Tag Archives: retirement planning

Retroactive payments

Retroactive Payments and Your NYSLRS Pension

Retroactive Payments

Retroactive payments are lump sum payments you receive from your employer. These payments can be from new union contracts, arbitration awards or legal settlements that took place while you were on your employer’s payroll.

Your final average salary (FAS) is a major factor in your pension benefit calculation. Your FAS is the average of your three (five for Tier 6 members) highest consecutive years of earnings. For most people, their highest years of earnings come at the end of their careers.

If you receive a retroactive payment from your employer, it could affect your final average salary. Let’s look at how.

How Retroactive Payments Can Affect Your Benefit

When we calculate your FAS at retirement, retroactive payments are applied to the pay periods when they were earned, not when they were paid. In general, retroactive payments can increase your FAS as long as the time period in which you earned that money is part of the time period your FAS is based on.

Your employer should let us know if you receive a retroactive payment before or after you retire. If you are a State employee who receives a retroactive payment after you retire, we will recalculate your pension automatically; you do not need to notify us. If you receive a retroactive payment from a non-State employer after your pension calculation is finalized, send a letter to our Recalculation Unit in the Benefit Calculations & Disbursement Services Bureau. Please include a copy of your check stub and/or any correspondence you received from your employer. You may also email and upload this information to the Retirement System through our secure contact form.

For more information about FAS, read our Final Average Salary blog post. You can also find out specific information about your FAS by reading your retirement plan booklet, available on our Publications page.

Planning for an Unplanned Retirement

Retirement comes too soon for some people. Poor health, an injury, family situations, layoffs and other unforeseen circumstances could force you into an unplanned retirement.

unplanned retirement

You may already have a plan based on the date you would like to retire, but do you have a backup plan if that date comes a few years earlier than expected?

Know Your Benefits

As a NYSLRS member, you’re entitled to benefits that may help. Most vested members can begin collecting a lifetime pension as early as age 55, though your benefit may be permanently reduced if you retire before full retirement age. (Full retirement age for NYSLRS members is either 62 or 63, depending on your tier. Full retirement age for Social Security benefits depends on your year of birth.)

If you can no longer do your job because of a physical and mental condition, you may be eligible for a Social Security Disability, or a NYSLRS disability benefit if your disability is permanent.

You may also want to look into Workers’ Compensation if you are injured on the job or Unemployment Insurance if you have been laid off from a position.

Other Ways to Plan for the Unexpected

Doing your homework is important. The more you understand the potential benefits available to you, the better you can estimate your income if you are forced to retire early. Unfortunately, the numbers you come up with may not be enough when dealing with an unplanned retirement.

But one potential source of income can make a big difference: retirement savings. Your savings could help you get by until you are eligible to collect your NYSLRS pension or another retirement benefit. If you are not saving for retirement, consider starting now. And if you are saving, consider increasing your savings. It could become a lifeline if the unexpected happens.

New York State employees and some municipal employees can also save for retirement through the New York State Deferred Compensation Plan. Ask your employer if you are eligible.

For more information about the benefits offered by your NYSLRS retirement plan, visit our website to read your plan publication.

Power of Attorney

Power of AttorneyThe NYSLRS Special Durable Power of Attorney form allows you to designate someone else to act on your behalf regarding retirement benefit transactions. The person you designate, referred to as an “agent,” could be your spouse, another family member or a trusted friend.

Why is this important? Under normal circumstances, NYSLRS won’t release your benefit information to anyone else without your permission — even to your spouse. With a power of attorney (POA) on file, we would be able to discuss your benefits with the agent you appointed.

The NYSLRS POA form is specific to retirement transactions and meets all New York State legal requirements. You may want to designate a power of attorney in case of emergency, hospitalization or unexpected illness, but you don’t have to wait until something happens before you file a NYSLRS POA form.

What Can Your Agent Do?

The NYSLRS form is for a “durable” POA, which means the person you designate can act for you if you become incapacitated. But the NYSLRS POA form only covers Retirement System transactions. It does not authorize your agent to make health care decisions for you or make changes to your Deferred Compensation plan.

Your agent can get account-specific information about your benefits by phone, email or mail. Your agent can request copies of documents in your retirement file or update your address or phone number. If you are still an active member, your agent can also take out a NYSLRS loan or file a retirement application for you. If you are retired, the agent can change the amount of taxes withheld from your pension.

Special Authority

If you use NYSLRS POA form, and your agent is your spouse, domestic partner, parent or child, they will have “gifting authority.” That means they can direct deposit money into a joint bank account, designate or change your death benefit beneficiaries, or choose a retirement payment option that provides for a beneficiary after your death.

If you wish to assign gifting authority to an agent who is not your spouse, domestic partner, parent or child, you must indicate that you want your agent to have the ability to designate him or herself as a beneficiary. This can be done in the “Modifications” section of the NYSLRS POA form.

Find Out More

A power of attorney is a powerful document. Once you appoint someone, that person may act on your behalf with or without your consent. We strongly urge you to consult an attorney before you execute this document.

You can also find information on the Power of Attorney page on our website.

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.

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.

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.

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 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.)

Popular Blog Posts of 2018

Before we say goodbye to 2018, let’s take a look back at a few of the year’s most popular blog posts.

most popular posts of 2018

NYSLRS Basics: Final Average Salary

For NYSLRS members, the formulas used to calculate our pension benefits are based on two main factors: service credit and final average salary. While service credit is fairly straightforward — it’s generally the years of service you’ve spent working for a participating employer — what is a final average salary (FAS)?

Will Your Retirement Age Affect Your Benefit?

Some special plans allow NYSLRS members to retire after 20 or 25 years with no pension reduction. However, most of us have a choice to make: wait until the full retirement age specified by their plans or retire as early as age 55. It’s an important decision; those who retire early may receive a permanently reduced pension benefit.

Federal Withholding and Your Pension

Retirees: While your NYSLRS pension is not taxed by New York State, it is still subject to federal income tax. If your tax bill is larger than expected, or if you’ve been getting a hefty tax refund regularly, you may want to adjust the federal withholding from your NYSLRS pension. Follow these step-by-step instructions.

NYSLRS — One Tier at a Time: ERS Tiers 3 & 4

Many Tier 3 and 4 members of the Employees’ Retirement System (ERS) are eligible to retire under the same retirement plan, so we often think about them together. According to our most recent numbers, the combined tiers make up nearly 60 percent of ERS members — by far the largest segment. Here is a quick look at the benefits these members may receive before and after retirement.

Age Milestones for Retirement Planning

Even with a defined-benefit plan like you receive through NYSLRS, retirement planning is not a one-time task. Whether you’re reviewing your NYSLRS benefits or other retirement matters (like Medicare coverage or required minimum distributions), there are important considerations at almost every age leading up to retirement — and even in the years that follow.