Tag Archives: retirement

Taxes After Retirement

Calculating post-retirement expenses is crucial to retirement planning. For instance, predicting how much you will pay in taxes can be difficult, because your tax bill depends on your individual circumstances. Most retirees spend less on taxes than they did when they were working, largely because their incomes have gone down. But there are other reasons you may have a lighter tax burden after retirement.

taxes after retirement

New York State Taxes

As a NYSLRS retiree, your pension will not be subject to New York State income tax. New York doesn’t tax Social Security benefits, either.

You may also get a tax break on any distributions from retirement savings, such as deferred compensation, and benefits from a private-sector pension. Find out more on the Department of Taxation and Finance website.

Be aware that you could lose these tax breaks if you move out of New York. Many states tax pensions, and some tax Social Security. For information on tax laws in other states, visit the website of the Retired Public Employees Association.

Federal Taxes

Unfortunately, most of your retirement income will be subject to federal taxes, but there are some bright spots here.

Your Social Security benefits are likely to be taxed, but at most, you’ll only pay taxes on a portion of your benefits. You can find information about it on the Social Security Administration website. (If you’re already retired, use the Social Security Benefits Worksheet in the Form 1040 instructions to see if any of your benefits are taxable.)

Throughout your working years, you’ve paid payroll taxes for Social Security and Medicare. For most workers, that’s 6.2 percent (Social Security) and 1.45 percent (Medicare) out of every paycheck. But Social Security and Medicare taxes are only withheld from earned income, such as wages. Pensions, Social Security benefits and retirement savings distributions are exempt. Of course, if you get a paying job after retirement, then Social Security and Medicare taxes will be deducted from that pay check.

Once you turn 65, you may be able to claim a larger standard deduction on your federal tax return. For more information on the amounts of this deduction, please see the 2018 IRS Tax Map.

To better understand how your retirement income will be taxed, it may be helpful to speak with a tax adviser.

Countdown to Retirement — Final Three Months

Once you decide to retire and begin preparing, the final months leading up to your retirement date go by quickly. Previously, we discussed the steps to take when you’re four to six months away from retirement. As we wrap up our Countdown to Retirement, let’s take a look at what you should be doing in the final three months.

Final Three Months: Filing for Retirement

You need to file an Application for Service Retirement (RS6037) with us 15–90 days before your retirement date. You can download the form from our website or pick up a physical copy at one of our consultation sites. Make sure to fill out the application completely and have it notarized.

If you send the form by “Certified Mail — Return Receipt Requested,” we will consider your application filed on the date it was mailed. Please don’t give your application to your employer; send it directly to NYSLRS.

Next Steps

Once we receive your application, we’ll mail you a confirmation letter. If you’ve received an estimate from us within the past 18 months, we will include three forms with the letter:

  • Use the W-4P form to decide how much you want withheld from your pension benefit for federal taxes.
  • Use the Direct Deposit Enrollment Application (RS6370) to receive your pension benefit payments electronically, right in your bank account.
  • Use the option election form to choose how you want your pension benefit paid and whether you would like to leave a lifetime pension to a beneficiary when you die.

If you haven’t received an estimate, we will just send you the W-4P and Direct Deposit Enrollment Application forms. We will begin processing your estimate, and once it’s complete, we will send it to you along with an option election form.

final three months

Choosing Your Pension Payment Option

Select a payment option based on your most recent estimate. All of the options provide a monthly benefit for life, and some provide payments to a designated beneficiary when you die. You must file this form by the last day of the month in which you retire (unless otherwise notified).

Make Sure You’re Prepared

As your retirement date draws near, think about scheduling an appointment at one of our consultation sites. A consultation is not required, but our information representatives can answer any questions you have, help you complete the paperwork and notarize your retirement application. You can also contact us if you have questions.

Retiree Annual Statements Coming

If you are a NYSLRS retiree and received benefits in 2018, your Retiree Annual Statement (RAS) should be coming in the mail soon, if you haven’t received it already.

