If you are a state employee, teacher, or school worker, you must participate in one of two retirement plans. Both plans offer lifetime pensions when you retire and have low-cost, traditional, and Roth savings options. But most people need to be saving more for their retirement. As a result, some states are enacting mandatory retirement programs to help bridge the gap for workers who don’t have access to employer-sponsored retirement plans.
Tax-Deferred Savings
Tax-deferred savings is essential for your future because it lowers the taxes you owe while working. It can also help you save for retirement if you can afford to put away more than the maximum amount. One of the easiest ways to start retirement savings is with a 401(k) or other employer-sponsored plans. This is because contributions to these plans are pre-tax, and many employers match their employees’ contributions to state retirement plan up to a certain percentage. Another benefit of tax-deferred savings is that you can compound your money, which means that any earnings you receive on investments will continue to grow and add to the value of your account. The power of compounding is a powerful tool that helps you build a nest egg for the future. Finally, tax-advantaged funds, such as the 529 Plan, allow you to set aside pre-tax income and withdraw it tax-free when it comes time to pay for qualified educational expenses. These plans will enable you to save for college, K-12 private school tuition, apprenticeships, and other academic fees.
Social Security
Many workers must realize that Social Security is essential to their retirement income. This program provides monthly payments to workers, their surviving spouses, children, and disabled dependents. Unlike many private pension plans, Social Security is a defined benefit plan. That means you will get a monthly check for the rest of your life, no matter how long you live. It’s also a guaranteed payment that keeps up with inflation. This helps ensure people do not fall into poverty during their retirement years. The amount of your Social Security retirement benefit is based on the number of years you worked and the wages you earned. The higher your earnings, the more you’ll receive in benefits.
Guaranteed Income
Unlike other retirement savings, your contributions to your state pension plan are tax-deferred. These funds are then invested in the Pension Reserves Investment Trust (PRIT), which earns interest on your money. The amount of your monthly annuity depends on your age, years of service, and salary at retirement. Guaranteed income programs differ from existing public benefit programs in one fundamental way: they provide direct, recurring cash payments directly to recipients that can be used as they see fit—to cover housing, childcare, food, and other household expenses.
More money in retirement
One of the biggest reasons people retire in their 60s is that they need to save more. A recent Employee Benefit Research Institute survey found that many retirees have less than $1,000 in savings, and about half have less than $500. In addition, Social Security retirement benefits will replace only about 40% of your pre-retirement earnings — you’ll need to supplement your retirement income with a pension, savings, or investments. Fortunately, state-sponsored retirement plans are popping up in several states nationwide to help people save for retirement. Whether you work for the government or are self-employed, these programs could make a big difference in your financial future.
Whether you’re a state employee, a university employee, or a public sector retiree, you’ll need to plan for retirement. You’ll want to consider your savings, income sources, healthcare costs, and the impact of inflation. The key to building a solid financial plan is saving and investing discipline. But life isn’t a straight road, and your plan must include flexibility. You may also need to adjust your retirement withdrawal rate when the markets are volatile or experience a significant setback in your personal life. An excellent flexible retirement plan will allow you to make adjustments when necessary, and discussing the issue with your financial professional is a good idea.
Investing
State retirement systems typically rely on investments to fund benefits. They use these assets to deliver a benefits package tailored to meet an individual’s needs, intending to provide a secure, lifetime retirement income. The adequacy of a state pension plan’s contributions to keep costs low depends on many factors, including the state’s policy regarding how quickly to pay down unfunded liabilities and its actuarial assumptions about investment returns. States can evaluate their plan’s funding adequacy using data such as actuarial reports, financial statements, employee benefits handbooks, and experience studies. While some states face persistent challenges with their pension systems, others have achieved a more stable funding trajectory. These “top tier” states, which collectively have kept their pension plans well funded over the past decade, have policies that help them manage cost volatility and avoid the trade-offs between annual budgets and plan balance sheets that other states have faced during volatile economic downturns.
