When one reaches the age of retirement, he or she is generally quite pleased to finally find themselves in a much more agreeable financial position. No longer will long working hours be required to "make ends meet" and in return, life can take on a much more relaxed pace. This is largely due to the fact that workers have been contributing towards their retirement plans through pension funds and social security payments. In this day and age, these two additions alone may not be sufficient. This is one of the primary "gaps" which the NYS Deferred Compensation Plan (otherwise known as the NYSDCP) is able to address. What is this plan, how does it work and why can it be a great addition alongside more traditional means of retirement policies? Let us take a closer look.
The NYS Deferred Compensation Plan is a completely voluntary financial vehicle. It is designed to provide an extra source of liquidity to those who are concerned that their current retirement savings may not be sufficient in the future. This is a particularly useful strategy for those who may be retiring early, as funds can deplete over time. Within this plan, there are two ways to add to one's current retirement income. These are:
As the name suggests, all taxes are deferred until the policyholder begins to use the allocated funds. This is an excellent way to help lower one's taxable income. All contributions towards the NYS Deferred Compensation Plan are deducted from a salary (much like any other type of pension fund). This money is then set aside into the account for later use.
One must first sign up in order to begin the process. Some preliminary information will naturally be required. This will include:
Once approved, the applicant has a number of different investment options to choose from. The money accrued from these vehicles can be used in the form of benefit payments. We should once again note that this income is considered taxable under New York State law.
There are three different choices that the policyholder has in terms of investing. The first (and most predictable) option is known as a T. Rowe Price mutual fund. Investing into this security will enable the individual to reap the rewards once he or she turns 65 years old.
The second possibility is centred around a "do-it-yourself" approach. In simpler terms, those who are already familiar with investments or who are not averse to risk may elect this vehicle. Another option within this category is known as a Stable Income Fund. In essence, this is a plan that provides a moderate level of income with less chances of a capital loss. It is comprised of two methods:
The final option is known as a Self-Directed Management Account (SDIA). This enables the policyholder to transfer a portion of his or her savings into a separate account that is managed by Charles Schwab & Company. Such a variable is wise choice for those who may not be entirely familiar with the investment sector.
With any of these choices, the NYS Deferred Compensation Plan enables the individual to check the performance of his or her funds every 25 days. This can help anyone stay abreast of sudden movements and make necessary changes accordingly. Quarterly investment performance reports are also available. More information in regards to these options can be found by visiting the NYSDCP investment options page of the official website.
One defining metric of the NYS Deferred Compensation Plan is that there are a number of unique strategies which can be employed. This is often not the case with other options. However, it should be highlighted here that this package is primarily intended for those who work within the public sector. This includes all New York State employees as well as those who work for member agencies.
Another massive benefit with this policy is that one does not have to be approaching the age of retirement to begin saving. On the contrary, even those who have just entered into the workforce can sign up for the plan. An early start is normally associated with several unique benefits. First and foremost, more money will be accrued over time and this can help to provide a buffer when one finally does decide to retire. Secondly, the impact upon one's salary will seem much less noticeable when compared to larger contributions which would have otherwise needed to be taken out if one had started later in life.
Much like any other policy which requires regular contributions, some may find that these could be challenging when combined with Social Security payments and a standard retirement package. This plan may not be suited for those who desire a more liquid form of capital growth, as the investments tend to be naturally more conservative in their nature. Finally, this compensation policy is not normally available to those working within the private sector. It is geared towards state employees (or those working for state-affiliated companies).
So, we have seen that this compensation plan can be viewed as an addendum to a traditional 401k or similar retirement scheme. The primary benefit is that there can be a number of investment options based upon one's discrete needs. Additionally, all capital gains are deferred from taxation until they are withdrawn. This fund can be set up at any time; helping to lessen the required monthly contributions. Only a few basic pieces of information are required to begin the registration process. Finally, it may be possible to combine different retirement accounts into this plan.
As with any investment possibility, it is always wise to speak with a trained professional before making any permanent decisions. More information can be found by visiting nysdcp website.