The Retiree Annual Statement provides important information about your retirement account. You should keep your copy in a safe place.

couple reviewing their Retiree Annual Statement

What’s Inside

Information in your annual statement includes:

  • Your retirement number. To protect your privacy, use this number instead of your Social Security number when conducting business with NYSLRS.
  • Your monthly benefit before taxes and deductions.
  • Your total net benefit for the year. (Your benefit after taxes, deductions and credits.)
  • The total amount of any cost-of-living adjustment (COLA).
  • Your total Medicare credits.
  • Federal tax withholding and other deductions taken from your pension, such as union dues.
  • Health insurance premiums. (NYSLRS doesn’t administer health insurance benefits, but we deduct a retiree’s premiums at the request of a former employer.)

Not a Tax Document

While your Retiree Annual Statement includes information about your benefit payments and tax withholding, it is not a tax document and should not be used for filing your federal income tax return. NYSLRS mailed 1099-R tax forms to retirees and beneficiaries in January.

If you need a reprint of your 2018 1099-R to file your taxes, you can order one online. Reprints will be mailed to the address we have on file for you, so if you’ve moved recently, you should check to make sure your contact information is up-to-date before requesting a reprint. The easiest way to check and update your address is with Retirement Online, or you can contact us for help.

Staying Informed

News & Notes, our semiannual newsletter, will be included with your RAS. The newsletter will help you keep up with the latest news about NYSLRS and other topics of interest.

Your RAS provides a snapshot of your NYSLRS account as of December 31, 2018, but you can get up-to-date information by signing in to Retirement Online. Retirement Online is also a convenient and safe way to conduct business with NYSLRS. If you don’t already have an account, you can learn more or register today.

And when there is a change in your net benefit amount, NYSLRS will notify you by mail or email. Let us know how you would like to receive information from NYSLRS by choosing your correspondence preference via Retirement Online.

Countdown to Retirement — Four to Six Months Out

Once you decide to retire and begin preparing, the final months leading up to your retirement date go by quickly. Previously, we discussed the steps to take when you’re eight months away from retirement. As we continue our Countdown to Retirement, let’s take a look at what you should be doing four to six months out.

Six Months: Post-Retirement Budget

At 18 months out, we suggested requesting a NYSLRS retirement estimate. You should have that estimate by now and, with it, a much better idea of what your retirement benefit could be. Now, you can prepare a post-retirement budget and make decisions about your goals and how you want to spend your money in retirement.

We offer worksheets to help you prepare a post-retirement budget on our website. For a more realistic budget, keep track 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 and taxes.

Countdown to Retirement: 4 to 6 months out

Four Months: Proof of Your Birth Date

We will need proof of your date of birth before we can pay you any benefits. You won’t need to send it in until you submit your retirement application, but now is a good time to make sure you have what you need. We’ll accept any of these documents as proof:

  • Birth certificate;
  • Baptismal certificate;
  • Certificate of Release or Discharge from Active Duty (DD-214);
  • New York State driver’s license issued on or after January 1, 2005;
  • Passport; or
  • Naturalization papers.

In most cases, a photocopy is acceptable. If you do send us the original, we will return it to you.

It’s a good idea to look for proof of your birth date sooner rather than later, in case you need to arrange to get a replacement. Also, if you’re thinking about choosing a pension payment option that provides a lifetime benefit to a beneficiary, we will need proof of your beneficiary’s birth date too.

Counting Down

Your planned retirement date is just a few months away. As you approach three months away from retirement, check back for the final post of our Countdown to Retirement series on filing your Application for Service Retirement (RS6037) and other forms. If you have any questions as you prepare for retirement, please contact us.

Becoming Vested

What does it mean to be a vested NYSLRS member?

You become vested after you earn sufficient service credit to be eligible for a pension, even if you leave public employment before retirement. Becoming vested is a crucial milestone in your NYSLRS membership.

When Will I Be Vested?

The amount of service credit you need to be vested depends on your tier. If you’re in Tier 5 or 6, you need ten years of service to be vested. If you’re in another tier (Tier 1, 2, 3 or 4), you’re vested once you earn five years of service credit.

vesting requirements

If you work part-time, it will take you longer to become vested. For example, if you work half-time, you earn six months of credit toward vesting for each year on the job. (For more information, read our recent blog about part-time service credit.)

If you purchase credit for previous public service or military service, that credit can help you become vested.

What You Need to Do

Vesting is automatic. You do not need to file any paperwork to become vested.

