For the past 28 years, the members of North Dakota United had a solid resource to turn to, on the subject of retirement and health insurance, right within their ranks. Sparb Collins, executive director of the North Dakota Public Employees Retirement System, and member of NDU, announced his retirement from public service, effective Oct. 31, 2017.
NDPERS and its Board are currently in the process of finding a new executive director. While that process is happening, Sharon Schiermeister, the chief operating officer of NDPERS, will also be taking on the role of interim director. She can be contacted at 701-328–3902 or firstname.lastname@example.org.
We couldn’t let Sparb go off into his well-earned retirement, though, without asking for his sage wisdom one last time. And so, Sparb very graciously put together the following guidelines, for both new and veteran staff in public employment, on what they should be doing to prepare for their own retirement. Without any further ado, here are Sparb’s tips for Looking Forward to Retirement.
Looking Forward to Retirement
When we are young, retirement seems to be a distant possibility. When we are older, retirement is no longer a distant possibility but rather an event that is closing in fast. So, when we are first starting our careers in public employment, or we are closer to the finish line, what should we be thinking about when we are looking forward to retirement?
When we are young, we need to think about the following:
- Employment. When looking for a job, we should consider not only the salary paid but also the type of retirement benefits an employer offers. Salary is the amount you are paid for current service, whereas the retirement benefit is what you earn for your future salary in retirement. For those of us working in public employment, we are fortunate that we have defined-benefit (DB) plans that will provide a predictable fixed income in retirement. Generally, the higher the multiplier, the higher the benefit (in the state plan & TFFR it is “2”).
Another type of retirement plan offered by employers is the defined-contribution (DC) plan. For DC plans, the amount the employer contributes, combined with the employee contribution, plus earnings is the amount you will have to retire. Generally, in these plans the higher the contribution, the better your retirement benefit.
Having employment that provides a good retirement plan is one of the major elements to having a successful retirement.
- Supplemental savings (to help pay health premiums and out of pocket expenses). These types of plans are called 457 or 403 plans, and they allow for saving for retirement on a pretax basis. Other individual plans available are IRAs or a Roth IRA. To be successful in these plans, the most important step is starting at a young age. Don’t worry about starting with a large contribution; the key is to just start. In the state plan, you can start at $25 per month. With the state plan, you will also vest in the employer contribution to the defined benefit plan at the level of your contribution, up to 4 percent of your salary. This means that if you do not stay with the state and go to other employment, you can take more of your employer contribution with you.
Also, the federal government offers what is called the saver credit. This allows individuals in certain income brackets to get a credit on their taxes of 50 percent, 20 percent or 10 percent on the amount they contribute.
Supplemental savings are important to a financially sound retirement.
- Investing. It is important to invest your money wisely, since the earnings will be a significant amount of funds in retirement. To get the best results, you should work with an advisor. In the state plan and many employer plans, retirement counselors are provided for the members without additional charge to assist. Take advantage of this resource so you can invest wisely.
When you are older, and closer to retirement age, you can think about the following:
- Start the above. If you did not start a supplemental savings plan when you were younger, start now. It is never too late to begin.
- Wait for Medicare. If you can, wait to retire until you are eligible for Medicare (age 65). Your total health premiums will be lower, and you will not need to expend your savings to pay the higher premium required by retiring early.
- Wait for Social Security. If you retire early (age 62) and take Social Security, your retirement benefit is reduced.
If you wait, your benefit increases by approximately 8 percent a year until age 70. Delaying retirement by three years, from age 62 to 65, can increase your monthly benefit for the remainder of your life by up to 24 percent. If you were unable to start a supplemental savings plan when you were younger or did not have retirement in some of your previous employment, you may want to consider working longer to increase your Social Security retirement monthly benefit. You need to start “Looking Forward to Retirement” at the beginning of your working career, if possible. In summary:
- Look for jobs that not only have a good salary but also a good retirement benefit.
- Start saving early, even if it is small amount.
- Don’t leave money behind by not taking advantage of incentives.
- Make sure you have a good investment plan that will create earnings for your retirement.
- Avoid retiring too early.