Tag Archives: Retirement Savings

The 3-Legged Stool Approach to Retirement Confidence

As a NYSLRS member, your defined benefit pension plan is a good reason to be optimistic about your finances in retirement. Once you retire, your pension will provide monthly payments for the rest of your life. But there is more to a financially secure retirement than having a pension. Understanding all 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.

3-Legged Stool Approach to Retirement Confidence

Leg 1: Your NYSLRS Pension

At retirement, vested NYSLRS members are eligible for a pension based on their final average earnings and the number of years they’ve worked in public service. Your NYSLRS pension payments will continue for the rest of your life, no matter how long you live. Unlike workers who rely on 401(k)-style retirement plans, you won’t have to worry about this income running out.

Most members can estimate their pension in Retirement Online. But, if you’re a long way from retirement, it may be better to think in terms of earnings replacement. Financial advisers estimate you’ll need to replace 70 to 80 percent of your income to retire with confidence. Your pension can help get you there. For example, if you retire with 30 years of service, your NYSLRS pension could replace more than half of your earnings. (Pension benefits depend on your tier and retirement plan. Find your retirement plan publication to learn how your retirement benefit will be calculated.)

Leg 2: Social Security

Your Social Security benefit is another source of income to help support you in retirement. At Social Security’s full retirement age, your benefit can replace from about 75 percent for lower income earners to about 27 percent for higher income earners. Learn more about Social Security benefits  and visit the Social Security’s Plan for Retirement page to estimate your income.

Leg 3: Retirement Savings Can Boost Your Confidence

A lifetime pension and Social Security income will be substantial financial assets, but it’s still important to save for retirement. Healthy retirement savings will give you more flexibility to do the things you want to do in retirement. It can also help in case of an emergency and act as a hedge against inflation.

Your savings is the retirement factor you have the most control over. You decide when to start, how much to save and how to invest your money. The key is to start saving early so your money has time to grow, even if you can only afford to save a small amount in the beginning.

Eligible employees might consider saving with the New York State Deferred Compensation Plan (NYSDCP). Money gets deducted from your paycheck, so you won’t even have to think about it. NYSDCP is not affiliated with NYSLRS, but New York State employees and some municipal employees can participate. If you’re a municipal employee, ask your employer whether you’re eligible for NYSDCP or another retirement savings plan.

Supplement Your NYSLRS Pension with Retirement Savings

Your NYSLRS pension can provide a significant portion of your retirement income, but it’s also a good idea to supplement your pension and Social Security with a retirement savings account.

Retirement savings can be an important financial asset when you retire. Savings can enhance your retirement lifestyle and give you the flexibility to do the things you want. Your 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.

Set a Retirement Savings Goal

How much to save is a personal decision, but here are some things to consider.

Financial advisers often recommend saving 10 to 15 percent of your gross earnings throughout your career to retire comfortably. However, that advice is aimed at people with 401(k)-style defined contribution retirement plans as their main source of retirement income.

As a NYSLRS member, you’re part of a defined benefit plan, also known as a traditional pension plan. Your pension, based on your years of service and earnings, will provide a lifetime benefit. You can estimate your pension in Retirement Online to get an idea of the income it will provide in retirement.

Having a pension means you may not need to save as much as someone with only a 401(k). Use a retirement savings calculator to see how much a retirement savings plan could yield over time, or test the results of different savings amounts.

Below you can see potential savings results of someone who invests 50 dollars every two weeks over 30 years. While the stock market can be turbulent over the long term, stock market returns average about 10 percent a year.

Saving for Retirement

As you get closer to retirement, you should develop a plan to withdraw money from your retirement savings. A withdrawal plan will give you a better idea of the income you might expect from your nest egg.

Here is one possible withdrawal strategy, which was designed to provide retirement income for 20 years. Please note, if your retirement is far in the future, the money you withdraw may not have the same value that it has today. However, while inflation has been high recently, it does cycle and has been lower in the past.

Withdrawing from Retirement Savings

If you find you’ll need to save more to meet your goal, you can make adjustments to help ensure you’ll have enough savings in retirement.

