Tag Archives: Information is the Key

Retirement Myths vs Facts

Common Retirement Myths

retirement myths versus facts

Retirement law can be confusing. Sometimes a small misunderstanding can have a big impact on your benefit. That’s why it’s important to correct some common retirement myths. Here are the top five:

Retirement Myth #1

myth

My NYSLRS contributions go into a personal 401(k)-style savings account that I will get when I retire.

fact

NYSLRS is a defined benefit plan. Your pension will be based on your earnings and years of service  — it will not be based on your contributions.

Retirement Myth #2

myth

If I work for more than one NYSLRS participating employer, the service credit from both will count toward my pension benefit.

fact

It depends. You can only earn one year of service credit in a 12-month period. If you work part-time for two participating employers, you would receive credit toward retirement from both, up to the maximum of one year. However, if you already work full-time for one NYSLRS employer plus you work part-time for another employer, your part-time job won’t increase your retirement service credit. Also, if you are a full-time employee of a school district, you won’t earn extra service credit if you work during the summer.

Retirement Myth #3

myth

NYSLRS administers health insurance coverage for its retirees.

fact

NYSLRS does not administer health insurance programs. We may deduct premiums from a retiree’s monthly pension benefit to pay for health insurance coverage if their former employer instructs us to do so, but we can’t answer questions about coverage or changes in premium amounts.

The New York State Department of Civil Service administers the New York State Health Insurance Program (NYSHIP) for New York State retirees and some municipal retirees. If you are still working, your employer’s human resources (personnel) office should be able to answer your questions about post-retirement coverage.

Retirement Myth #4

myth

I can take out a NYSLRS loan after I retire.

fact

You need to actively work for New York State or a participating employer to borrow against your retirement contributions. NYSLRS loans are not available to retirees.

Retirement Myth #5

myth

If I’m vested and no longer working for a public employer, NYSLRS will automatically start paying my pension as soon as I’m eligible.

fact

Your pension is not automatic. You must apply for retirement 15 to 90 days before your retirement date. Your retirement date is up to you. Most NYSLRS members can begin collecting their pension as early as age 55. If you retire between age 55 and your full retirement age (62 of 63, depending on your tier and plan), you may face a permanent benefit reduction. If you have left public employment though, your benefit won’t increase after you reach full retirement age, so delaying retirement beyond that point can cost you money.


You can find more answers about your NYSLRS benefits in your retirement plan publication. If you have account-specific questions, please message our customer service representatives using our secure contact form.

Designating Beneficiaries: An Important Decision

When you joined NYSLRS, you may have named one or more beneficiaries to receive certain benefits if you die.

NYSLRS retirement plans provide death benefits for beneficiaries of eligible members who die before retiring. The “ordinary death benefit” is paid to the beneficiary or beneficiaries that you designated, so it’s important to review periodically to make sure your choices reflect your current wishes. For example, if you just married, you may want to update your NYSLRS account information to name your new spouse as your beneficiary.

Types of Beneficiaries

 There are two types of beneficiaries — primary and contingent beneficiaries:

  • Your primary beneficiary will receive any payable ordinary death benefit. You can list more than one primary beneficiary. If you do, they would share the benefit equally. Or, you can choose different percentages for each beneficiary that total 100 percent. (Example: John Doe, 50 percent; Jane Doe, 25 percent; and Mary Doe, 25 percent.)
  • contingent beneficiary will only receive the benefit if all your primary beneficiaries die before you do. If you list multiple contingent beneficiaries, they will share the benefit equally unless you choose different percentages.

Special Beneficiary Designations

Your beneficiary doesn’t have to be a person. You can name a charity, a trust or your estate as your beneficiary.

designating beneficiaries

When you die, your estate is the money and property you owned. Your death benefit will be given to the executor of your estate to be distributed according to the terms of your will. You can name your estate as the primary or contingent beneficiary of your death benefit. If you name your estate as the primary beneficiary, do not name a contingent beneficiary.

You can name a trust as a primary or contingent beneficiary if you have a trust agreement or provided for a trust in your will. The trust itself would be your NYSLRS beneficiary, not the individuals for whom you established the trust. (You may want to speak with your attorney if you’re thinking about making your trust a beneficiary.)

You can also name any charitable, civic, religious, educational or health-related organization as a beneficiary.

