Transcript Slide 1

Planning for Retirement
Presented by:
Nicole Zimm
Benefit Policy Analyst - UW System Administration
Revised 4/11
Planning for Your Retirement
 It’s never too early to start planning for retirement
 Review the Roadmap to Retirement
 Use your benefits wisely while employed
 Review your benefits at least on an annual basis
 Ask yourself the following questions:
• Am I financially able to retire?
• Am I psychologically ready to retire?
 Fully understand the impact of recent benefit changes on
your future retirement benefits
Finances in Retirement
 Understand your retirement income sources
• For a career public employee who retires at normal
retirement age, the WRS and Social Security will replace
50% – 85% of pre-retirement gross income
• Tax-Sheltered Annuity and/or Wisconsin Deferred
Compensation account(s)
• Individual Retirement Accounts (IRA)
• Retirement plans from other employers
• Post-retirement employment
 Understand the cost of retiree health insurance and how
long your sick leave credits used to pay for retiree health
insurance will be expected to last in retirement.
Sick Leave Credits
and Retiree Health
Insurance
Health Insurance in Retirement
Must pay total monthly health insurance premium
for coverage in retirement
Sick leave balance at retirement is converted to a
dollar amount to pay for State Group Health
Insurance premiums only.
Once sick leave account is exhausted, premiums
can be deducted from annuity. If annuity is not
large enough, premium can be paid directly to
carrier.
Sick Leave Conversion Credit
Program
Two Sick Leave Conversion Programs
 Accumulated Sick Leave Conversion Credit (ASLCC)
Program
 Provided for in state statute – would have to pass legislation to
change program (no legislation introduced to date)
 Supplemental Health Insurance Conversion Credit (SHICC)
Program
 Provided for in compensation plans and collective bargaining
agreements – per OSER and DOA, this program will continue
through at least June 30, 2011 for everyone.
 Study of program due by June 30, 2012. DOA has indicated
that if there any changes to the program, there will be ample
notice given so employees can prepare accordingly.
Sick Leave Conversion Credit
Program
Accumulated Sick Leave Conversion Credit (ASLCC)
Program
Sick leave balance at retirement is multiplied by highest
hourly rate while in state or UW service and converted to a
dollar amount to pay for State Group Health Insurance
premiums in retirement.
If unclassified, can determine hourly rate by dividing your
highest base salary by either 9 or 12 months (depending on
your employment contract) and then dividing by 174 hours.
Example: $75,000 ÷ 12 months ÷ 174 hours = $35.92/hour
Sick Leave Conversion Credit
Program
Supplemental Health Insurance Conversion Credit
(SHICC) Program
Must have at least 15 years of continuous UW/state service.
These supplemental credits are multiplied by your highest
hourly rate and added to your credits under the ASLCC
program.
•
•
•
•
•
Earn 52 hours per year for years 1 – 24
Earn 104 hours per year for year 25 and beyond
Not available to those represented by Trades
Protective employees earn credits at a different rate
Your total supplemental credits cannot exceed your total
sick leave balance at retirement
Sample Sick Leave Credit Calculation
Highest Hourly Rate = $38.314
Sick Leave Balance at Term: 2,000 hours
Years of Continuous Service: 26
Highest
Hourly Rate
$38.314/hr
Supplemental
Sick Leave
Credits
Years 1-24
Supplemental
Sick Leave
Credits
Years 25+
24 years
2 years
x 52 hrs/yr
x 104 hrs/yr
2,000 hours
1,248 hours
208 hours
x 38.314/hr
x $38.314/hr
x $38.314/hr
$76,628 +
$47,815.87 +
$7,969.31 =
Sick Leave
Credits
Total Sick
Leave Credits
$132,413.18
Note: Total hours of supplemental sick leave credits granted can NEVER
exceed actual sick leave balance at time of retirement.
Online Sick Leave Credit Estimator
Project the value of your sick leave credits using UWSA’s online
estimator: http://www.uwsa.edu/hr/benefits/sickLeaveEst/
You will need the following information before you can use the
estimator:
•
•
•
•
•
Your estimated retirement date
Your current sick leave balance
Your seniority/continuous service date
If classified, your current and/or expected highest hourly wage rate
If unclassified, you current and/or expected highest annual salary
(this is your annual base salary and does not include overloads,
summer pay or any additional pay)
• The name of your current health plan and/or the name of the health
plan that you expect to have in retirement
Transfer to Retiree Health Insurance
 At retirement, your sick leave credits are calculated by
UWSA payroll staff and sent to ETF.
