Retiring from a state job in Pennsylvania requires thoughtful planning. If you’re a Pennsylvania State Employees Retirement System (SERS) participant or are in the Public School Employees Retirement System (PSERS), you should be aware of your alternatives and the ways in which they can integrate into your financial plan to help ensure a sound and secure retirement.

As experienced Central Pennsylvania retirement advisors, 1st Choice Financial Services, Inc., in Camp Hill, assists Harrisburg, Hershey, Halifax, Lancaster, Lebanon, Enola, and surrounding communities with full-service financial planning for a comfortable retirement.

Knowing PSERS and SERS

The two largest public pension programs in Pennsylvania, PSERS and SERS, cover two groups of workers. Both have a mix of defined and hybrid options, with variations according to years of service, salary, and class of membership.

PSERS

Established in 1917, PSERS distributes pensions for public school employees, such as schoolteachers and school-related personnel. Defined benefit (DB) and hybrid alternatives may be elected, with payments calculated through service years, final average salary, and a pension multiplier.

SERS

Founded in 1923, SERS covers state employees with similar defined benefits and hybrid programs. Workers contribute a portion of their salary, and benefits are determined by service years and salary history.

By participating in one of these programs, you may be able to increase your benefits with the appropriate class of service, contribution approach, and additional investments where applicable. You may even be able to elect dual service credit when working under both programs.

1st Choice Financial Services: Your Trusted Camp Hill Retirement Planning Partner

Maximizing Your PSERS/SERS Benefits

Your pension sets a foundation for your life after work. Still, the right strategies can make your financial security even stronger:

• Diversify your portfolio: If your specific plan involves a defined contribution (DC) component, you may be able to adjust your investments according to your tolerance for risk and your target date for retirement. Hybrid programs, for example, have target date funds that may change your level of risk as retirement nears.

• Review your contribution rates periodically: Where your arrangement allows, review your contribution rates to maximize long-term growth. Voluntary delayed compensation programs may make an even larger contribution to your pension savings.

• Be cautious about altering your plans: Legislative changes may impact pension payments and contribution terms. Where relevant, using web-based pension planning tools or consulting with a pension planning advisor may affect your future pension payments and help you make sound decisions.

Plan Options and Comparisons

Being aware of your pension options is critical when planning your financial future. SERS’ three base pension options include the Hybrid Plan (A-5 and A-6 classes of service) and the Straight Defined Contribution Plan. All three have definite contribution structures and calculation of benefits:

• A-5 Hybrid Plan: Employees contribute 8.25% of pay (5% to pension, 3.25% to investments), with an employer contribution of 2.25% toward the investment portion. The pension benefit may grow by 1.25% per year.

• A-6 Hybrid Plan: Employees contribute 7.5% of pay (4% to pensions, 3.5% to investments), with an employer contribution of 2%. Pension growth may be 1% per year.

• Straight Defined Contribution Plan: 3.5% may come from employers, and 7.5% may come from workers. The pension in retirement is calculated according to investment performance and is not guaranteed.

Healthcare Costs in Retirement

Comparing long-term care options for retiree medical programs sponsored by employers can safeguard your savings for medical care. PSERS and SERS beneficiaries may receive medical care but at a cost. You may be able to supplement private and Medicare options with them. Healthcare inflation should become part of your planning for retirement since its impact has a big impact on long-term financial security.

Utilizing Fixed Indexed Annuities for Retirement Security

Aside from pension disbursements, fixed-indexed annuities (FIAs) can make additional pension disbursements with various important advantages:

• Principal protection: FIAs may not allow your principal to drop in a down market, potentially offering security during uncertain times.

• Growth opportunity: Returns may be earned from annuities through a performance indexed to the marketplace, with caps and/or a set participation rate to manage risk.

• Tax-deferred growth: Earnings may grow tax-deferred, allowing for greater compounding over time.

• Guaranteed lifetime income: Many FIAs include an income rider, potentially creating a guaranteed source of payments in retirement.

• Inflation protection features: Some annuities include inflation-indexed riders, with payments potentially escalating with inflation and keeping purchasing power intact.

If your pension plan doesn’t include a cost-of-living allowance, adding an FIA may balance your income requirements over time.

Pension Planning Strategies

To make your benefits most effective, follow these pension planning tips:

1. Understand your pension calculation: your pension will be calculated in relation to your average salary at termination, years of service, and a multiplier. A review of these factors with a retirement planner can identify opportunities for higher pension earnings.

2. Plan your taxes: Pennsylvania does not tax pension income or retirement withdrawals, but federal taxes still apply. Tax planning can save taxes and schedule payments when you consult with a tax professional.

3. Factor in healthcare costs: Where relevant, investigate long-term care coverage alternatives or retiree medical programs sponsored by employers to protect your savings against future medical expenses.

4. Utilize survivor benefits: If your specific plan allows it, your spouse and dependents may be able to accept survivor benefits. Some SERS plans may allow lump-sum withdrawals for beneficiaries, while others provide ongoing payments.

5. Work with a Central Pennsylvania advisor: Having a Central Pennsylvania retirement planning specialist work with you can result in a custom planning strategy for your individual situation, offering full-service retirement planning.

Watch our team on Mid-State Money Talk discuss retirement planning.

Financial Security in Retirement

With over 700,000 beneficiaries in pension programs in Pennsylvania, ensuring financial security is more than simply selecting a pension plan. However, long-term security depends on various factors, including market fluctuations, inflation, and individual financial goals.

Consider saving extra for retirement. Experts recommend saving at least 15% of your pre-tax salary for your retirement years. Supplement your pension with IRAs, 401(k)s, and annuities for added security.

You should understand the eligibility and vesting requirements. SERS and PSERS both require a minimum of 3-10 years of service for pension qualification. Having an awareness of when and under what terms you may be able to collect full benefits can impact your long-term planning. If your service is under both PSERS and SERS, your service credits may be able to be consolidated for a larger pension.

Secure Your Future with 1st Choice Financial Services

Retiring isn’t just about understanding your pension. To secure your long-term future, you must have an effective overall strategy encompassing investments, taxes, and income diversification. 1st Choice Financial Services, Inc. can navigate PSERS, SERS, and annuity complexities for you, allowing you to retire with confidence. 

For more information or to schedule time to talk with our retirement planning specialists, connect with us.

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, 1st Choice Financial Services, Inc., and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security, or any security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Foundations deems reliable any statistical data or information obtained from or prepared by third party sources that is included in any commentary, but in no way guarantees its accuracy or completeness.

The following link/content may include information and statistical data obtained from and/or prepared by third party sources that Foundations Investment Advisors, LLC (“Foundations”), deems reliable but in no way does Foundations guarantee its accuracy or completeness. Foundations had no involvement in the creation of the content and did not make any revisions to such content. All such third-party information and statistical data contained herein is subject to change without notice and may not reflect the view or opinions of Foundations. Nothing herein constitutes investment, legal or tax advice or any recommendation that any security, portfolio of securities, or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations, execution of required documentation, and receipt of required disclosures. All investments involve risk and past performance is no guarantee of future results.