Monthly Archives: December 2015

What to Expect During Your First Year in Retirement

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Your first year in retirement is a little like starting a new job, only without all the work.  But still, it involves establishing a routine, figuring out when your money will come in, building new relationships, and feeling excited about the future.  Starting a new job means dealing with a lot of unknowns, and beginning a new chapter in life as big as retirement is no different.  Here is what you can expect from LAGERS during your first year.

 

Your benefit is paid at the beginning of each month.

You will receive your retirement benefit from LAGERS on the first of each month.  A benefit received on February 1st is your payment for the month of February.  Your payment will arrive on the first banking day of each month if you have chosen to have your benefit automatically deposited into your bank account.  If you have chosen to receive a paper check, LAGERS mails those out on the last mailing day of the previous month.

No matter if you choose direct deposit or a paper check, we cannot pay you sooner than the first of the month.  For example, the first banking day in 2016 is January 4th, so that is when your benefit will be added to your bank account.

Also, you will not receive a monthly payment stub from LAGERS if you have signed up for direct deposit.  We will mail you a stub, however, any time the net amount of your benefit changes because of cost of living adjustments, tax withholding changes, or for any other reason.

 

Your Partial Lump Sum (PLUS) is paid no sooner than 90 days after the date of your first LAGERS payment.

Many retirees select the Partial Lump Sum (PLUS) option in order to get some money up-front in exchange for a reduced monthly amount.  The soonest LAGERS will pay out the PLUS is three months after the date you first received a payment from us.  For example, if your first benefit payment is February 1st, the soonest LAGERS would pay the PLUS could be May 1st.  You may choose to extend the PLUS payment out as far as five months.  Extending the payment allows some people to push the PLUS into the next tax year.

If you choose the PLUS and decide not to directly roll it into another retirement account, LAGERS withholds 20% of the taxable portion of the PLUS and forwards it onto the IRS.  LAGERS is required to withhold this amount in all circumstances.  However, if your tax liability ends up being less than what was withheld, you can apply for a refund at the end of the year.  The entire amount of your PLUS will be sent to one of your eligible retirement accounts if you choose a direct rollover.

So why do we wait three months to pay you the PLUS?  This is to ensure we have all information from your employer about your final wages and service so we can double check that your benefit amount is correct.  This is also why you may see your monthly amount change slightly three months after you retire.

 

You are eligible for your first cost of living adjustment on October 1st of your second calendar year of retirement.

LAGERS Board of Trustees may grant an annual adjustment of retiree benefits in order to keep pace with inflation.  If approved, these cost of living adjustments, or COLAs, are paid to retirees on October 1st each year.  In order to be eligible for your first COLA, you must be retired for 12 full months including an October 1st.  For example, any person that retires in 2016 won’t also receive a COLA in 2016.  You would, however, receive a COLA in 2017 if your retirement is effective January 2016 – October 2016.  If your retirement will be effective in November or December 2016, you will be eligible for your first COLA on October 1, 2018.  But, you would also receive a little more than everyone else so that we can ensure your benefit is worth the same as it was when you retired.  The point of COLAs is not to increase your benefit, but rather to make sure you can buy the same goods and services today as you could in the past.

 

The first year of retirement can be a wonderful adjustment into the next stage of your life.  Knowing what to expect will help this be a smooth transition so that you can focus on all of the great aspects of retirement!

 

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

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Our Favorite Blogs of 2015

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It’s been another great year for LAGERS Bloggers, and we have had so much fun writing for you! Over the past 12 months, we’ve covered a variety of topics about your retirement benefits, and now, 52 blogs later, we wanted to close 2015 by reflecting on our favorite blogs of the year.  Here are our picks!

Bob Wilson, Assistant Director, Member Services – In Case You Missed it, A Recap of the 48th Annual Meeting

While I like all of our blogs because we get right to the point, my favorite is the recap of our LAGERS 48th Annual Meeting.  Everything about what we do and why we do it – best service for our members – is captured with that meeting and the article.  I’m so proud and thankful to get to do what we do.  We’re focusing on the right things for the right reasons; and Elizabeth’s blog brings that home!

