State Retirement and Pension Plans – What Happens When You Retire?

If you plan to retire, knowing what will happen when you do is essential. Whether you’re retiring from state employment or another source of retirement income, you must understand your pension plan and your rights as a retiree.

Your benefits will depend on your plan type and the years of service you’ve earned. You’ll also need to consider inflation and long-term care expenses.

Your Benefits

Your age determines your benefits under the state retirement and pension plan, the type of pension you select, and the number of years of service you have. You can decide whether to distribute your finite savings in a lump payment or as a monthly retirement benefit.

You can estimate your retirement amount in minutes using a personalized benefit estimator in your online account or learn more about how your pension is calculated. You can also check on cost-of-living increases and other changes to your assistance, including when you’ll start getting a pension check.

If you retire with 30 or more years of creditable service and are at least age 65, you can collect a full pension. If you retire in less than 30 years, you’ll receive reduced assistance.

In addition, you can have your pension increased every year on January 1 following your first full year of retirement if you are at least 67. The increase is 3% of the consumer price index for that year, whichever is lower.

Depending on your circumstances, you can also receive a refund of your contributions. It is an option that can be a great way to save money if you plan to move on to another job after your state career ends.

You can choose to collect your retirement benefit in monthly or lump sum form, and you can choose to purchase a guaranteed income annuity. These options turn your finite savings into a lifetime income.

Your Pension

You will receive a monthly pension payment from SERS or an annuity if you have selected an option that allows for that. The benefit you receive is based on the amount of service credit you earn each year, and it’s indexed to inflation.

The 401(k) and 403(b) plans are defined contribution plans that let employees save money with tax-deductible contributions. Employers and unions set up these plans but are optional to do so.

If you work in the private sector, the Pension Benefit Guaranty Corporation (PBGC) guarantees your employer’s pension. But private-sector annuities have some risks, including the company or union going out of business.

In addition, if the company and its pension fail to pay out your expected benefits, you could lose your retirement income. That’s why it’s essential to know your pension’s financial health and take steps to protect it from a financial crisis.

Unlike private-sector plans, government pensions are not federally insured. However, the Employee Retirement Security Act (ERISA) requires that they follow specific rules for their program.

If you have a pension, consider using it as part of your retirement savings. You can also invest your pension money, which can help you earn a higher interest rate, or use it to purchase an annuity that will provide you with a fixed income for the rest of your life.

Your Health Care Spending Account (HCSA)

During your retirement, you can use pre-tax money to pay for eligible medical expenses through the HCSA. It’s an essential financial tool, especially for high-cost medical services like dental and vision care.

Depending on your employer’s plan, you may also use FSA funds to cover certain out-of-pocket health care costs, such as copayments and deductibles. It’s a great way to reduce out-of-pocket healthcare costs during retirement, allowing you to keep more earnings for retirement savings.

You can set aside pre-tax dollars in an HSA for a self-only, spouse, or child’s health care needs. This account also offers triple-tax-free growth, making it a valuable addition to your retirement savings plan.

For example, if you have a family deductible in your medical insurance and contribute $3,550 to your HSA, you can withdraw tax-free money for qualifying medical expenses. You can even invest the money, which will grow tax-deferred.

Similarly, you can set money aside pre-tax for dependent care and adoption expenses with an FSA. Estimate your out-of-pocket costs for these benefits during open enrollment and choose your desired contribution level. Once you’re enrolled, the amount is automatically deducted from your paycheck each pay period, and you can use it to pay for qualified expenses.

Your Dependent Care Assistance Program (DCAP)

Care for children or other dependents ranks among many families’ highest costs. A Dependent Care Assistance Program (DCAP)  allows you to cover these costs by setting aside pre-tax dollars.

The DCAP allows you to set aside up to $5,000 a year, $2,500 for married couples filing separately. You can use your money to pay for child and elder care expenses like daycare, nursery school, nanny fees, home health aid services, or care for a disabled family member.

You must submit reimbursement claims for eligible expenses during the plan year to use the funds. You can submit a claim online by using email or mail.

When you enroll in the DCAP, you need to estimate your care costs for the year. Then you can choose how much your salary to put in your DCAP account.

Your payroll deductions begin in the first paycheck following the start of the plan year, January 1. You must spend your DCAP funds before December 31, or you will forfeit any unused funds.

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