Over the years, when I ask city workers if they contribute to Deferred Comp, some say they wish they could but they just cannot afford to do so. I then ask if they save on a regular, longterm basis. Many do and have $50,000 or more in savings.

I then suggest they contribute 10 percent of their salary to Deferred Comp (Roth feature) and should they experience a shortfall, withdraw the amount needed from their savings account. Many report back that they are making ends meet without making withdrawals from their bank savings or withdrawing less than anticipated.

Those that follow this advice soon realize that the interest earned on a bank savings account is taxable income (even if not withdrawn), while the interest/gains earned on a Deferred Comp account is tax-deferred if pre-tax dollars are used, or tax-free if after-tax Roth dollars are used.

The economic recovery from the Great Recession is now in its 11th year. Stock prices are near all-time highs. The market has been going sideways since January 2018. This type of volatility is for stock pickers. One day the market is up and the next day it’s down.

The trade war with China adds to the uncertainty, something that the markets do not like. Many investors have the jitters. Do you? All this suggests that a recession is on the horizon. You may want to consider having one-third of your investment holdings in bonds.

Did you know that the maximum monthly Social Security Disability benefit is $2,800? Did you know that after two years of receiving Social Security disability checks, you automatically become a member of the Medicare program? Now you know why Social Security is super-popular with folks, regardless of age, who are receiving lifetime Social Security checks.

Q.: I’m a member of the NYCERS. I plan on taking a maximum loan when I retire at age 65. Will my pension be reduced?

A.: Yes, your pension will be reduced by $83.42 for each $1,000 of loan value. Assume your maximum loan is $50,000. 50 X $83.42 = $4,171. Your annual pension will be reduced by $4,171. Because the $50,000 loan is a taxable distribution, you have one of two ways to handle the distribution: (1) Pay the tax and do what you want with the remainder; (2) defer the tax by rolling over the $50,000 to an IRA or other qualified plan. I prefer option (2). What say you?

Note: Under option (2) you can roll over the $50,000 to a pre-tax retirement account or to an after-tax Roth account. Tax will be due if you roll over the $50,000 distribution to a Roth account.

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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