If your beneficiary is a minor child (under age 18) at the time of your death, your benefit will be paid to the child’s court-appointed guardian. You may instead choose a custodian to receive the benefit on the child’s behalf under the Uniform Transfers to Minors Act (UTMA). Custodians can be designated in Retirement Online or you can contact us for more information and the appropriate form before making this type of designation.

Updating Your Beneficiaries

You can change your beneficiaries at any time. You should also review your named beneficiaries to make sure their contact information is up to date.

  • The fastest way to view or update your beneficiaries is in Retirement Online. You can add beneficiaries, update beneficiary information or remove beneficiaries. Sign in, then click “Manage My Beneficiaries” on the right, under “I want to ….”
  • You can also complete and mail us a Designation of Beneficiary form (RS5127). Read the instructions on the form before entering your preferences. Be sure to include all your beneficiaries on the form. Your new beneficiary designations will replace all your previously named beneficiaries. Though your designations will need to be reviewed and approved, your updated beneficiary information becomes effective when we receive your properly completed, signed and notarized form.

More Information

You can read more about beneficiary designations in our Life Changes: Why Should I Designate a Beneficiary? publication. If you have questions, please contact us.

If you are retired, you may wish to read our blog post Can You Change Your Beneficiary After You Retire?

Age Milestones for Retirement Planning

age milestones

Whether you’re 22 or 52, you should be planning for retirement. Your NYSLRS retirement benefits will be based on your tier, years of service and final average earnings. For most members, age is also an important factor in your NYSLRS benefits and it’s a factor for Social Security and retirement savings strategies as well. So, as you plan for retirement, consider these age milestones.

Age Milestones

Under 50: It’s never too early to start saving for retirement. Even modest savings can add up over time as investment returns grow and interest compounds.

50: The Age 50 and Over Catch-Up provision allows you to save more pre-tax dollars in a retirement account starting in the calendar year in which you turn 50.

55: The earliest age most NYSLRS members can begin collecting a service retirement benefit. (This does not apply to members in special retirement plans.) Your pension may be permanently reduced if you retire before your full retirement age.

59½: The age you can start withdrawing money from a tax-deferred retirement savings plan, such as an IRA, without facing a potential federal tax penalty. (The penalty does not apply to New York State Deferred Compensation Plan savings if you are retired or have left public service.)

62: Full retirement age for your NYSLRS benefit if you are in Tier 2, 3, 4 and 5 or PFRS Tier 6. Earliest age you can begin collecting a Social Security pension, but the benefit would be reduced. For more information about Social Security, read When to Start Receiving Retirement Benefits.

63: Full retirement age for your NYSLRS benefit if you are in ERS Tier 6.

65: Age most people are eligible for Medicare benefits.

66: Full retirement age for Social Security if you were born from 1943 through 1954. Add two months for each year from 1955 through 1959.

67: Full retirement age for Social Security if you were born in 1960 or later.

70: If you do not take your Social Security benefit, your benefit will increase each year until you reach age 70. Delaying Social Security after 70 will not increase your benefit.

73: Generally, if you have tax-deferred retirement savings and are no longer working, you must begin withdrawing some of this money when you reach a certain age. Under a recent change in federal law, you must start taking “minimum required distributions” at age 73. The minimum age had been 72, and the change does not affect those who turned 72 before the end of 2022. This age milestone will increase to 75 in 2033. Required minimum distributions do not apply to your NYSLRS retirement benefits.

One Last Number: Having a rough idea of your life expectancy is essential to retirement planning.

Compounding: A Great Way for Your Money to Grow

Financial security doesn’t just happen; it takes planning … and time. You know you can count on your pension income in retirement. But if you want to improve your chances of a financially secure retirement, you should have a retirement savings plan. The sooner you do that, the better, because it’s important to start saving and investing early so your money has time to grow.

When you invest in a retirement savings plan such as an IRA or 457(b), you earn a return on your investment, and your returns are compounded. That means your money increases in value by earning returns on both the original amount and accumulated profits. This is a little different from earning simple interest. Let’s see how they both work.

the power of compounding interest

How Simple Interest Works

In banking, simple interest is a certain percentage you are paid on the money you put in your account. With simple interest, the amount of interest you earn is based on the original (or principal) amount of the deposit.

