State of Florida Employees

 

Find Out More About Your State Retirement Plan

First and foremost, the retirement foundation for State employees is the State of Florida Retirement System, better known as FRS (Florida Retirement System). From police to firefighters to teachers along with a large group of many other employee classifications, state employees who are full-time qualify for this retirement benefit. Offering two pension choices known as the Pension Plan, which is a defined benefit plan and the Investment Plan, a defined contribution plan, employees must understand the benefits of each. Which one is best suited for the employee and why? 

In planning for your retirement after working for 25-40 years in the State system a financial and mathematical approach should be taken before making any decisions. Regardless of which plan offering one selects, there will be substantial money that you will most likely transfer into a qualified account (IRA), when you retire. Along with this money, you may also have 403-b, 457-b or even 401-k qualified money as well.

On the Pension side, one must select from one of four pension choices, each offering a lifetime pension with certain income limits, and duration. In addition, on the pension plan side one is able to participate in the DROP Plan. The Deferred Retirement Option Program (DROP) provies an altenative method for payment of your retirement benefit for a specified and limited period.

On the Investment Plan side, you own your total accumulated value of your pension assets.  This money during your time in the system is invested among a list of state provided mutual funds. At retirement you are able to roll over the entire account into an IRA. Since you own this money upon your separation from service, there are no pension options to select. 

Again, much care must be taken before selecting a pension option for your retirement.

The number one fear found among retiring employees in this country is the fear of running out of money. This is not a statement to take lightly. Too often times people make retirement decision based on the following reasons:

  • This is what my boss, colleagues, coworkers are doing, and they really know this stuff, so I am going to do this too!
  • I spoke to my accountant, insurance agent, and they recommended "X"
  • I plan to use the same investments going forward because I think I am alright
  • I plan to do it myself.

In most cases your retirement income will be significantly less than when you were working full time. For special risk employees, whose retirement assets may be higher, assuming that you will have enough going into retirement without understanding the impact of the market, risk/volatility, fees, etc must be addressed carefully.

  • Remember that your choices going into DROP or retirement are irrevocable. 
  • Pension Plan Options limit your choice, income and death benefit
  • DROP interest today is 1.3% (low)
  • Understand how risk/volatility impacts your investments. (403-b, 457-b, 401-k, brokerage accounts)
  • Fees must be carefully understood. Do you really know your investment history during the past 15 years?
  • Learn about your retirement "Three Legged Stool" and how to maximize your retirement.
  • Going into retirement and having your assets affected by the market while taking income is a major reason people outlive their retirement!!
  • Risk, Up-front fees, Ongoing Cost, and Performance are key to the real value of your investments. Be careful!
  • Inflation and taxes must be taken into consideration as part of your investment losses.
  • Health issues may significantly impact your life's savings. Protecting your income against this is very important
  • Beneficiary benefits: There are very significant differences between the Pension and Investment Plan when it comes to beneficiary benefits. Understanding these before selecting is important.
  • Taking your DROP or Investment Plan money and immediately paying off your mortgage balance, paying off debt, purchasing your dream home, or home improvements may impact your retirement. Remember, retirement is for the rest of your life. Work with an Investment Advisor before making these financial purchases/decisions.

NOTE, for example, a State Employee retiring at age 62 with 30 years of service averages an Option 1 benefit of 46% of his/her normal salary! Make sure all factors in your life are in alignment for retirement. Also remember that Option 1 provides the highest lifetime payout, however, it too is a payout for your life only! What if you are married, have dependents, etc? A death would terminate Option 1. DROP today earns 1.3% per year. Is it worth going into DROP for 5 years?

What about the FRS Investment Plan? Wouldn't allowing you to have complete access to your accumulated value a benefit in retirement instead of a limited income on the Pension side? Would you consider creating an income for life with part or some of your Investment Plan assets that would not run out upon your death or your spouse and the remaining balance go to your beneficiaries? What if your retirement income could more than doubled if you had to go into a nursing home?

Would you have more choices in retirement if you had total access to your Investment Plan assets to create a financial plan that would be specifically designed based on your goals without the limitations of the State Pension Plan? 

How about learning how to incorporate actively risk managed investments designed for retirees that take a direct risk approach in your retirement portfolio? 

Today, the Investment Plan offers additional investment options via the Self-Directed Brokerage Account. One of your options provides a tactically active risk managed portfolio designed to capture the upside of the market, and move into a position of safety when a market downturn is identifiled. Exploring this option makes sense, as well.

Learn more about the FRS, along with all of your total assets, savings, spousal benefits, etc. Include a balance sheet-budgetary review outlining your obligations as you go into retirement. How and when should you include social security? What about your current home, its value, and outstanding balance? How does your health impact your retirement?

Even if you have had a financial gamplan and professional review, allow yourself this opportunity to mathematically review your current position right now!

Contact our office for a comprehensive, complimentary and confidential review of your current financial position.

 

Joe Valenzuela, MBA
Investment Advisor Representative & Federal Benefits Consultant
13837 SW 43rd Street
Davie, FL 33330
(954) 680-4088 Office
(954) 275- 4849 Cell
joe.valenzuela@cprinvestmentsinc.com

 

 

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