Tag Archives: NYSDCP

Deferred Compensation:
Another Source of Retirement Income

deferred compensation
Many financial experts believe that you will need 70 to 80 percent of your pre-retirement income to maintain your standard of living once you retire. For NYSLRS members, a financial plan in retirement is likely to include your NYSLRS pension and Social Security benefits. To supplement your plan, it makes sense to add personal savings to the mix. Contributing to a deferred compensation plan to provide another source of retirement income is an option you should consider.

What is Deferred Compensation?

Deferred compensation plans are voluntary retirement savings plans like 401(k) or 403(b) plans, but designed and managed with public employees in mind. If you choose the traditional pre-tax option, the income you invest over the course of your career grows tax-deferred. That means you don’t pay State or federal tax on it until you begin collecting it in retirement.

The New York State Deferred Compensation Plan

The New York State Deferred Compensation Plan (NYSDCP) is the 457(b) plan created for New York State employees and employees of other participating public employers in New York.

When you participate in NYSDCP, your contributions are automatically deducted from each paycheck. NYSDCP offers both traditional pre-tax and Roth accounts, and you can create your own mix of these three investment options:

  1. Retirement-date fund. Mutual funds that automatically change investment strategies over time based on when you will turn 65.
  2. Do-it-yourself portfolio. Choose index mutual funds based on your investment strategy and tolerance for risk.
  3. Self-directed investment account. Transfer some of your plan balance to a brokerage account managed by an approved manager and pick and choose individual investments.

If you work for a local government employer, please check with your human resources office or benefit administrator to learn what plans are available.

What Does Deferred Compensation Mean For Me?

Deferring income from your take home pay may mean less money to spend in the short-term, but you’re planning ahead for your financial future.

You can enroll in a deferred compensation plan anytime — whether you’re approaching retirement or you just started working. Usually, the sooner you start saving, the better prepared you’ll be for retirement.

There are many ways to save for retirement. You may want to consult a financial planner, accountant or attorney for help developing a plan that best meets your needs.

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.