Planning your retirement income as a member of FRS is a very intricate
process. Depending on your age, your years of service, your job, your
FRS choices, and your deferred compensation account, the composition of
your retirement income and your taxes will be different. We typically
spend several hours with FRS retirees properly planning their retirement
income. We encourage you to contact us to schedule your complementary,
no obligation conversation about planning your retirement income.
We want to warn you about three examples of FRS retirees receiving bad
advice that limited their retirement options.
First, do not rollover your deferred compensation account to an IRA if
you are under age 59½.
Once this money is placed in an IRA, you have to pay an extra 10% tax
penalty to use the money if you are under age 59½. If the funds
are left alone in the deferred compensation plan, you have completely
flexible access to the funds with no tax penalty.
Bottom line, if you are under age 59½, leave your deferred compensation alone.
Second, the guarantees and promises that come with these “new”
income approaches that use annuities are simply not as they are described.
These guaranteed income streams and returns are filled with caveats, fine
print and high costs. These promises don’t actually guarantee any
real return on your money as they only apply to internal insurancecompany
values. If FDIC guaranteed CDs are paying around 1%, insurance companies
aren’t really paying you 5% or more.
Bottom line, if it sounds too good to be true, it is.
In addition, the State of Florida is now promoting the use of annuities
in its Investment Plan correspondence to state employees. The state’s
suggested annuity approach offers an irrevocable option that leaves nothing
to your beneficiaries. If state employees prefer a guarantee, they should
consider staying with the Pension Plan.
Third, if you are over age 55 and under age 59½ when you retire,
you need to leave the amount of money you will need to spend before age
59½ in the FRS Investment Plan.
The FRS Investment Plan provides you an exception to draw money out in any
amount or frequency without having to incur a 10% tax penalty for early
withdrawal if you retire in the year you turn age 55. This is a very valuable
option for those that qualify. If all the money is rolled out of the FRS
Investment Plan and into an IRA, you lose the flexibility of this option.
Bottom line, if you are retiring in the year you turn age 55, you have
more flexibility by actually leaving some money behind in the FRS Investment Plan.
Properly planning your retirement income is of the utmost importance. These
are just some of the examples we have seen where if the retiree had followed
the advice given, they would have effectively eliminated their flexibility
in retirement or even worse been subject to an extra 10% tax penalty.
Simply rolling over your FRS Investment Plan, DROP or Deferred Compensation
account to an IRA may not be the best course of action and could generate
an extra 10% tax cost in retirement.
Where indicated, market data and performance represents past performance
which is no guarantee of future results. Individual results may vary and
values do fluctuate in any investment. This booklet contains our most
current understanding of the Florida Retirement System and U.S. tax laws
as of October, 2016. This booklet is intended to detail complicated retirement
topics but is not a complete discussion as each individual’s situation
is different and various exceptions exist. Nelson Financial Planning offers
securities through Nelson Ivest Brokerage Services, Inc., a member of
FINRA/SIPC. Please note that the information provided in this document
has not been approved or endorsed by the State of Florida or the Florida