Many financial experts believe that you will need 70 to 80 percent of your pre-retirement income to maintain your standard of living once you retire. For NYSLRS members, a financial plan in retirement is likely to include your NYSLRS pension and Social Security benefits. To supplement your plan, it makes sense to add personal savings to the mix. Contributing to a deferred compensation plan to provide another source of retirement income is an option you should consider.
What is Deferred Compensation?
Deferred compensation plans are voluntary retirement savings plans like 401(k) or 403(b) plans, but designed and managed with public employees in mind. If you choose the traditional pre-tax option, the income you invest over the course of your career grows tax-deferred. That means you don’t pay State or federal tax on it until you begin collecting it in retirement.
The New York State Deferred Compensation Plan
The New York State Deferred Compensation Plan (NYSDCP) is the 457(b) plan created for New York State employees and employees of other participating public employers in New York.
When you participate in NYSDCP, your contributions are automatically deducted from each paycheck. NYSDCP offers both traditional pre-tax and Roth accounts, and you can create your own mix of these three investment options:
- Retirement-date fund. Mutual funds that automatically change investment strategies over time based on when you will turn 65.
- Do-it-yourself portfolio. Choose index mutual funds based on your investment strategy and tolerance for risk.
- Self-directed investment account. Transfer some of your plan balance to a brokerage account managed by an approved manager and pick and choose individual investments.
If you work for a local government employer, please check with your human resources office or benefit administrator to learn what plans are available.
What Does Deferred Compensation Mean For Me?
Deferring income from your take home pay may mean less money to spend in the short-term, but you’re planning ahead for your financial future.
You can enroll in a deferred compensation plan anytime — whether you’re approaching retirement or you just started working. Usually, the sooner you start saving, the better prepared you’ll be for retirement.
There are many ways to save for retirement. You may want to consult a financial planner, accountant or attorney for help developing a plan that best meets your needs.