If you are vested, you will need to file a retirement application at least 15, but no more than 90, days before you can receive a pension. Most NYSLRS members are eligible to collect a pension as early as age 55, but benefits may be permanently reduced if you retire before you reach your plan’s full retirement age.

Visit our website to learn more about vesting.

Countdown to Retirement — Eight Months Out

Once you decide to retire and begin preparing, the final months leading up to your retirement date go by quickly. Previously, we discussed the steps to take when you’re 12 months away from retirement. As we continue our Countdown to Retirement series, let’s take a look at what you should be doing eight months out.

Eight Months Out: Review Retirement Income

Some experts say that you need 80 percent of your pre-retirement income to maintain your standard of living once you stop working. There’s a good chance that your NYSLRS pension alone won’t provide that level of income. With retirement lasting 20 years, 25 years or even longer, it’s important to have a plan in place for the extra income you’ll need.

That’s why, at least eight months before your planned retirement date, you should start reviewing any other income you’ll have available. Some common sources include:

Check out our Straight Talk About Financial Planning for Your Retirement publication for monthly income and expense worksheets to help you assess your retirement finances.
Countdown to Retirement - Eight Months Out

Counting Down

Your planned retirement date is less than a year away. As the day gets closer, check out the rest of our Countdown to Retirement series for posts covering your retirement budget, what we accept as proof of your date of birth, what to do after you’ve filed your Application for Service Retirement (RS6037) and more.

Retirement and your credit score

Retirement and Your Credit Score

Throughout your working years, you strived to maintain good credit. But if you’re retired, or about to retire, is a good credit score that important? The answer is yes, according to many financial experts.  You don’t want to be burdened with debt in your retirement years, but you may need to get a get a car loan or refinance a mortgage. A good credit score will assure you can borrow the money at a decent interest rate.

But your credit score can affect you even if you don’t borrow money. A bad credit score could prevent you from landing a job or renting an apartment. It could even force you to pay higher insurance premiums.

Fortunately, maintaining a good credit score is not that difficult. In most cases, it’s a matter of continuing what you’ve already been doing.
Retirement and your credit score

How to Maintain a Good Credit Score

  • Pay your bills on time. Your payment history accounts for about a third of your credit score.
  • Don’t max out your credit cards. The ratio of debt to available credit is also a big factor. If all your credit cards have balances near the limit, your credit score will suffer.
  • Don’t close credit card accounts you’ve had for a long time. These accounts show your long history of being responsible with credit, helping to boost your score.
  • Charge something. Getting off the credit grid entirely can hurt your rating. So use a credit card regularly for some purchases. If you pay off the balance each month, you’ll avoid interest.
  • Check credit reports. Even if you’re doing everything right, misinformation in the files of credit rating companies can hurt your credit. (And, no, requesting a credit report will not hurt your credit score.)

Things like age and salary are not part of the credit score equation, so being retired does not hurt your score.  However, lenders do take income into account when you apply for a loan, so you may find it harder to borrow after retirement, even if you have good credit.

Checking Credit Reports

Under federal law, the three nationwide credit reporting companies are required to provide you with a free credit report once every 12 months. But you must request it. You can do it online at www.annualcreditreport.com or by calling 1-877-322-8228. (AnnualCreditReport, a website maintained by the three major credit reporting agencies, is the only free-credit-report site authorized by the federal government. Beware of impostor sites.)

Now is a Good Time to Review Your Retirement Savings

Saving for retirement? Under Internal Revenue Service (IRS) rules, you’ll be allowed to contribute more to your retirement savings account during 2019.

If you’re having part of your pay deposited directly into an employer-sponsored retirement savings account, such as New York State Deferred Compensation, you’ll be able to contribute up to $19,000 next year. That’s up from $18,500 for 2018. If you’re over 50, catch-up provisions allow you to save up to $25,000. The old limit was $24,500.

Even if you’re nowhere near the contribution limit, this is good time to review your retirement savings strategy. Are you saving enough to meet your retirement goals? Can you save more in 2019? And if you aren’t saving for retirement, now’s the best time to start.

Review Your Retirement Savings

Why Save for Retirement?

Financial experts say you’ll need 70 to 80 percent of your pre-retirement income to maintain your lifestyle during retirement. Retirement savings can supplement your NYSLRS pension and Social Security, helping you reach that goal. Retirement savings can also 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.

