Tag Archives: personal savings

Welcome, New Members

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

What is NYSLRS? NYSLRS administers retirement benefits for New York State employees and municipal and non-teaching school district employees outside of New York City. With more than 1.1 million members, retirees and beneficiaries, NYSLRS is one of the largest public retirement systems in the nation.

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 the rest of your life. The amount of your pension will be calculated using a formula set by State law.

However, many employees in the United States, particularly in the private sector, are enrolled in 401(k)-style retirement savings plans, or have no employer-sponsored retirement savings plan. The ultimate value of a 401(k) plan is based on the contributions made to individual accounts and investment returns on those contributions.

While a 401(k)-style plan can supplement a pension and Social Security benefits, it does not provide the same level of financial security as a defined-benefit plan. Unlike your NYSLRS pension, these plans do not guarantee a lifetime benefit.

New Members Checklist

Earning Service Credit

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

Plan Ahead: Start Saving Now

Your pension is only one part of a financially secure future. It’s also a good idea to save additional money for retirement. Your retirement savings can be a hedge against inflation and a source of cash in an emergency. A healthy retirement account will give you more flexibility during retirement, helping ensure that you’ll be able to do the things you want to do.

State workers and some local government employees can save for retirement through the New York State Deferred Compensation Plan, which also has some tax advantages. You can start by having as little as $10 deducted from each paycheck. You can 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.

Your Next Steps as a New NYSLRS Member

If you haven’t already, sign up for a Retirement Online account. You can use Retirement Online to conduct business with NYSLRS, including naming a beneficiary for your death benefit, updating your contact information, and looking up your retirement plan information. This online tool will be an important resource throughout your career, especially as you near retirement, when you can use our benefit calculator to estimate your pension.

More Information

You can find more information about NYSLRS and your benefits in our booklet, Membership in a Nutshell.

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.

Infographic regarding spending habits

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 be spending in retirement each month or each year.

An Employee Benefit Research Institute (EBRI) 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. (Although, nearly 46 percent of households actually spend more in the first two years of retirement.)

Analysis from the Bureau of Labor Statistics in the U.S. Department of Labor seems to support the research from EBRI. In “A closer look at spending patterns of older Americans,” the author analyzed data from the 2014 Consumer Expenditure Survey, and she also found a progressive drop in spending as age increases. (Income declines with age as well.)

While data supporting EBRI’s study is helpful, it turns out that the highlight of the Consumer Expenditure Survey results is a detailed look at how the things we spend our money on change as we grow older.

Infographic regarding spending habits

As interesting as that is, it’s just a general look at how older Americans are managing their money. What really matters is: How will you spend your 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, the switch from saving to spending in retirement can be easy.

But, in order to make that transition, 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 date.

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, you may prefer an app that lets users enter transactions manually.

Women and Retirement

Saving for retirement is important for everyone, but it’s especially important for women. Women tend to live longer than men, but they may not spend as many years in the workforce and they may not earn as much. Because of this, women tend to lag behind men when it comes to retirement savings.

On average, a 65-year-old man can expect to live to be about 83, while a 65-year-old woman can expect to live to nearly 86, according to data from the Social Security Administration. That means a woman’s savings need to stretch that much further. But in a survey released in March 2017 by the Transamerica Center for Retirement Studies, women reported far lower retirement savings than men. The median savings for women was only $34,000, compared with $115,000 for men.

Women and Retirement

The survey also found that the percentage of women who had no retirement savings was higher than the percentage for men. Women also tended to be less confident about their ability to retire in comfort, according to the survey of over 4,000 U.S. workers.

Here are some things you can do to make sure you’re on track:

  • Start saving for retirement, if you haven’t already. Make regular, consistent additions to your savings.
  • If you’re already saving, increase the amount you save. Even a small increase will make a difference over time. (Try adding 1 percent of your salary, then bump it up next time you get a raise.)
  • Educate yourself about retirement savings and investments.
  • Learn more about your NYSLRS retirement benefits. There is a lot of good information in your Member Annual Statement. You may also wish to read the NYSLRS publication How Do I Prepare to Retire?
  • Learn more about your Social Security.
  • If you are close to retirement, make a retirement budget.
  • Talk to a financial adviser.
  • Make a retirement plan. Write it down. And revisit it periodically.

A defined benefit plan, such as the NYSLRS retirement benefit, provides a monthly pension payment for life. But, savings are still important as a supplement to a pension and Social Security, a hedge against inflation and a resource in an emergency.

 

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

Spending Budgets Change in Retirement

What are some of the changes you can expect in retirement? Sleeping in past 8 a.m.? Shopping during regular business hours? Retirement can bring many changes, but one you should be aware of is how your spending could change.

According to an Employee Benefit Research Institute (EBRI) study, average spending goes down in retirement, but not for everyone. Some households’ expenses stayed the same while others increased. In the first two years of retirement, almost 46 percent of households spent more than what they had spent just before retirement. EBRI offered a suggestion for this trend – people may want to splurge on hobbies or vacations during the first few years of retirement.

Keep in mind, the EBRI study is meant to understand trends in retiree spending, but it brings up a good question. Have you thought about how you’ll spend money in retirement?

Prepare a Post-Retirement Budget

As you get closer to retirement, you may be saving and investing more to meet your financial goals. Making the switch from saving to spending in retirement can be easy if you plan ahead. By looking at how you spend your money now, you can get an idea of how to spend your money in retirement.

When you set a post-retirement budget, look at what your expenses currently are. Don’t forget to include periodic expenses, like car insurance payments or property/school taxes. Track how you spend your money over a month or two. Then, consider your current monthly income and your post-retirement income. Your current monthly income should cover your current expenses, so estimate what your post-retirement income will be. If your post-retirement income is less than your current income, you might want to adjust your expenses or even your retirement plans.

These worksheets can help you prepare a budget and list out your post-retirement income sources. Print them out and start planning ahead for post-retirement spending.

Monthly budgeting worksheets (PDF)

Monthly Worksheets (PDF)

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?

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.

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!