Let’s say you opened a savings account and deposit $1,000 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 each year. At the end of one year, you’d have $1,050. That’s $50 more than the principal amount you started with. With simple interest, the interest you earn every year would still be based on the principal amount of $1,000 — no compounding.

How Compounding Works

With compounding, your initial investment plus your earnings are reinvested. If you earn the same 5 percent, with compounding, it’s applied to the full balance of your account. So, you would still have that $1,050 at the end of the first year, but by the end of the second year you’d have $1,102.50 in your account instead of $1,100.

In this example, that’s just a difference of $2.50, but, over time, compounding can mean a difference of hundreds or thousands of dollars.

If you’re thinking about boosting your personal savings for retirement, look for accounts that use compounding. For example, 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. The sooner you can start saving, the more time your money has to grow.

Other Sources:
How to Calculate Simple and Compound Interest

Welcome, New Members

Welcome new members to 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 nearly 1.2 million members, retirees and beneficiaries, NYSLRS is one of the largest public retirement systems in the nation.

NYSLRS is here to help you plan a financially secure retirement. Retirement may seem like a distant concern, but decisions you make now will have a big impact on your post-work life. Here are a few things you should do now as a new member:

Checklist for New Members

new members checklist

Learn About Defined Benefit Plans

Your NYSLRS pension is a defined benefit plan. This means that, once you are eligible and apply for retirement, you are guaranteed a monthly pension payment for the rest of your life. The amount of your payments will be calculated using a formula set by State law.

Defined benefit plans should not be confused with 401(k)-style retirement savings plans, which are known as defined contribution plans. The value of these plans is limited to the contributions made to an individual’s account and the investment returns on those contributions. And, unlike your NYSLRS pension, these plans do not guarantee a lifetime benefit.

While a 401(k)-style retirement savings plan can supplement a pension and Social Security benefits, it does not provide the same level of financial security as a defined benefit plan.

Sign Up for Retirement Online

If you haven’t already, sign up for a Retirement Online account. You can use Retirement Online to look up your estimated total service credit, name a beneficiary for your death benefit, purchase past service credit and more. This online tool will be an important resource throughout your career, especially as you plan for retirement when you can use our benefit calculator to estimate your pension.

Find Your Retirement Plan Publication

Your retirement plan publication is an essential resource that provides comprehensive information about your NYSLRS benefits. You can look up your specific plan using our Find Your NYSLRS Retirement Plan Publication tool. All you need is your benefit plan code and Tier, which you can find in Retirement Online.

Designate a Beneficiary

Your retirement plan provides you with a death benefit, so it’s important that you designate a beneficiary or beneficiaries. You can designate a beneficiary or beneficiaries through Retirement Online or by mailing us a Designation of Beneficiary form (RS5127).

Understand Service Credit

Your NYSLRS pension will be based on factors such as your tierretirement planage at retirementfinal average earnings and your 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. If you worked for a public employer or served in the U.S. armed forces before you were a member of NYSLRS, you may be eligible to receive credit for that past service. Because it is a major factor in calculating a NYSLRS pension, additional service credit would increase your pension in most cases. You can request this service through Retirement Online or by mailing us a Request to Purchase Service Credit (Including any Military Service) form (RS5042).

Start Saving for Retirement

Your pension is only one part of a secure financial future. It’s a good idea to save additional money for retirement. Healthy retirement savings will give you more flexibility to do the things you want to do in retirement. They also can be a hedge against inflation and a source of cash in an emergency. You don’t want to wait to start saving; the sooner you do, the more time your money has to grow.

More Information

Visit our Welcome New Members page for more information about NYSLRS and your benefits.

Tier 3 & 4 Members: When Is The Right Time To Retire?

Tier 3 and 4 members in the Article 15 retirement plan qualify for retirement benefits after they’ve earned five years of credited service. Once you’re vested, you have a right to a NYSLRS retirement benefit — even if you leave public employment. Though your pension is guaranteed, the amount of your pension depends on several factors, including when you retire. Here is some information that can help you determine the right time to retire.