 

Jeff Kempker, Manager of Member Services – 4 Things I Learned About Retirement Planning from an NCAA Basketball Game

This was my favorite blog of 2015 because it somehow makes the link between the National College Basketball Championship Tournament, AKA March Madness, and saving for your retirement.  I remember reading something last year about people spending more time filling out their tournament brackets to predict the winners than they spend on retirement planning each year.  I have to admit, I may be one of those people.  But, as this blog points out, saving for retirement doesn’t have to be complicated.  The important things are to realize that time is precious, to take advantage of opportunities presented by others, ask for help from a good coach if you need it, and that it’s OK to foul every now and again as long as you don’t foul out and impair your chances of winning.

 

Jeff Pabst, Communications Specialist – Three Things You Must Think About Before Taking the Partial Lump Sum at Retirement

The blog that comes to mind for me was Jeff Kempker’s blog, “Three Things You Must Think About Before Taking the Partial Lump Sum at Retirement.” I know I have regularly referenced this blog at Pre-Retirement Seminars for those who are looking for a little more information about the Partial Lump Sum. Jeff does a great job explaining the Partial Lump Sum (PLUS) and all of the issues you need to consider before blindly picking the largest number on the page.

 

Elizabeth Althoff, Communications Specialist – Pension Reform Jeopardy: “I’ll take The Real Truth for $1,000, Alex!”

Picking a favorite blog from this year almost feels like having to pick a favorite child, but I went with Bob’s Pension Reform blog, because I think that this is a topic that we all have heard at least one (or a hundred) media soundbites about this year. I get that doom and gloom sells papers, but the sad part is, fearmongering the American public into thinking that all pensions are bad and unsustainable will ultimately end in retirement tragedy for public and private sector workers alike.  Well-designed pensions, like LAGERS, are helping workers achieve modest and sustainable retirement benefits that will help them avoid financial hardship later in life.  Everyone who works hard should have a decent retirement benefit that they can count on, and that’s just what LAGERS and many other extremely well run pension systems across this county provide!

Six Themes Important to the Success of LAGERS’ Investment Portfolio

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Do you ever wonder how LAGERS manages $6+ billion for you, the member? Investing that much money is no easy feat, but the current 94.4% prefunded status speaks volumes on just how well LAGERS manages and invests our member’s assets.

The goal of LAGERS’ investment portfolio is to achieve a return (net of fees) of at least 7.25% annualized over the long-term. If the portfolio meets this goal, you can be assured that future benefits of LAGERS’ members are safe and secure. There’s a lot to talk about when it comes to investments and pensions. The following six topics briefly summarize how LAGERS’ invests its assets in order to achieve this goal.

Active Portfolio Management is warranted when LAGERS believes the asset class or investment strategy is reasonably inefficient or difficult to access on its own. LAGERS investment team does rigorous research to find external asset managers possessing skill, consistent performance and sufficient capacity to meet LAGERS’ needs. A formalized due diligence process is followed when hiring external asset managers, as well as conducting fee negotiations in order to cost-effectively retain only the best managers.

Strong Relationships with best-in-class asset managers contribute to LAGERS’ success. The investment team feels it is important to identify, cultivate, and foster relationships with like-minded partners from around the globe in order to broaden investment reach. We build success together based on cooperation, trust and transparency.  These managers must exhibit strong ethical behavior, superior professional management, repeatable processes, and a proven track record.

 Risks must be considered at the investment, manager, asset class, and total portfolio levels. While risk can be perceived by investors as negative and frightening, having some risk is good! LAGERS’ investment portfolio needs risk in order to function properly and meet expected returns. It is important not to avoid risk, but to practice risk-awareness by identifying, measuring and monitoring the different types of risk in the portfolio.

