How to Make the Most of Your Government Retirement Plan
As the capital city of a highly populated state, many state employees live and work in the Albany area. Roughly 40 percent of the population has someone in their household that works for the government, and as such, they're a part of a government retirement plan. But when the time comes, how can you be sure you're making the most it?
The Capital Region is Economically Stable
The region is home to significant economic activity, with a booming tech sector in particular. Over 1 million people live in the New York State capital and the surrounding region, and this growing population has seen $40 billion in investments over the past decade. Employment opportunities in this strong economy include technology, government, higher education, and more.
Still, the cost of living for the Albany area is about 1 percent below the national average. And compared to other cities, state employee residents of the area are able to put more of their earnings to work for them. Capitalizing on the combination of a strong economy and low cost of living can help to boost your future in retirement. Here's how to make the most of your government retirement plan.
Know Your Retirement Plan
With future state retirees making up a sizeable portion of the local population and a reasonable cost of living, how can state employees make the most of their retirement plan? The first step is to understand your retirement system fully. New York State employees have a retirement program that features various tiers based on the year that the person entered employment. The tier system can be quite complex with different contributions, benefits, and vesting rules based on one's tier.
The New York State and Local Retirement System notes that there are over 650,000 employee members, mostly comprised of those in Tiers 3, 4, and 6. These tiers are somewhat similar, except while both 3 and 4 call for a 3 percent employee contribution, Tier 6 contribution varies based on wages. For example, under Tier 6, an employee earning more than $100,000 contributes 6 percent.
Add Some Power to Your Retirement With an IRA
Since benefits are mostly the same under each plan, it is generally more advantageous to be in a lower tier. So, if you are among the 60 percent of employees in Tiers 3 and 4, you can speed up retirement savings by increasing the amount you contribute. An individual retirement account (IRA) is one of the easiest and most impactful ways to put your state employee income to work for you in retirement.
There are two main types of IRA accounts: traditional and Roth. Both allow account holders to contribute up to $5,500 per year and can provide a boost to a government retirement plan. The critical difference between these two is whether your contributions are pre-tax or post-tax. With a traditional IRA, you may be able to deduct contributions from your income, deferring earnings until retirement. A Roth IRA allows for potential tax-free treatment of growth, and withdrawals during retirement, as long as certain conditions are met.
While Albany-area state employees are fortunate to have a robust state retirement system, the combination of a strong economy and reasonable cost of living create an ideal environment for retirement savings. Make the most of your state retirement plan, and be on the lookout for ways to increase your secure footing upon retirement with a traditional or Roth IRA.