 ETF will move you to retiree coverage under the State
Group Health Insurance plan (you will receive new ID
cards with new group number) – do not need to submit a
new health insurance application.
 ETF will track your sick leave credit usage and send you a
statement each December.
 If you have comparable health insurance elsewhere
during retirement, can escrow (save) sick leave credits for
future use.
Medicare and Retirement
 If retired and covered under State Group Health Insurance
as a retiree, must enroll in Medicare at age 65
• Part A (hospital)
• Part B (medical)
• Do NOT enroll in Part D (Rx coverage) – your Navitus
Rx benefit continues under retiree health insurance
• State Group Health Insurance will become your
Medicare supplemental and the premium will decrease
 Not required to enroll in Medicare Part B if you and/or your
spouse/domestic partner are covered under a group policy
through active employment.
 More information: http://www.medicare.gov
Retiree Health Insurance Premiums
2011 Median Monthly Premium for HMO coverage
(under age 65 & non-Medicare eligible)
• Single: $724.70
• Family: $1,807.90
2011 Median Monthly Premium for HMO coverage
(Medicare eligible)
• Single: $446.55
• Family coverage;1 person w/ Medicare: $1,161.40
• Family coverage with all under Medicare: $890.50
2011 Medicare Part B premium $96.40/month for most
Plan specific premiums on ETF’s website
Dane County 2011 Retiree Health Insurance
Premiums
Family
(1 person
under
Medicare)
Family
(all under
Medicare)
Single
Family
Single
(under
Medicare)
Dean
$597.70
$1,490.40
$393.80
$988.90
$785.00
Physicians Plus
$608.40
$1,517.20
$383.30
$989.10
$764.00
Unity – UW
Health
$592.90
$1,478.40
$391.20
$981.50
$779.80
GHC-SC
$584.20
$1,456.70
$412.00
$993.60
$821.40
Health Plan
If I retire before I’m Medicare eligible, how
much will health insurance cost?
2011
Median
Annual
Cost of
Coverage
HMO
Level
Coverage
(nonMedicare
eligible)
Single
Family
Retire at age 55
Retire at age 60
Total cost of health
insurance until age
65 assuming 7%
annual inflation
Total cost of health
insurance until age
65 assuming 7%
annual inflation
$8,609
$120,153
(over 10 years)
$50,011
(over 5 years)
$21,477
$299,745
(over 10 years)
$124,761
(over 5 years)
If I retire when Medicare eligible, how much
will health insurance cost?
Coverage
Level
2011 Median
Annual Cost
of HMO
Coverage
(Medicare
eligible)
Total cost of Total cost of Total cost of Total cost of
5 years of 10 years of 15 years of 20 years of
health
health
health
health
insurance
insurance
insurance
insurance
(assuming
(assuming
(assuming
(assuming
7% annual
inflation)
7% annual
inflation)
7% annual
inflation)
7% annual
inflation)
$5,372
$30,816
$74,037
$134,656
$219,678
$13,937
$80,147
$192,557
$350,218
$571,346
$10,714
$61,452
$147,643
$268,529
$438,078
Single
(Medicare
eligible)
Family
(1 person
Medicare
eligible)
Family
(all
Medicare
eligible)
How can I maximize my sick leave
credits at retirement?
1. Minimize your sick leave usage - you are not
required to use sick leave for an illness, doctor’s
appt….you can substitute other paid leave.
2. Maximize your base pay rate - if you know there
is an upcoming raise, wait to retire until you receive
the raise.
3. Work longer - the longer you work, the more sick
leave you accrue. If you wait until age 65 to retire,
your health insurance premiums will be lower due
to Medicare eligibility so your sick leave credits will
last longer.
(more next slide)
How can I maximize my sick leave
credits at retirement?
4. Carry a family health insurance policy if
married to/in a domestic partnership with
another state/UW employee who earns sick
leave - when state/UW employees are married/in
a domestic partnership retire AND carry a family
health insurance policy, can use both sick leave
credit accounts to pay for retiree health insurance.
If one dies, the other will have access to the
spouse’s/partner’s credits to pay own health
insurance premiums as long as a family policy
was in effect at the time of death.
I’m concerned about changes to the Sick Leave
Credit Program – what can I do?
