NYPD Pension Plan, is it Enough?

Working as a New York City police officer means you are one part of one of the few groups left in America that will retire and be paid a monthly pension that your employer sponsors. While that’s great news for you, you’ll still need to comprehend your retirement options since there you’ll have plenty of planning to do along the way.

New York City police officers are one of the groups that fall under the New York State and Local Retirement System (NYSLRS), meaning your retirement options come from a defined benefit plan. The amount of money you’ll receive each month once you retire can vary because several items determine your pension amount. These items include your service credit, your tier, your age when you retire, and your retirement plan.

While you have the advantage of knowing you’ll get a defined benefit plan once you retire, you’ll still need to plan for your retirement. Retirement is a serious life change and one of the most vital adjustments you’ll experience during your lifetime. Planning for your retirement will help you decrease any anxiety or uncertainty about your retirement years. Thus, if you start planning for your retirement now, you’ll receive the right information and equipment so you can make the best decisions concerning your retirement. Planning means you’ll be well-prepared for your retirement.

Organize a Timeframe

Organizing a timeframe before you retire will allow you to make the appropriate decisions before you retire. Creating an income timeline while considering your NYPD retirement pension will let you prepare for this life transition and know if you need to make other investments. Keep in mind that NYPD retirement pensions do not receive the cost of living adjustments like other retirements, so you’ll need to be prepared for that outcome. If you plan on retiring a little earlier in life, you’ll want to ensure that your NYPD retirement plan and pension meet your needs.

As you start planning for retirement as an NYPD officer, you’ll need to consider different factors as you assess your retirement strategy. One way to start a plan is to compare your take-home pay nowadays and how you live while still active in your career. So, you’ll need to monitor your static pension number and assess your planned retirement date. Also, you’ll need to consider inflation when planning for retirement. If you watch these numbers over a five-year timeframe, you’ll be able to assess what you’ll need once you qualify for your monthly pension if you want to keep your current lifestyle.

Assessing Your Options

You should start your retirement planning process by assessing your options and figuring out what benefits you have. NYPD’s retirement plans are based on a tier system. The different tiers offer varying benefits and utilize different savings strategies. If you are using tier 2 of the NYPD retirement system, you’ll have a few more choices to consider.

The NYPD retirement system allows officers to contribute money to their pensions by utilizing the ITHP (“Increased Take Home Pay” and fifty-percent indicator riders. The ITHP option means you can overfund your pension if you wish by adding five percent more of your salary before taxes into your fund. The fifty-percent indicator means officers can overfund their retirements using fifty percent of their designated contribution rates, but this happens after-taxes. So, as an NYPD officer, you’ll need to decide where you want to defer your money and how much goes to your pension, and how much goes into your deferred compensation. The newest tier option, tier 3, does not offer the capability to add extra cash to your pension. So, officers with the tier 3 plan typically put their money into their Deferred Comp.

Most NYPD officers contribute to their retirement accounts depending on how much they can afford to invest while working. Your career as an NYPD officer gives you clarity on your yearly income, making it easier to plan for retirement. Unless you are injured, it’s unlikely your annual income will be less than the year prior. Typically, every year, your annual salary will increase. Thus, the NYPD career path makes planning your salary and retirement contributions more predictable than other professions.

As soon as you graduate from the NYPD academy, you can assess how much you’ll make yearly and how much of every paycheck you get you can afford to put toward your retirement. A good standard to set in place is to try to put in a little more than you think you can from the beginning of your career. If you can do that, you’ll learn better budgeting strategies but still be on track to having a decent amount in retirement.

After you assess your retirement savings strategy and know how much you will contribute, you may wonder where you should begin. Unfortunately, there is no one-size-fits-all strategy for everybody. Still, we can make some suggestions to help you consider the right things to plan correctly.

Tier 2

If you are on a tier 2 plan and you are trying to figure out where you want your retirement contributions filtered, below we number the best options based on their efficiency:

1.     If you use the ITHP Rider, put money into your pension at five percent of your pre-tax salary.

2.     Next, your 457 deferred compensation will allow you to invest nineteen thousand pre-tax dollars per year. Once you reach fifty, you can invest twenty-five thousand each year.

3.     You can also invest in a 401(k) plan with your deferred compensation, using nineteen thousand dollars yearly of your pre-tax income. Once you reach fifty, you can contribute up to twenty-five thousand yearly.

4.     If you use the fifty percent indicator, you can put 3-4.5% of your after-tax salary into your plan, depending on your overall contribution rate.