Asset Allocation through effective portfolio construction is fundamental to our success. LAGERS conducts a total allocation study once every five years to ensure that investments, combined with employer and employee contributions, will generate sufficient cash to fund retirement benefits in the most effective and efficient manner.  During this process, every asset class available is analyzed for its return and risk characteristics and an asset allocation is developed based on this analysis.  Proper diversification allows risk to extend across the portfolio, reducing the adverse impact of any one investment loss on the portfolio overall.  However, over-diversification, as well as numerous investment constraints, can reduce investment returns.

Flexibility while remaining disciplined allows LAGERS to adapt to business cycles and shifting investment environments. The expected returns of assets can change over time; however, the relative performance of asset classes and investment styles generally move back towards long term norms. Therefore, LAGERS’ investment strategy must remain flexible to adjust to the shifting investment environments.

Illiquidity Premium is the premium demanded for assets that cannot be easily converted into cash, such as private investments. This means that LAGERS expects a higher return for these assets.  Because LAGERS’ actual cash needs are very minimal, we have the ability to maximize the allocation exposed to this premium via a proper liquidity allocation.  Private assets tend to produce a higher return than public assets and also help to diversify the portfolio, which in turn decreases the risk of the total portfolio.

Although $6+ billion is a lot of money to manage and be responsible for, rest assured that LAGERS is investing under the mission of providing a secure retirement to our members!

 

Erin Stieferman, Investment Risk & Operations Analyst

Erin Stieferman, Investment Risk & Operations Analyst

 

 

 

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Something You Might Not Know About myLAGERS

Death_to_stock_photography_weekend_work (9 of 10)It is a common misunderstanding that myLAGERS is only for the active members. However, there are many different self-service capabilities within myLAGERS that a retiree can access . For this blog I will explain what each button on the side bar of the portal will give a retiree access to and the self-service features included with that button.

Personal Profile

One capability that I find to be the most convenient is the change of address. So, if you like warmer weather and plan to move somewhere south in the near future, you will need to update your mailing address with LAGERS. Usually, you would complete a paper form and mail / fax it in to the LAGERS office. Instead, myLAGERS allows you to update the information instantly online under the “Personal Profile” button. You can simply make the changes and click the “Update” button.

Also, under the Personal Profile button, you can elect to have your newsletters sent to you electronically instead of through the mail system. This is a wonderful feature, because the newsletter includes valuable information and instead of having to wait for it in the mail, it is sent directly to your email address. You may also make the election for an electronic newsletter from the home screen.

Beneficiaries

If you elected the Life Allowance or Option C, you can change your beneficiaries at any time during retirement. This is a function you can complete on myLAGERS by simply clicking “Beneficiaries” and click the “New” button to add a new beneficiary. If you need to delete a beneficiary, select the box to the left of the beneficiary’s name and click the “Delete” button. Finally, if you need to simply update your current beneficiary(s) information, click on the link for her name, change the desired information, and click “Save.”

1099-R

LAGERS will mail your 1099-R by January 31st every year. However, a useful feature of the myLAGERS portal is providing you with the ability to download present and past 1099-Rs. You will simply click on the “1099-R” button and then click on the date that you desire to view and download the PDF.

Income Verification

Are you planning on financing a new car? The bank you plan to do business with will need a verification of your income from LAGERS. This can also be accessed on myLAGERS. You will simply click on the “Income Verification” button and then click the “Download Income Verification” button and print the letter for the financial institution.

Changing Tax Withholdings

This capability is also available on myLAGERS. From your home page, you will need to click on the account you wish to make withholding changes to (this is indicated by a retirement date). From there, you will need to scroll down and click on the button that says “Update Withholding.” After that, adjust your withholdings as you wish, click on the “Calculate New Withholding.” Finally, as long as the new calculations are what you are wanting withheld from your LAGERS benefit, click the “Apply Changes” button.

As you can see, myLAGERS is not limited to just the active members. As always if you have questions or need assistance with myLAGERS, feel free to contact the LAGERS office.