Everyone needs to look at individual situation and ask themselves the
following questions:
 Where you planning to retire in 2011 anyway?
• If not, can you afford to retire earlier than expected?
 Is the loss (or potential loss) of some sick leave credits worth retiring
earlier than you wanted?
• Lost income
• Reduced annuity
• Younger when you start using sick leave credits
• Sick leave credits may not carry you to Medicare age
 Do you know the value of your supplemental sick leave credits?
• You should understand the value of your credits before you make a
decision.
The Wisconsin
Retirement System
and Your Annuity
What is the WRS?
 Created to provide retirement income to retired public
employees.
 WRS is solvent, well-funded, has a diversified investment
portfolio, is focused on long-term investing and will provide
promised benefits. State statute guarantees payment of
benefits.
 Administered by the Department of Employee Trust Funds
(ETF)
 Investments managed by the State of Wisconsin Investment
Board (SWIB)
 9th largest public pension fund in U.S. and 30th largest fund
in the world
 Immediately vested
WRS Contribution Rates
 For most, 11.6% of gross wages, up to IRS maximum,
contributed to WRS to fund future benefits (13.3% for
executives). Most employees currently pay 0.2% of earnings to
WRS.
 Per 2011 Wisconsin Act 10 (Budget Repair Bill) employees
will pay half the total WRS contribution
 5.8% for those covered by Teacher and General WRS
categories
 6.65% for those covered by Elected/Executive WRS
category
 Total contribution rate actuarially determined on an annual
basis
 UW contributes 1.2% of gross wages to fund retiree health
insurance.
Possible Changes to the WRS
 The current administration plans to study the WRS over the next few
years
 Legislation will have to be passed in order to make any changes to the
WRS
 WI Act 10 (Budget Repair Bill)
• Changed the employee-required contribution rate for all employees
(half of total contribution)
o Effect – dollar value of account will actually increase because of
this change
• Prospectively changed the formula factor for employees in the
Elected/Executive WRS Category from 2% to 1.6% (will have same
formula factor as General/Teacher employees)
 Historically, any changes to the WRS have been prospective and
accrued benefits were not affected.
The Core Fund
Core Fund is well-diversified
• 55% in stocks
• 29% fixed income
• 16% private equity, real estate, multi-asset
All contributions invested in Core Fund unless you
elect to participate in the Variable Fund.
Interest credited once per year – based on 12/31
investment returns
Market gains/losses recognized over a five year
period so interest crediting, contribution rates and
annuity dividends more stable.
The Variable Fund
Variable Fund is composed wholly of stocks
• 69% domestic stocks
• 30% international stocks
• 1% multi-asset category
If enrolled in Variable Fund, ½ of contributions
credited to Variable Fund and ½ to Core Fund.
Interest is credited once per year, and investment
returns are fully recognized each year (no
smoothing mechanism)
Definitions
WRS Annuity: monthly check that you will receive
in retirement for the rest of your life.
Minimum Retirement Age: earliest age that you
can receive a WRS retirement benefit; age 55
(general/teacher) or age 50 (protective)
Years of Creditable Service: amount of WRS
service based on number of hours worked in a year.
• Classified employees: service reported on
calendar year basis (1 year = 1904 hours)
• Unclassified employees: service reported on
fiscal year basis (1 year = 1320 hours)
Definitions
Seniority/Continuous Service Date: date you
began state/UW employment (adjusted for breaks
in service); used to determine value of sick leave
credits.
Formula vs Money Purchase Calculations: 2
methods used to calculate retirement annuity.
Age Reduction Factor: factor used to reduce
formula calculation if you retire before “normal
retirement age” of 65. There is no age reduction
factor if you retire at 65 or later or if you are age 57
or later with 30 years of creditable WRS service.
Two Types of Retirement Calculations
At retirement, annuity is calculated under two methods –
you receive the higher
Formula calculation based on:
• Final Average Earnings (FAE)
→FAE = Total of highest 3 yrs of earnings ÷
Total WRS service during those 3 years ÷ 12
• Years of creditable WRS service
• Formula factors based on employment category
• Age reduction factor based on age at retirement and
years of service
• Formula benefits capped at 70% of FAE
Formula calculation method
Years of Service x FAE x Formula Factor(s) x Age Reduction Factor
Two Types of Retirement Calculations
Money Purchase Calculation based on:
• Total $$ amount of WRS account at retirement
o “Employee” + matching employer
contributions + interest
• Money purchase factor based on age at
retirement
Money Purchase Calculation Method
M. P. Balance at Retirement x M. P. Factor
You can see which calculation type is currently
higher for you if you look at the bottom of the last
page of your ETF Annual Statement of Benefits.
