Tag Archives: Preparing for retirement

Financial Literacy and Retirement

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April is National Financial Literacy Month, a time dedicated to helping people make informed financial decisions and manage money effectively. Financial literacy means understanding and using skills such as budgeting, investing and managing your personal finances.  

Greater financial literacy generally translates into greater financial well-being, according to a recent report from the TIAA Institute-GFLEC Personal Finance Index. TIAA’s research also finds a connection between financial literacy and saving for retirement.

Financial Literacy and Retirement

Financial Literacy and Planning for Retirement

Increase your financial literacy and make a good plan for retirement by understanding your NYSLRS benefits, your other sources of retirement income and your current financial situation. Once you know where you stand, you’ll be in a better position to plan.

Understand Your NYSLRS Benefits

As a NYSLRS member, you are enrolled in a defined benefit plan, also known as a traditional pension plan. If you are vested and retire from NYSLRS, you will receive a monthly pension payment for the rest of your life. Your pension will be calculated using a formula based on your earnings and years of service, your retirement plan, and your tier. 

Find your retirement plan publication for comprehensive information about the benefits you are entitled to receive as a member of the Employees’ Retirement System (ERS) or the Police and Fire Retirement System (PFRS).

Depending on your tier and retirement plan, certain membership milestones will affect how your pension is calculated and how much you’ll receive at retirement. Read our milestones blog posts for general information about the retirement plans that cover most NYSLRS members:

Consider Other Sources of Retirement Income

Your pension will provide you with monthly payments for the rest of your life. But there is more to a financially secure retirement than having a pension. Understanding your potential sources of income will help you plan for your future and boost your retirement confidence. Think of retirement security as a three-legged stool. Each leg is a source of income to help support you when your working days are done.

The formula for a financially secure retirement

Retirement savings can be an important financial asset when you retire. Savings can provide money for you to travel, continue your education, pursue a hobby or start a business. The money you set aside can also be a resource in case of an emergency, act as a hedge against inflation and boost your retirement confidence.

Evaluate Your Current Financial Situation

Estimate Your Retirement Income

An estimate of your NYSLRS pension benefit is essential for effective retirement planning. Most members can create their own estimate in minutes using Retirement Online. Your estimate will be based on the most up-to-date account information we have on file for you. You can enter different retirement dates to see how those choices would affect your benefit.

There are also a variety of online calculators that can help you estimate the retirement income you might expect from Social Security or personal retirement savings.

Create a Budget

Use our Monthly Income & Expenses Worksheets to help you track your current spending habits and project your future needs. Remember to account for non-monthly expenses, such as car insurance, property taxes and school taxes.

Pay Down Your Debt

If you’re planning to retire soon, it’s a good idea to take inventory of any debt you owe. Debt is not necessarily bad but paying it down can give you more flexibility to enjoy the type of retirement you want.

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 your 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 NYLSRS Loan Balance Could Affect Your Pension

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

When you apply to retire using Retirement Online and have an outstanding NYSLRS loan balance, the pension reduction amounts are provided to you. They are also listed on the loan applications on our Forms page. If you are nearing retirement, be sure to check your loan balance. If you are not on track to 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 page.)

Although ERS members may repay their loan after retiring, they would have to pay the full balance that was due at retirement in a single lump sum payment. Then, going forward, the pension would be increased to the amount it would have been without the loan reduction. However, it would not be increased retroactively back to the date of retirement.

Other Debt to Check

Credit Cards

Another priority is paying off credit cards. Credit card statements carry a minimum payment warning that tells 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 you pay as much as you can on the card with the highest interest, while making at least the minimum payments on lower-interest cards. Once you’ve paid off the high-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 is to gain a sense of accomplishment, and make the process seem less daunting.

Mortgages

Should you try to pay off your mortgage before you retire? Advice varies on that question. 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.

Making Loan Payments When You Leave Public Employment

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To repay a NYSLRS loan, you make loan payments automatically through payroll deductions. But what happens if you go off the public payroll before the loan is paid off?

The answer is…it depends. If you leave your job because you’re retiring, then your pension will be reduced. (Employees’ Retirement System members may repay their loan after retiring, but they must pay the full balance in a single payment.)

However, if you leave public employment for any other reason, you must make loan payments directly to NYSLRS at least quarterly and pay off your loan balance within five years from the date the loan was issued. If you fail to meet either of these conditions, your loan will go into default.

You will still need to repay the outstanding balance to NYSLRS, and the loan will continue to accrue interest and insurance charges until it’s paid in full.

loan payments when you leave public employment

What Happens If My Loan Defaults?

If your loan defaults, NYSLRS will report your outstanding balance, minus any previously taxed amount, to the Internal Revenue Service (IRS) as a distribution to you. You must also include the loan on your federal income tax return for the year it defaults. (If it was taxable before default, you will not be re-taxed on that portion of the loan.)

If you’re younger than 59½ in the year the loan defaults, the IRS will charge an additional 10 percent penalty on the taxable portion of the loan. (There are no New York State or local taxes due on the distribution.)

We also cannot issue a new loan until the defaulted loan has been repaid.

Managing Your Loan Payments

If you leave public employment, contact us as soon as possible. We’ll tell you the exact amount you’ll need to repay each quarter to avoid defaulting.

Retirement Online offers a convenient way to manage your NYSLRS loan. Sign in to check your balance. You can also use Retirement Online to make quarterly loan payments or pay off the balance. If you don’t have an account, sign up today.