Three Reasons to Keep Working

  1. Tier 3 and 4 members can claim their benefits as early as age 55, but they’ll face a significant penalty for early retirement – up to a 27 percent reduction in their pension. Early retirement reductions are prorated by month, so the penalty is reduced as you get closer to full retirement age. At 62, you can retire with full benefits. (Tier 3 and 4 Employees’ Retirement System (ERS) members who are in the Article 15 retirement plan and can retire between the ages of 55 and 62 without penalty once they have 30 years of service credit.)
  2. Your final average earnings (FAE) are a significant factor in the calculation of your pension benefit. Since working longer usually means a higher FAE, continued public employment can increase your pension.
  3. The other part of your retirement calculation is your service credit. More service credit can earn you a larger pension benefit, and, after 20 years, it also gets you a better pension formula. For Tier 3 and 4 members, if you retire with less than 20 years of service, the formula is FAE × 1.66% × years of service. Between 20 and 30 years, the formula becomes FAE × 2.00% × years of service. After 30 years of service, your pension benefit continues to increase at a rate of 1.5 percent of FAE for each year of service.

When is the Right Time to Retire infographic

 

If You’re Not Working, Here’s Something to Consider

Everyone’s situation is unique. For example, if you’re vested and no longer work for a public employer, and you don’t think you will again, taking your pension at 55 might make sense. When you do the math, full benefits at age 62 will take 19 years to match the money you’d have received retiring at age 55 — even with the reduction.

An Online Tool to Help You Make Your Decision

Most members can use Retirement Online to estimate their pensions.

A Retirement Online estimate is based on the most up-to-date information we have on file for you. You can enter different retirement dates to see how those choices would affect your benefit, which could help you determine the right time to retire. When you’re done, you can print your pension estimate or save it for future reference.

If you are unable to use our online pension calculator, please contact us to request a pension estimate.

This post has focused on Tier 3 and 4 members. To see how retirement age affects members in other tiers, visit our About Benefit Reductions page.

Dual Membership in NYSLRS

The New York State and Local Retirement System (NYSLRS) consists of two retirement systems: the Employees’ Retirement System (ERS) and the Police and Fire Retirement System (PFRS). Your job title determines what system you’re in. In some cases, however, it’s possible to have a dual membership, to be a member of both systems.

How Does Dual Membership Work?

dual membership in NYSLRSLet’s say you work as a firefighter, so you’re a member of PFRS. You decide to take on a part-time job as a bus driver for your local school district. Your school district participates in ERS, so you’re eligible for ERS membership. You fill out the membership application, and now you’re a member of both ERS and PFRS. The date you join each system determines your tier in each membership.

Implications of Dual Membership

As a member of both systems, you’d have separate membership accounts. Let’s look again at our fire-fighting bus driver example. While working as a firefighter, you make any required contributions and earn service credit toward your PFRS pension only. The same is true for your work as a bus driver—your required contributions and earned service credit only go toward your ERS pension, not your PFRS pension.

There are other implications to dual membership. Assuming you’re vested in both memberships and meet the service credit and age requirements, you could retire and collect a pension from both systems. You’d need to file separate retirement applications for ERS and PFRS, and we’d calculate each pension separately. We’d calculate your ERS pension using the final average earnings (FAE) you earned as a bus driver and your PFRS pension using the FAE from your time as a firefighter.

And, since you’d have both an ERS pension and a PFRS pension, you would need to choose a beneficiary for each in the event of your death.

Questions?

You’ll want to make sure to know the details of your retirement plan in each system. If you have questions about dual membership, or want to discuss your particular situation when you decide to retire, please contact us.

Retirement Planning Tip: Required Minimum Distributions

Required Minimum DistributionsIf you have tax-deferred retirement savings (such as certain 457(b) plans offered by NYS Deferred Comp), you will eventually have to start withdrawing that money. After you turn 70½, you’ll be subject to a federal law requiring that you withdraw a certain amount from your account each year. If you don’t make the required withdrawals, called Required Minimum Distributions (RMDs), you could face significant penalties.

RMDs are never eligible for rollover into other retirement accounts. You must take out the money and pay the taxes.

Calculating the Distribution

The RMD amount must be calculated annually. It’s based on the account’s balance at the end of the previous calendar year and the life expectancy of you and your beneficiary. Check out AARP’s Required Minimum Distribution Calculator for an easy way to determine your required distributions. Many retirement plan administrators, including the New York State Deferred Compensation Plan, will inform you of your RMD amount, but it’s your responsibility to take the required distribution.