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Jeff Pabst, CRC Communication Specialist

 

Why the biggest number on the page is not always the best…

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One of the best parts of my job is getting to work with members at Pre-Retirement Seminars.  It is an exciting time in members’ lives as they begin to think about transitioning from their careers into a long-awaited, hard-earned retirement.  But such a transition is not without a few major decisions, one of which is selecting a LAGERS payout option.  Like many decisions you will have to make as you begin your retirement journey, choosing a payout options is an extremely important one, especially since it cannot be changed down the road.  It’s only natural then, that many of our members’ top question as they file into the seminar room is ‘how do I know which is the best payout option for me.’

Here’s the tricky part; there is no one-size-fits-all better option.   The good news is that there probably is an option or two that is better for your individual situation and having a simple understanding of how each of LAGERS payouts work will help you make an informed decision.  I think it’s part of our very human nature that we would naturally gravitate toward the biggest number on the benefit estimate.  After all, who wouldn’t want to get the absolute most out their benefit?  For some electing the highest monthly benefit a member could receive is a great choice, but for others, it might not accomplish what they need in retirement.  Here’s why:

Keep in mind that all of LAGERS payout options are designed to pay an equal amount between you and (with some options) a beneficiary over a lifetime(s), the difference between options is who gets how much for how long.   There are four payout options in LAGERS: Life, A, B, and C.  While the Life Option will pay the highest monthly benefit to the member, when the member passes away, there is no other monthly benefit payable.   If you have a spouse that relies on your monthly pension income, it is important to understand that when you die under the Life Option, the payments stop.

Option A and B are two options that are good for both you and your spouses’ lifetime.  The member takes a reduced monthly benefit and in turn has the guarantee that his or her spouse will continue to receive a portion of the monthly benefit for their lifetime when the member dies.  If you want to leave some of your LAGERS’ guaranteed payments to a spouse, these are both great options.  Again keep in mind that everyone’s situation is a little different.  For example, even though I am married, my husband also has guaranteed retirement income through his employer, so I may opt to take an unreduced Life option without a lifetime payout for him because he has his own retirement benefits.

Option C is the fourth payout option and it guarantees that should you pass away before receiving 10 years’ worth of payments, you can name a beneficiary who will receive payments for the remaining time in the ten year guarantee.  Of course if you live beyond 10 years, you would continue to receive payments for as long as you live, but no further benefit would be payable upon your death.  I’ve had members tell me that they chose this option because the thought of electing the Life Option and then possibly dying 6 months into retirement and not having anything else payable gave them heartburn.  Whatever your reason, again remember that this is one more option to give you maximum flexibility in choosing a payout that is right for you.

As if all that wasn’t enough to think about, here’s one more wrinkle for you; you can add a Partial Lump Sum payment (PLUS) to any of the four options.  Again, deciding if this is a right option for you is individual.  If you are truly looking to get the absolute most money out of LAGERS, deciding to take the PLUS comes down to how long you think you are going to live.  For most, there is a ‘break even’ point somewhere between 12-15 years into retirement.  If you think you won’t make it to your breakeven point, you will receive more money by taking the PLUS because you are getting a lump sum payment upfront.  If you think you are going live beyond the breakeven point, you are better off (if we are just counting dollars) not taking the PLUS since by taking the PLUS, you reduce your lifetime monthly payment.  By not taking the PLUS, your monthly payments will be greater and will add up quicker over a long retirement.  For many members, however, the decision to take the PLUS is not just about figuring out how to get the most from LAGERS.  For example, using the PLUS to pay off a mortgage, purchase life insurance, or leave a legacy to children or grandchildren are just a few examples of reasons to take the PLUS, regardless of how long you think you will live.

There are so many decisions to think about as you approach retirement.  Make sure you take time to sit down and evaluate your individual circumstances, goals, and expectations for retirement, and don’t forget that LAGERS benefit specialists are available to walk you through your options, so don’t be shy when it comes to asking questions.  And above all else, remember that just because it’s the biggest number on the page, or just because it’s the most popular option among your friends, doesn’t mean that it’s automatically the right choice for you too.

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

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