If you mail your loan payments by check, be sure to write “loan payment” on your check and include your NYSLRS ID number so we can apply it to the correct account. Mail payments to:

NYSLRS
Attn: Accounts Receivable
110 State Street
Albany, NY 12244-0001

Retirement Age and Your NYSLRS Pension

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For some NYSLRS members, your retirement age matters when it comes to receiving your NYSLRS retirement benefits.

Your pension will be based largely on your years of service and final average earnings, but your age at retirement is also a factor. How age plays into the equation depends on your tier and retirement plan.

Members in regular retirement plans can retire as early as age 55, but they may face significant pension reductions if they retire before their full retirement age. The full retirement age for members in most tiers is 62, and it’s 63 for Employees’ Retirement System (ERS) Tier 6 members and for Police and Fire Retirement System (PFRS) Tier 6 members who leave public employment before retirement age, but have enough service to receive a pension. If you joined NYSLRS on or after April 1, 2012, you are in Tier 6.

pension reductions based on retirement age

Benefit reductions are prorated by month. The closer you are to your full retirement age when you retire, the less the reduction will be. Here are some examples of how that would work.

  • ERS Tiers 2, 3 and 4, PFRS Tiers 2, 3 (Article 11), 5 and 6: If you retire at age 58 1/2, your pension will be permanently reduced by 16.5 percent.
  • ERS Tier 5: If you retire at age 58 1/2, your pension will be permanently reduced by 20.83 percent.
  • ERS Tier 6: If you retire at age 58 1/2, your pension will be permanently reduced by 29.5 percent.

Once you retire with a reduced benefit, the reduction is permanent — it does not end when you reach retirement age.

Retirement Age Exceptions

Tier 1 members can retire at 55 without a benefit reduction. Benefit reductions don’t apply to ERS Tier 2, 3 or 4 members if they retire with 30 years of service. Tier 5 Uniformed Court Officers and Peace Officers employed by the Unified Court System can also retire between 55 and 62 without penalty if they have 30 years of service.

More Information

Understanding how age affects your NYSLRS benefits is crucial to retirement planning. To learn more, please review your retirement plan booklet on our Publications page.

You can check your service credit total and estimate your pension using Retirement Online. Most members can use our online pension calculator to create an estimate based on the salary and service information NYSLRS has on file for them. You can enter different retirement dates to see how your choices would affect your potential benefit.

A Guide for Retirees

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Our publication A Guide for Retirees is a valuable resource to read if you’re retired or planning to retire soon. This guide details the continuing benefits and services NYSLRS provides for its retirees.

What’s Inside A Guide for Retirees?

The first section of A Guide for Retirees outlines your benefits in clear, straightforward language. It provides an estimate of when to expect your first pension check, along with a couple reminders to help avert any delay in your payment. There’s also a brief description of how we calculate your benefit and information about what to do if you believe your benefit was calculated incorrectly.

Your NYSLRS retirement benefit will provide you with monthly payments for the rest of your life. But that doesn’t mean the amount of your pension won’t change. For example, your benefit will increase once you are eligible for a cost-of-living adjustment. Signing up for Medicare or getting a divorce can also change your benefit amount.

The booklet also describes benefits that your survivors may be eligible for, such as the post-retirement death benefit.

A Guide for Retirees

Services We Offer

A Guide for Retirees describes services NYSLRS provides for retirees, including:

  • Retirement Online. A fast and secure way to do business with NYSLRS.
  • Automated Information Line. You can call 24 hours a day, seven days a week to request a form, check your COLA eligibility, get general tax information and more.
  • Direct Deposit. Have your pension deposited directly into your bank account.
  • Pension Verification Letters. You can create your own in Retirement Online or we can send one at your request.
  • Individual Consultations. You can discuss your benefits with one of our information representatives in person or over the phone.

Your Obligations

Your benefits come with certain responsibilities. Most importantly, you need to let us know if your address changes. Even if you’re getting your pension through direct deposit, we need to have your correct address so we can send you tax documents and other important information.

This section also reminds you to keep your beneficiary information current, contact us if your check is lost or stolen, and review your withholding regularly.

Other Publications

Read our recent blog posts about other NYSLRS publications:

Five and Ten Year Pension Payment Options

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NYSLRS pension payment options are designed to fit your needs after you retire. Understanding these options will make it easier for you to choose the one that’s right for you.

While the basic option, the Single Life Allowance, would provide you with a monthly payment for the rest of your life, all payments would end at your death. Other options, in exchange for a reduced benefit, allow you to provide for a spouse or other loved one after you’re gone.

Five and Ten Year Certain options don’t provide a lifetime benefit for a beneficiary, but they have advantages you may want to consider.

pension payment options

How These Pension Payment Options Work

The Five Year Certain or Ten Year Certain options provide you with a reduced monthly benefit for your lifetime. If you die within the five- or ten-year period after your retirement, your beneficiary would receive pension payments for the remainder of the five or ten years. If you live beyond the five- or ten-year period, your beneficiary would not receive a pension benefit upon your death.

Let’s say you choose the Five Year option. If you die two years after retiring, your beneficiary will receive a benefit for three years. If you choose the Ten Year option, and die after two years, your beneficiary will get a benefit for eight years. In either case, your beneficiary would receive the same amount you were receiving, though they would not be eligible for any COLA increases.

Another feature of these plans is that you can change the beneficiary at any time within the five- or ten-year period.

Whatever your situation, you should review the payment options and choose carefully. Visit our Payment Option Descriptions page for details about all available pension payment options. For a better idea of how these payment options would work out for you and your beneficiary, try our online Benefit Calculator.