Deferred Compensation – A Way to Save

State employees and many municipal employees are eligible to save for retirement through the New York State Deferred Compensation Plan. Once you’ve signed up, your retirement savings, which may be tax-deferred, depending on your plan, will be automatically deducted from your paycheck. (The Deferred Compensation Plan is not affiliated with NYSLRS.)

Check with your employer’s human resources or personnel office to see if they participate in the Deferred Compensation Plan or if they offer other savings options.

Read More About Retirement Savings

You can find more information about saving for retirement in these posts:

Are You Prepared for a Long Retirement?

As you plan for retirement, you need to think about your sources of income in retirement. However, you should also consider how long your retirement income will need to last.

Longer Life Span, Longer Retirement

These days, a 55-year-old man can expect to live for another 27.4 years, to about 82. A 55-year-old woman can expect to live for more than 30 years. These figures, derived from the Social Security life expectancy calculator, are only averages. They don’t account for factors such as health, lifestyle or family medical history.

life expectancy statistics to help plan for a long retirement

Here are some other statistics worth considering as you plan for retirement (as of the State fiscal year that ended March 31, 2022):

  • More than 37,000 NYSLRS retirees were over 85 years old;
  • More than 3,500 had passed the 95-year mark; and
  • 401 NYSLRS’ retirees were 101 or older.

Considering that many public employees can retire as early as 55, it’s possible that a fair number of them could have retirements that last 45 years or more.

Saving for a Long Retirement

Your NYSLRS pension is one source of income that you can depend on however long your retirement lasts. Employees’ Retirement System (ERS) members who retired in fiscal year 2022 are receiving an average monthly pension of $2,748. Social Security is another long-term source. The average Social Security benefit for a retired worker was $1,837 a month, as of June 2023.

Your retirement savings is a crucial asset that can supplement your pension and Social Security. In a long retirement, savings can help with rising costs and provide a source of cash in an emergency.

It is never too late to start saving for retirement. The New York State Deferred Compensation Plan is one easy way to get started. It’s a program created for New York State employees and employees of participating public agencies. If you’re a municipal employee, ask your employer if you’re eligible for the Deferred Compensation Plan or another retirement savings plan. (The New York State Deferred Compensation Plan is not affiliated with NYSLRS.)

You should also visit our Start Saving for Retirement page. You’ll find an example of how much you can save over a 30-year period, and a sample withdrawal strategy designed to provide retirement income for 20 years.

Your NYSLRS Pension Benefit

Your NYSLRS pension is a lifetime benefit that will provide monthly payments throughout your retirement. Get a head start on your retirement planning and estimate your pension in Retirement Online.

The 3-Legged Stool: An Approach to Retirement Confidence

As a NYSLRS member, your defined benefit pension plan is a good reason to be optimistic about your finances when you retire. 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.

retirement confidence

Leg 1: Your NYSLRS Pension

At retirement, vested NYSLRS members are eligible for a pension based on their final average earnings and the number of years they’ve worked in public service. Your NYSLRS pension provides you with a monthly payment for the rest of your life, no matter how long you live. Unlike workers who rely on a 401(k)-style retirement plan, you won’t have to worry about this income running out.

Most members can use Retirement Online to estimate how much their pension will be. But, if you’re a long way from retirement, it may be better to think in terms of earnings replacement. Financial advisers estimate you’ll need to replace 70 to 80 percent of your income to retire with confidence. Your pension can help get you there. For example, if you retire with 30 years of service, your NYSLRS pension could replace more than half of your earnings. (Pension benefits depend on your tier and retirement plan. Look up your retirement plan publication to find out how your retirement benefit will be calculated.)

Leg 2: Social Security

Your Social Security benefit is another source of income to help support you in retirement. It replaces a percentage of your pre-retirement income. At full retirement age, your social security benefit can replace from about 75 percent for lower income earners to about 27 percent for higher income earners. Visit Social Security’s Plan for Retirement page to estimate your income and learn more about your benefit.