Sample retirement annuity estimate
The information you entered:
Name: U.W. Système
Your age at retirement will be: 57
You plan to retire in: 2011
The age of your Named Survivor will be: 55
The Named Survivor specified is your spouse.
Your Employment Terminated after 1999
Your years of General/Teacher/Educational Support Creditable Service Before 2000 will be: 26.50
Your years of General/Teacher/Educational Support Creditable Service After 1999 will be: 12.50
Your 3 High Years of Earnings and Related Service:
Year 1) $74,000.00 (1.00)
Year 2) $74,000.00 (1.00)
Year 3) $73,500.00 (1.00)
Your calculated monthly Social Security amount will be: $1,457.00
Your Money Purchase balance is: $545,000.00
Factors Used in Your Calculation:
• The age reduction factor used to calculate your formula annuity for the General/Teacher/Educational
Support employment category is: none
• The money purchase factor used to calculate your money purchase annuity, variable adjustment to your
formula annuity, and/or benefits from your additional contributions is: .005820
Sample Retirement Annuity Estimate
& Annuity Options
Your Estimated Monthly Benefit Amounts
Your benefit is higher under the: formula calculation
REQUIRED CONTRIBUTIONS
Regular
OR
Accelerated Payments
Until Age 62
After Age 62
Life Annuity Options:
- For Annuitant‘s Life Only
$4,107.84
or
$5,148.17
$3,691.17
- 60 Payments Guaranteed
$4,095.52
or
$5,137.10
$3,680.10
- 180 Payments Guaranteed
$3,988.71
or
$5,041.13
$3,584.13
- 75% Continued to Named Survivor
$3,734.03
or
$4,812.27
$3,355.27
- 100% Continued to Named Survivor
$3,627.22
or
$4,716.30
$3,259.30
$3,820.29
or
$4,889.79
$3,432.79
$3,623.11
or
$4,712.61
$3,255.61
Joint and Survivor Annuity Options:
- Reduced 25% on Death of Annuitant
OR Named Survivor
- 100% Continued to Named Survivor
with 180 Payments Guaranteed
How do I select an annuity option?
When selecting an annuity option, you should consider the following:
 How much money do you need to maintain your standard of living – is the annuity
sufficient or do you have other income sources?
 Are you single or married/in a domestic partnership?
 Is there a large age difference between you and your spouse/domestic partner?
 Do you want to ensure your spouse/partner is guaranteed an annuity upon your
death?
 Do you want to make sure the full value of your WRS account is paid out, no
matter how long you live?
 Do you want to maximize your annuity today (not concerned with death benefits
payable)?
 Do you plan to start Social Security at age 62?
Resources:
 Review the ETF brochure Choosing an Annuity Option
 Use ETF’s Accelerated Payment Calculator to see if choosing an accelerated
option is a good choice for you.
Annuity Adjustments
 Final annuity calculation – once ETF receives all final
earnings information, ETF will finalize your annuity
payment and any back payments will be paid on the first
annuity check based on the final annuity calculation.
 Annual adjustment – your annuity may change on an
annual basis due to an annuity adjustment based on the
performance of the WRS. Any changes will be reflected on
your May 1st check. History of changes:
http://www.etf.wi.gov/retirees/dividends.htm
 You do not receive a monthly annuity statement from ETF
– you only receive a statement if something changes the
amount you receive (final calculation, change tax
withholding, annual annuity adjustment…)
Taxes and Your Annuity
 Your WRS annuity is taxable income for state
and federal tax purposes.
 Can change your tax withholding at any time
with ETF.
 ETF will send you a 1099R tax statement every
January.
 Your annuity is not “earned” income so there are
no Social Security or Medicare taxes withheld.
Choosing Your Retirement Date
 If your annuity is higher under money purchase calculation,
maximize interest crediting.
• If you term on or before December 30th, will receive a
prorated percentage of 5% interest on account for that year.
• If you term December 31st or later, will receive the effective
interest rate(s) for the prior year.
 If you are paid on a fiscal year basis and annuity is higher
under formula calculation, consider retiring just after the end of
the fiscal year to maximize final average earnings.
