Q.: I am a NYCERS member and plan to retire on July 1, 2022. At retirement I will be 65. I can't decide if I should take the final withdrawal/loan in conjunction with my retirement. What is your opinion? L.W.

A.: Should you decide against this withdrawal, you will receive an unreduced maximum fixed pension of $63,000 annually, which will die when you die. You may want to consider electing an option for the benefit of another person. The election of an option will reduce your pension.

That said, cops and firefighters may withdraw up to 90 percent of their Accumulated Deductions as their final withdrawal, while everyone else is limited to 75 percent. Let's assume you, as a NYCERS member, make a final withdrawal of $50,000. At age 65, your pension will be reduced by $83.42 for each $1,000 withdrawn. Your pension reduction will be calculated as follows: $83.42 X 50 = $4,171. As noted above, without the final withdrawal, your pension will be $63,000. The $63,000 is reduced by $4,171, to arrive at a reduced pension of $58,829. You will receive that amount for life. As stated above, you may want to consider electing an option for the benefit of another person. 

I advise, in most situations, to take the final withdrawal. Why? Some may simply need the money. If that's the case, the $50,000 becomes a taxable withdrawal. Should you not need the money, you should keep it in the retirement-financial planning boat, where taxes are deferred until Required Minimum Distributions kick in at age 72. This is accomplished by using the Direct Rollover option, transferring the taxable portion of the $50,000 into a NYCE Traditional IRA and the tax-free portion of the $50,000 into a NYCE Roth IRA.

Of Note: A pension payout is a single-edge saw, inasmuch as it guarantees a fixed income for life. On the other hand, an IRA is a double-edge saw, since it provides an opportunity for capital appreciation in addition to on-demand withdrawals. Most feel this is a sound trade-off, especially when you realize your reduced pension is 93.38 percent of your unreduced pension. Additionally, upon death any IRA balance goes to your designated beneficiary.

Now the question is: How should you invest your new IRA of $50,000? Before I respond, I must know much more about you and your financial aspirations.


Mr. Frank is a fee-only Retirement Financial Planner and a retired city high school Teacher of Accounting. He can be reached by phone at (732) 536-9472, or via email at rollover@optonline.net.


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(2) comments

WhiteSandyBeach

Is this the same a taking a loan against your pension? I remember back in the '90s at least, people used to say a person should take out a loan against their pension just before retiring. Can Mr. Frank comment on that?

JoelFrank

Yes this is the same thing as taking a loan against your pension.

Welcome to the discussion.

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