Tier 3

If you are on a tier 3 plan and you are planning for retirement, we’ve numbered your best choices again based on efficiency:

1.     Your 457 deferred compensation allows you to put up to nineteen thousand pre-tax dollars per year into your retirement. Once you reach age fifty, you can invest up to twenty-five thousand.

2.     You can use your 401(k) for your deferred compensation as well. If you opt for this, you can put up to twenty-five grand yearly into your plan regardless of age.

As you can see, the tier 2 plan offers more options, but both tiers allow you to defer plenty of money and plan for your retirement. As soon as you assess what you want to defer and what you can afford, it would be best if you stuck with your pre-tax choices to continue the savings process. As soon as you figure that out, you’ll be able to defer what you want without feeling much stress on your monthly payments while you are still working.

Tier 2 plans begin with the ITHP selection, meaning you can defer five percent more of your income before taxes and put it into your pension. The money you invest into your pension will continue to grow at a rate of 8.25%, which is guaranteed to you. So, you are already getting a great return on your retirement investment without incurring any of the usual risks. Once you start putting money into your tier 2 pension, you should do as much as possible to max out your 457 option. Since the 457 option is a pre-tax contribution choice, you won’t get a guaranteed return on your deferred compensation, but it will help you diversify your portfolio over time.

As you work over the years, you’ll start noticing that you are earning more. That means it may be easier to defer more income as you increasingly near your retirement age. If you want to contribute more money, you can opt for either the fifty percent indicator or keep using your deferred compensation and put your money into your 401(k).

The other two options under tier 2 are very similar. The major difference is that one is tax-deferred, and the other happens post-tax. So, whichever one of these options is best for you will be determined based on your goals.

If you are retiring on a tier 3 plan, you have fewer options, making your choices less complex. So, it would be best if you started with your 457. Once you max that selection out, you can move money into your 401(k). After you max out your 457 and put around ten percent of your income into your 401(k), you can defer about the same amount of income as an individual on tier 2 can using ITHP, the fifty percent indicator, and the 457. If you are on the tier 3 plan, you do not get the guaranteed 8.25% offered by the tier 2 pension. Still, you have enough choices to get about the same income once you retire.

Many retiring NYPD officers wonder about using the ROTH or traditional plan for their deferred compensation. As a general rule, if you assess the amount you can defer based on affordability, it’s almost always best to use a pre-tax ROTH instead of a traditional plan.

Once You Near Retirement

After you’ve put in years of hard work into your career, you should be ready to retire and enjoy your new phase of life. Once you are ready to end the anxiety of a police officer’s daily life, you want to ensure you’ve planned well enough to have little stress. Since you have several options to consider before retirement, you may want to talk to a good financial planner to ensure you have everything set-up to your best benefits before you retire. So, we encourage you to get help so that you can bolster your retirement plans and ensure you never run out of money.

As an NYPD officer, you’ve experienced many training, trials, and challenges throughout your life. Instead of making your retirement feel like a challenge, hiring an excellent financial planner can ensure that you have everything set-up before retirement. If you have questions about your NYPD retirement planning options, hiring a qualified wealth management firm can help you ensure you have plenty of money when you retire.

As you start planning for your retirement with a financial advisor, you may want to ask a few of the following questions?

1.     What are my best deferment options for my money?

2.     How much can I afford to defer each year?

3.     Am I allocating my investments appropriately?

4.     How many years will I need to serve?

5.     How much should I have in my retirement savings?

6.     How do I reach my retirement goals?

Asking the questions we’ve listed above can help you plan your timeline and figure out how much you should save. That way, you can attain the retirement lifestyle of your dreams. Remember, the sooner you start planning for retirement, the more money you’ll get to enjoy once you retire.

Since everybody is different and each NYPD officer nearing retirement has unique needs, you want to consider your familial situation and any other considerations when planning for retirement. For example, you may have a special needs child, or you may help out your elderly parents. Regardless of your retirement situation, figuring out your unique situation and needs can be accomplished correctly with an experienced financial planner.

You should hire a financial planner that understands the NYPD retirement system so that you can plan around your pension. With an experienced financial planner that understands your pension plan, you’ll become more educated about all of the components included with your retirement benefits. A good financial planner can also help you assess if you need other options and compose an effective timeline with you. You’ll also be able to consider any special financial circumstances or unique issues you’ll need to consider as you customize your plan.

Personalization is key when it comes to effective retirement planning. Luckily, with the right financial advisor, you can figure everything out early on, making it far less stressful once you plan on retiring.