Tag Archives: tax-deferred savings plan

Give Your Retirement Savings a Boost

If you’re already building your retirement savings, you already understand how those savings, along with Social Security, work together with your pension to help provide financial stability in retirement. Financial advisors call this the “three-legged stool.”

But why not take it a step further and give your retirement savings a boost? Even a small increase could make a big difference over time, while having minimal impact on your take-home pay.

How much of a difference would it make? You can check it out yourself using this online calculator and your own salary and savings information. Calculate the impact of your current savings, then try the same calculation with an additional 1 percent of your earnings. For example, if you’re saving 5 percent of your pay, see what saving 6 percent would do by the time you expect to retire.

retirement savings

Impact on Your Paycheck

Fortunately, adding a small amount to your retirement savings won’t have a substantial impact on your paycheck. For example, if you’re making $60,000 a year, 1 percent is only $600. That’s just $50 a month or, if you are paid every other week, about $23 per payday.

The impact on your take-home pay would be even less if you save in a tax-deferred plan because you won’t have to pay income tax on those earnings until after you retire. The New York State Deferred Compensation Plan’s paycheck impact calculator can help you estimate how increased savings would affect your paycheck. (You don’t have to have a Deferred Compensation account to use their calculator. The New York State Deferred Compensation Plan is not affiliated with NYSLRS.)

When to Increase Retirement Savings?

The sooner you boost your savings, the better off you’ll be. But if you’re not ready to increase your savings right now, then try this: Schedule your increase to coincide with your next raise. That way, you may not even miss the money.

The Right Time to Start Saving for Retirement is Now

When should you start saving for retirement? If you aren’t saving already, right now is the best time to start. If your retirement is a long way off, that means you’ll have more time for your savings to grow. But even if you’re close to retirement, it is never too late to start saving.

Why Save for Retirement?

While retirees tend to spend less than they did while they were working, financial experts say you’ll still need 70 to 80 percent of your pre-retirement income to maintain your lifestyle during retirement.

NYSLRS members have the rare advantage of a well-funded, defined-benefit pension. As a NYSLRS member, once you’re vested, you’re entitled to a pension that, once you retire, will provide you with monthly payments for the rest of your life. Retirement savings can supplement your NYSLRS pension and Social Security, helping you reach that income-replacement 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. It can also provide peace of mind.

Saving for Retirement

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 don’t work for New York State, check with your employer to see if you are eligible. If you are not eligible, your employer may be able to direct you to an alternative retirement savings program.

Once you sign up for Deferred Compensation, 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. (The Deferred Compensation Plan is not affiliated with NYSLRS.)

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.

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.