Getting Started

For New York State employees and many other NYSLRS members, there’s an easy way to get started. If you work for a participating employer, you can join the New York State Deferred Compensation Plan. If you are a NYSLRS member but do not work for New York State, check with your employer to see if you are eligible. (Deferred Comp is not affiliated with NYSLRS.)

Once you sign up for Deferred Comp, your contributions will automatically be deducted from your paycheck and deposited into your account. You can choose from a variety of investment packages or choose your own investment strategy.

With a tax-deferred savings plan, the impact on your paycheck will be less than the amount going into your account. (Deferred Comp even has a calculator to help you estimate the impact.)

You may also eligible for a Roth account, which lets you make contributions in after-tax dollars. In exchange for paying taxes upfront, your savings grow tax-free and you pay no taxes when you withdraw the funds in retirement. This approach may be advantageous for younger workers in lower tax brackets.

Countdown to Retirement — 12 Months Out

Once you decide to retire and begin preparing, the final months leading up to your retirement date go by quickly. Previously, we discussed the steps to take when you’re 18 months away from retirement. As we continue our Countdown to Retirement series, let’s take a look at what you should be doing 12 months out.

12 Months Out

Domestic Relations Order

Pensions earned during a marriage are considered marital property. So, if you divorce, you may need to split your retirement benefit with your ex-spouse. If you agreed to such a division, or if a court ordered you to share a portion of your pension benefits with your ex-spouse, now is the time to make sure NYSLRS has a valid domestic relations order (DRO) on file:

If you have a DRO, send it to our Matrimonial Bureau, which will review it for consistency with New York State law. If your DRO isn’t complete, visit our website for a NYSLRS-developed DRO template and tips to help the review process move more quickly. We’ll need certified photocopies of the final DRO and your judgement of divorce, before we can distribute any pension benefits to an ex-spouse.

This process can take some time, which is why you want to begin 12 months before you retire.

If you have questions about DROs, you can review our Guide to Domestic Relations Orders.

Review your health insurance coverage

NYSLRS doesn’t administer health insurance benefits, but they’re an important part of a financially secure retirement. Check with your health benefits administrator to determine what coverage you’re eligible for once you retire. Now is the time to investigate 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.

countdown to retirement - 12 months out

Counting Down

Your planned retirement date is just a year away. As it gets closer, check out the rest of our Countdown to Retirement series for steps to take eight months, four to six months and one to three months before your retirement date. If you have any questions, please contact us.

Retirees: Know Your Post-Retirement Earnings Limit

Retirees: Know Your Post-Retirement Earnings LimitAs a NYSLRS retiree, you can work for a public employer after retirement and still receive your pension, but there may be limits on how much you can earn.

Public employers include New York State, municipalities in the State (cities, counties, etc.), school districts and public authorities. If you’re self-employed or work for a private employer, another state, or the federal government, you can collect your full NYSLRS pension no matter how much you earn. (However, earnings for most disability retirees are limited whether they work for a public or private employer. To find out your earnings limit, please contact us.)

Two sections of New York State Retirement and Social Security Law (RSSL) apply to NYSLRS service retirees who return to work in the public sector.

Section 212: Earnings Limit

Section 212 of the RSSL allows retirees to earn up to $30,000 per calendar year from public employment. There is generally no earnings restriction beginning in the calendar year you turn 65. (Special rules apply to elected officials.) If you are under 65 and earn more than the Section 212 limit, you must:

  • Pay back, to NYSLRS, an amount equal to the retirement benefit you received after you reached the limit. And, if you continue to work, your retirement benefit will be suspended for the remainder of the calendar year.

OR

  • Rejoin NYSLRS, in which case your retirement benefit will be suspended.

Section 211: Employer Approval

Under Section 211, the earnings limit can be waived if your prospective employer gets prior approval. (In most cases, the New York State Department of Civil Service would be the approving agency.)

Section 211 approvals apply to a fixed period, normally up to two years. Approval is not automatic; it is based on the employer’s needs and your qualifications.

Before you decide to return to work, please, please read our publication, What If I Work After Retirement? If you still have questions or concerns, please contact us.