Leg 3: Retirement Savings Can Boost Your Confidence

A lifetime pension and Social Security income will be substantial financial assets, but it’s still important to save for retirement. A healthy retirement savings will give you more flexibility during retirement, helping to ensure that you’ll be able to do the things you want to do. It can also help in case of an emergency and act as a hedge against inflation.

Saving is the retirement factor you have the most control over. You decide when to start, how much to save and how to invest your money. The key is to start saving early so your money has time to grow, even if you can only afford to save a small amount in the beginning.

Eligible employees might consider saving with the New York State Deferred Compensation Plan (NYSDCP). Money gets deducted from your paycheck so you won’t even have to think about it. NYSDCP is not affiliated with NYSLRS, but New York State employees and some municipal employees can participate. If you’re a municipal employee, ask your employer whether you’re eligible for NYSDCP or another retirement savings plan.

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.

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.

ERS Tier 6 Benefits – A Closer Look

Financial advisers say you will need to replace between 70 and 80 percent of your salary to maintain your lifestyle after retirement. Your NYSLRS pension could go a long way in helping you reach that goal, especially when combined with your Social Security benefit and your own retirement savings. Here’s a look at how Employees’ Retirement System (ERS) members in Tier 6 (who are vested once they’ve earned five years of credited service), can reach that goal. Members who joined NYSLRS since April 1, 2012 are in Tier 6.

formula for a financially secure retirement

Calculating an ERS Tier 6 Member’s Pension

Your NYSLRS pension will be based on your Final Average Earnings (FAE) and the number of years you work in public service. FAE is the average of the five highest-paid consecutive years. Note: The law limits the FAE of all members who joined on or after June 17, 1971. For example, for most members, if your earnings increase significantly through the years used in your FAE, some of those earnings may not be used toward your pension.  

Although ERS members can generally retire as early as age 55 with reduced benefits, the full retirement age for Tier 6 members is age 63.

For ERS Tier 6 members in regular plans (Article 15), the benefit is 1.66 percent of your FAE for each full year you work, up to 20 years. At 20 years, the benefit equals 1.75 percent per year for a total of 35 percent. After 20 years, the benefit grows to 2 percent per year for each additional year of service. (Benefit calculations for members of the Police and Fire Retirement System and ERS members in special plans vary based on plan.)

Say you begin your career at age 28 and work full-time until your full retirement age of 63. That’s 35 years of service credit. You’d get 35 percent of your FAE for the first 20 years, plus 30 percent for the last 15 years, for a total benefit that would replace 65 percent of your salary. If you didn’t start until age 38, you’d get 45 percent of your FAE at 63.

Examples of ERS Tier 6 Pension Calculation

So, that’s how your NYSLRS pension can help you get started with your post-retirement income. Now, let’s look at what the addition of Social Security and your own savings can do to help you reach your retirement goal.

Other Sources of Post-Retirement Income

Social Security: According to the Social Security Administration, Social Security currently replaces about 40 percent of the wages of a typical worker who retires at full retirement age. In the future, these percentages may change, but you should still factor it in to your post-retirement income.

Your Savings: Retirement savings can also replace a portion of your income. How much, of course, depends on how much you save. The key is to start saving early so your money has time to grow. New York State employees and some municipal employees can participate in the New York State Deferred Compensation Plan. If you haven’t already looked into Deferred Compensation, you might consider doing so now.

Taxes After Retirement

Estimating your post-retirement expenses is crucial to effective retirement planning, and it’s important to remember that taxes are also part of that equation. Most retirees pay less in taxes than when they were working, partly because their incomes are lower. But there are other reasons why your tax burden may be lighter after you stop working.

taxes after retirement

New York State Taxes

As a NYSLRS retiree, your pension will not be subject to New York State or local 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) of your gross earnings 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 from Social Security taxes. Of course, if you get a paying job after retirement, Social Security and Medicare taxes will be deducted from your paycheck.

Once you turn 65, you may be able to claim a larger standard deduction on your federal tax return.

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

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.)