 If you retire on or after official seniority/continuous service date,
you may be eligible for additional sick leave credits to fund
retiree health insurance.
 Usually the longer you wait to retire, the better due to
increased service, earnings, contributions, lower age reduction
factor and higher money purchase factor.
How do I know the value of my annuity/how
do I order a retirement application?
There is an online retirement calculator on ETF’s
website: etf.wi.gov/calculators/disclaimer.htm
• Use the information from your ETF Statement of
Benefits to help you complete the information
needed for the calculator
• You must project future service and earnings
yourself – calculator does not project future interest,
service or earnings.
You can request an official estimate/application from
ETF once per year for a retirement date of no more
than one year in the future.
• Can contact ETF at 1-877-533-5020 to request an
estimate/application
Retiring on Short Notice
Given upcoming WRS and health insurance changes, some employees
are choosing to retire within the next few months. Before retiring
“quickly”, you should:
 Review ETF’s document Retiring on Short Notice
 Request a retirement application from ETF (there is currently a 10-12
week backlog at ETF)
 You can use an old retirement application if you have one (it will be
updated upon entry)
 If you do not receive your application before your termination date, you
have up to 90 days after your termination date to submit your
retirement application to ETF (annuity will begin day after your
termination date).
 Can submit an Annuity Option Change Form instead of a retirement
application if you do not receive your application timely
Retiring on Short Notice
(continued from previous page)
 If you have any accumulated leave (vacation, sabbatical/ALRA, personal
holiday) at the time of termination, determine how you want to receive
payout
• If you take a lump sum payment
o Payout directly to you (fully taxable)
o Defer to TSA and/or WDC accounts (defer all taxes except Social
Security)
o Payout is NOT reportable to WRS (no WRS contributions due on
payout and you will receive no WRS credit for these earnings)
• If you remain on payroll past last physical day of employment
o Receive regular paycheck
o All earnings/service reportable to WRS (increase WRS annuity)
o Continue to accrue leave (increase sick leave credits)
o Continue all benefits like an active employee (continue to receive
employer contribution towards all benefits)
What happens to my other benefits
at retirement?
State Group Life Insurance
• Automatically continues (if eligible)
• Premiums taken from annuity until age 65; no premium
due once you turn 65.
• Coverage is reduced to 75% of basic at age 65 and 50%
at age 66.
• Spouse and Dependent coverage ends at retirement –
can convert to an individual policy at a higher premium
Income Continuation Insurance
• Ends at retirement
What happens to my other benefits
at retirement?
VSP Vision, Dental Wisconsin, Anthem DentalBlue, EPIC
Benefits+, UIA Life Insurance, AD&D Life Insurance
• Can continue indefinitely in retirement through direct
payment to carrier
Individual and Family Life, UW Employees Inc. Life
• Can be converted to an individual policy but premiums are
much higher
CAUTION: All continuation/conversion applications must be
submitted on a timely basis or the right to continue/convert
coverage will be lost.
Evaluate the level of life insurance you need as you age.
What happens to my other benefits
at retirement?
Employee Reimbursement Account (ERA)
 Medical Account:
1. Can contribute remainder of election either as a tax-free
lump sum on your final paycheck(s) or as a personal
after-tax payment
• Will be able incur eligible expenses through end of
plan year
2. If you do not contribute annual election, can incur
eligible expenses until the end of the month that last
check is payable.
 Dependent Care Account: contributions end on last
paycheck (cannot contribute remainder of election); can
incur expenses through end of plan year.
Resources
UWSA Benefits Page: http://www.uwsa.edu/hr/benefits/
UWSA Retirement Page: http://www.uwsa.edu/hr/benefits/retsav/index.htm
Benefits at Retirement: http://www.uwsa.edu/hr/benefits/lifevent/uws73.pdf
UWSA TSA Page: http://www.uwsa.edu/hr/benefits/retsav/tsa.htm
Budget Repair Bill Page: http://www.uwsa.edu/hr/benefits/budgetbill.htm
ETF’s Main Page: etf.wi.gov/index.htm
ETF’s Calculators Page: http://www.etf.wi.gov/calculator.htm
ETF’s Video Library: http://www.etf.wi.gov/webcasts.htm
SWIB’s main page (review investment earnings): www.swib.state.wi.us/
Thinking of Retiring?
Contact
Demi Wiemann ([email protected])
or
Nicole Zimm ([email protected])
for counseling & continuation forms