By Lesia Mervin
Sandy Bunch Vanderpol asked if I could provide any additional advice based on my years as an official. Here are a few additional thoughts on retirement savings specifically for officials.
Employee versus freelance
One word: benefits. As a court employee for more than 38 years, I have employee health insurance and retirement benefits available to me. This is one of the many reasons I have chosen the path of court employee over freelance self-employment.
Know your benefits
Understand how your retirement plan works.
When we’re employees, it is important that we understand what benefits are available. Understanding them is the first step to taking full advantage of the benefits.
I sought out professional financial counseling to develop strategies for a successful retirement. Federal and state government employees are covered by different retirement systems depending on when you were hired and where you work.
You may or may not have had Social Security taxes deducted from your paycheck. Whether Social Security benefits are going to be available to you in retirement is a very important point to know, so you can plan accordingly.
Calculation formula
Determine what formula your employer uses to calculate retirement benefits. Find out if the formula for calculation is years of service credit, age at retirement and final compensation, or some other formula. Calculate the estimated benefit at retirement so that you know what you need to do now to meet your retirement goals in the future. Once you know the formula, look at one of the retirement calculators on the Internet that you can input the information for an estimate of monthly retirement benefits you will receive. Some employers also may have access to an online calculator through their retirement plan companies.
Deferred compensation plan
To defer or not to defer? Deferred compensation plans let employees set aside part of their annual salary to be paid at some point in the future, presumably retirement, when your tax situation may be different than it is today. Money grows tax deferred until paid out to the employee. There are no required minimum distributions.
The maximum contribution for 2018 is $18,500. Employees age 50 or older may contribute up to an additional $6,000 for a total of $24,500. Because the purpose of deferred compensation plans is to save for retirement, early withdrawals are strongly discouraged. There is a 10 percent IRS penalty for withdrawals before the age of 59 ½.
My transcript income will not be included in my employee retirement benefits. Deferred compensation is a great way to supplement your retirement income to cover the loss of transcript income.
What I would tell my 20-year-old self:
- Take advantage of deferred compensation on Day 1. At the young age of 30 — it seems like it was young now, but in the grand scheme of retirement savings, it was years too late — I began taking advantage of deferred compensation. I started out small. For every $100 taken out of my paycheck, it earned back approximately $60 due to the tax savings.
- I did something right when I slowly began increasing it over the years in small increments; I hardly noticed the difference in my paycheck. Still, I sometimes imagine how much larger my account would now be if I had started on Day 1.
Fully fund HSA/FSA
If you have a flexible health plan through your employment, use it. Many courts offer a pre-tax Flexible Spending Account (FSA) or a Health Savings Account (HSA) plans to pay for copayments, deductibles, some prescription drugs, and some other health care costs.
If you have the option, I’d suggest taking advantage of this system. It reduces your taxes because, when you set aside money in an FSA or HSA, you don’t pay taxes on this money and you can use it to pay for some health needs. Additionally, contributing to an FSA or HSA frees up additional money that would have been paid to taxes that you could use to increase your funding for Deferred Compensation plans your employer may offer.
Purchasing additional years of service credit
Maximize years of service credit. The first three years of my court employment, I was employed as a per diem reporter. I did not have access to the retirement benefits offered to full-time employees. I was able to purchase those three years of service credit to increase my years of service for retirement calculations.
Seek professional advice to see if this is an option that is worth exploring. Deferred compensation funds may be allowed for purchase of service credit.
Lesia Mervin, FAPR, RMR, CRR, CRC, is an official reporter and freelance CART captioner based in Visalia, Calif. She can be reached at realtimecsr@comcast.net.
This article should not be relied on as financial advice specific to your situation. As always, NCRA encourages individuals to reach out to a trusted CPA or other financial advisor to review your personal situation.
