retirement benefits which can help keep you and your beneficiaries financially secure.

Two Key Benefits You Should Know About

If you are an Employees’ Retirement System (ERS) Tier 5 or Tier 6 member, you are covered by certain job-related death and disability benefits.

  • A non-job related death benefit after 1 year of service credit, and
  • A disability benefit, with 10 years of service credit, if you are unable to perform your duties because of a permanent physical or mental incapacity.

Similarly, if you are a Police and Fire Retirement System (PFRS) Tier 5 or Tier 6 member in either the 20- or 25-year plan, or an ERS Tier 5 or 6 Correction Officer, your NYSLRS retirement benefits include:

  • A non-job related death benefit after 90 days of service credit, and
  • A non-job related disability benefit after 10 or more years of service credit.

You can learn more detailed information about your benefits by finding your retirement plan publication on our website.

What It Means to be Vested

As a Tier 5 or 6 member, you will be vested once you have ten years of credited service. This means you are entitled to a NYSLRS retirement benefit even if you leave public employment before you are old enough to retire. Once you are vested, you are eligible to receive a retirement benefit as early as your 55th birthday. Your benefit will be based on service and salary earned when you were an active member with NYSLRS.

Remember, your pension isn’t the only benefit of being a member of NYSLRS. Those disability and death benefits are important as well. And learning about all your NYSLRS retirement benefits is an investment in your financial future. Since we are committed to helping you make informed decisions about that future, please do not hesitate to contact us whenever you have questions about those benefits.

Consider Adding a Personal Savings Plan to Your NYSLRS Retirement Benefits Mix

As a NYSLRS member, you can look forward to your pension as one source of income. Your Social Security benefits will be another source. But as a new NYSLRS member who is considering a personal savings plan, the biggest benefit you have is time. Having time on your side to save for retirement is critical. But this benefit you provide to yourself is totally up to you. You have to take that step, so don’t wait, start saving for retirement now.

A good financial planner, accountant or attorney can help you prepare for retirement, so you may want to consult with one to develop a practical plan that meets your needs and goals.