Potential Penalty

If you don’t take the required distribution, or if you withdraw less than the required amount, you may have to pay a 50 percent tax on the amount that was not distributed. (You must report the undistributed amount on your federal tax return and file IRS Form 5329.)

The IRS may waive the penalty if you can show that your failure was due to a “reasonable error” or that you have taken steps to correct the situation. You can find information about requesting a waiver on page 8 of the Form 5329 instructions.

What Accounts Require Minimum Distributions?

Most retirement accounts you’re familiar with require these annual withdrawals:

  • 457(b) plans
  • IRAs (traditional, SEP and SIMPLE)
  • 401(k) plans
  • 403(b) plans
  • Profit-sharing plans
  • Money purchase plans

Since contributions to Roth IRAs have already been taxed, the IRS does not require distributions from Roth IRAs at any age.

As with most things investment-related, a lot depends on your particular circumstances. If you have questions, contact your financial advisor or your plan administrator.

Tier 6 FAS Limits (ERS)

 

 

First, a year of earnings in the FAS period can’t exceed the average of the previous four year’s earnings by more than 10 percent. Anything beyond that will not be included in the pension calculation.

Additionally, several types of payments will not be part of the FAS calculation for ERS Tier 6 members:

  • Lump-sum vacation pay,
  • Wages from more than two employers,
  • Payment for unused sick leave,
  • Payments for working during a vacation,
  • Any payments that cause your annual salary to exceed that of the Governor (currently $179,000),
  • Termination pay,
  • Payments made in anticipation of retirement,
  • Lump-sum payments for deferred compensation and
  • Any payments made for time not worked.

Generally speaking, here’s what an ERS Tier 6 FAS will include: regular salary, holiday pay, overtime pay (regular and noncompensatory) earned in the FAS period and up to one longevity payment per year, if earned in the FAS period.

Overtime Limits

While overtime pay generally is part of an ERS Tier 6 FAS, the amount that can be included is limited. The limit is adjusted for inflation each year based on the change in the Consumer Price Index over the one-year period ending September 30 of the previous year. Under a new law, beginning January 1, 2018, the Tier 6 limit will be updated on a calendar year basis instead of on a fiscal year basis.

The 2018 calendar year overtime limit for Tier 6 members is $16,406.

For more information about the Tier 6 FAS, find your retirement plan booklet on our Publications page, or check out our Final Average Salary and Overtime Limits for Tier 6 pages.

Top Five Pre-Retirement Goals for NYSLRS Members in 2018

January is a great time to set goals for the coming year. And setting pre-retirement goals is crucial in planning for a successful retirement. Here are five goals to consider for 2018:

Plan ahead for retirement

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. An important part of developing a savings plan is to start early. The sooner you start saving, the more time your money has to grow. Check out our Weekly Investment Plan chart to see how a weekly investment can grow by age 65.

2. Track your expenses and income. Tracking your current expenses for a month or two will give you a better idea of how much you’re likely to spend in retirement and how much you’ll need to supplement your pension. Use the expense and income worksheets on our website to create a retirement budget. Be sure to include periodic expenses, such as car insurance and property taxes.

3. Request a pension estimate. If you’re within 18 months of your anticipated retirement date, it’s a good idea to request an estimate of what your retirement benefit will be. You can do this by sending us an email using our secure contact form or by calling 1-866-805-0990 (518-474-7736 in the Albany, NY area). If you are not certain that you’ve received credit for all your public service in New York State, you can submit a Request for Estimate form (RS6030) and be sure to provide detailed information about your public employment in section eight of the form. If your planned retirement date is farther away, you may want to use our online Benefit Calculator. This estimates your pension based on information you provide, so have your Member Annual Statement handy before you start, or sign in to your Retirement Online account to check your current service credit.

4. Pay off any NYSLRS loans. An outstanding loan balance at retirement will permanently reduce your NYSLRS retirement benefit. You cannot make loan payments after you retire, and the pension reduction does not go away after we recover the balance of the loan. Visit the Loans page on our website for information about making additional payments or increasing your loan payment amount.

5. Consider seeking the advice of a financial planner. Financial planners don’t manage your money, but can help you assess your present financial condition and develop a practical plan to meet your specific goals and needs. Also consider doing your own research by seeking Do-It-Yourself financial planning guides on the web.

If you ever have any retirement-related questions, please contact us.