Tag Archives: finances

Debt and Retirement

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If you’re planning to retire soon, it’s a good idea to take inventory of any debt you owe. Paying down your debt can give you flexibility to enjoy the type of retirement you want.

NYSLRS Loan Debt

If you have an outstanding NYSLRS loan balance when you retire, it will reduce your pension. The amount of the reduction is based on:

  • Your retirement system—Employees’ Retirement System (ERS) or Police and Fire Retirement System (PFRS);
  • Your tier;
  • Your age at retirement; and
  • Whether you retire with a service retirement benefit or a disability retirement benefit.
Debt and Retirement: How a NYSLRS Loan Balance Could Affect Your Pension

It is important to understand:

  • The reduction does not go toward repaying the outstanding loan balance—it’s a permanent reduction to your pension.
  • At least part of the loan balance at retirement will be subject to federal income taxes.

When you apply for retirement in Retirement Online and have an outstanding NYSLRS loan balance, the system will provide a specific pension reduction amount for you. The loan applications on our Forms page also list general pension reduction information.

If you are close to retirement, be sure to check your loan balance. If it looks like you won’t repay your loan before you retire, you can increase your loan payments, make additional lump sum payments or both (see the Change Your Payroll Deductions or Make Lump Sum Payments section of our Loans: Applying and Repaying page).

ERS members may repay a loan after retiring. They must pay the full balance that was due at retirement in a single lump sum payment. Once they repay the loan, their pension will increase to the amount it would have been without the loan reduction. It will not increase retroactively back to the date of retirement.

Other Debt to Check

Credit Cards

Another priority should be paying off credit cards before retirement. Credit card statements include a warning telling you how long it will take—and how much it will cost—to pay off your balance making only minimum payments.

If you have more than one credit card balance, many financial advisors recommend paying as much as you can on the card with the highest interest rate, while still making at least the minimum payments on your lower-interest cards. Once you’ve paid off your highest-interest card, focus on the one with the next-highest rate, and so on. Other advisors say it might be better to pay off the card with the smallest balance first. The idea there is to gain a sense of accomplishment, and make the process seem less daunting.

Mortgages

Advice varies on whether you should try to pay off your mortgage before you retire. It would eliminate a major expenditure and let you spend your retirement income on other things. On the other hand, if your mortgage interest rate is relatively low, you may want to focus on paying off other high-interest debt or boosting your retirement savings. What works best for you will depend on your situation.

What is Your Net Worth?

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When it comes to understanding your finances, a good place to start is by calculating your net worth.

Net worth is the total value of everything you own, minus the money you owe. It is a measure of your wealth and an indicator of your financial condition. It can also provide you with valuable insight as you start developing your financial plan for retirement.

How to Calculate Net Worth

The formula for calculating your net worth is simple:

net worth formula

Assets and Liabilities

Your assets are items of value that you own, including:

  • Your house
  • Other real estate (a vacation home, rental property)
  • Money in checking and saving accounts
  • Retirement savings, such as a 401(k) or Deferred Compensation account
  • Stocks, bonds and other investments
  • Your car and other vehicles
  • Jewelry, furniture and household items

Your liabilities are your debts. Your mortgage, credit card debts and loan balances factor into your total liabilities.

If you owe more than the value of your total assets, you have a negative net worth. A negative net worth may not necessarily mean you’re in financial trouble — it just means that at the moment you have more debts than assets.

If you’re just beginning your career and still have student loans, you may find yourself in negative territory. But your net worth is likely to increase over time as you pay down debts and save money.

Knowing Your Net Worth Can Help You Get a Handle on Your Finances

Your net worth shows your current financial status. When you know where you stand, you’ll be better prepared to make decisions about spending, saving and investing, which will help you achieve your short- and long-term financial goals. Your net worth can show you where you’re doing well and where there’s room for improvement. For example, it may indicate a need to curb your spending or reduce your credit card debt.

Your net worth is likely to change over time, so it’s a good idea to calculate it periodically. With this updated financial information, you’ll be able to track trends and make adjustments if necessary.

To learn more about net worth and what it means, you may wish to read What’s Your Net Worth Telling You?

Countdown to Retirement – 12 Months to Go

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The final months leading up to your retirement date go by quickly. When you are 12 months from your planned retirement date, you should consider your post-retirement finances. Putting together a good picture of your expected income and expenses should be a big part of your countdown to retirement.

Countdown to Retirement - 12 months To Go

Estimate Your Pension

Your NYSLRS pension is likely to be a major source of retirement income, but how much will you get? Most members can estimate their pension in Retirement Online.

A Retirement Online estimate is based on the account information we have on file for you. You can enter different retirement dates to see how an earlier or later date would affect your benefit.

If you are unable to use the online calculator, you can request a benefit projection by calling our toll-free number at 866-805-0990 or by submitting a Request for Estimate form. Also, most Tiers 2 through 6 members can use the Quick Calculator on the NYSLRS website. 

Review Other Retirement Income

One year out is a good time to take a closer look at other sources of retirement income. If you have an account with the New York Deferred Compensation Plan, review your latest statement. If you have an old 401(k) or IRA from another job, you should review those plans as well.

Social Security is a major source of income for most retirees. Although most NYSLRS members can retire as early as age 55, you cannot start collecting Social Security retirement benefits until age 62. Your Social Security benefits will be reduced permanently, however, if you retire before your full Social Security retirement age. You should still familiarize yourself with the program and estimate how much you’ll get. The Social Security Administration has several benefit calculators on its website to help you do that.

Review Your Health Insurance Coverage

NYSLRS doesn’t administer health insurance benefits, but health care can be a significant retirement expense you’ll need to plan for. Check with your employer’s health benefits administrator to determine what coverage you’re eligible for once you retire. Now is the time to research private health insurance plans if you’re not eligible for post-retirement coverage or if you need to supplement it.

If you are a New York State employee, you may want to review the Planning for Retirement guide from the Department of Civil Service.

If you’re close to age 65, learn more about Medicare benefits.

Make a Retirement Budget

How much will you spend each month after you retire? By preparing a post-retirement budget before you retire, you can set goals and establish guidelines that can help you stay on track throughout your retirement.

One of the best ways to plan for the future is to track what you spend now. For a more realistic budget, keep a record of your current spending for a month or two to get an idea of your expenses. Be sure to factor in periodic expenses, such as car insurance or property and school taxes.

To help you with your retirement budget, we’ve created monthly income and expense worksheets. These forms can help reveal your current spending habits and assist you in projecting your future needs.

Counting Down

Your planned retirement date will be here before you know it. If you missed it, you may wish to read our earlier Countdown to Retirement post. You’ll also want to keep an eye out for rest of this series for steps to take at four-to-six months and one-to-three months before your retirement date.