NYPD Recruits/Rookies:

[Joeyd6]

LAX854 asked me a GREAT Question: As a rookie, what would you recommend: ITHP, Deferred Comp, or both?

This is a great question and you will hear many self-made supposed financial wizards at the NYPD. Here is the truth about each, you decide! Also...NEVER, EVER TAKE A PENSION LOAN FOR ANY REASON!

ITHP
We all know you put in a portion of your pension and the city pays the rest. Most guys hired now are have 8.65% contribution rate for their pension. The City pays the first 5%. You pay the rest or 3.65%. Assuming you never take a loan, and add nothing extra, you can retire with a full pension (50% of pay). You also have the options of:

A) Signing the waiver! This means your voluntarily add in an additional 5% (on top of the 3.65%) towards your pension. You contribute 8.65%, city pays 5%. At the end, you will have an overage because all you needed to put in was 8.65% and you put in 13.65%.

B) Sign the waiver plus 50%! This means you voluntarily add an additional 5% and then and additional 1/2 of your contribution rate. So you all add 3.65% base+ 5% additional + 4.32% (1/2 of 8.65) = 12.97%. You put in 12.97% and the city pays 5%. At the end you will have an overage because all you needed to put in was 8.65% and you put in 19.97%!

C) Leave it all alone. Assuming you never take a loan, you will be even and get a 50% pension. You pay 3.65% and they city pays 5%. This is automatically and already happening for all of you!!!!

d) No waiver signed but do an additional 50%. You will add in your base contribution plus 1/2 of your assigned rate. So that would be 3.65% + 4.32% (1/2 of your rate of 8.65%) = 7.97%. So you pay 7.97% and the city pays 5%. At the end you will have an overage because all you needed to put in was 8.65% and you put in 12.97%!

Now, you saying, why pay more? Will my pension go up? NO! So what do I get by adding all that extra money?
-->The answer is simple! What ever money you ad to the IHTP is guaranteed to earn interest at 8.25%! That is set for life. You will get 8.25% on all contributions. So when you retire, they give you back any overages in one lump sum, on the spot, after 20 years of 8.25% interest!

They say: "Officer Joeyd6, you did 20 years. Based on your wages, you need to have $350,000 in your account. You did not take any loans. (see rest of converstaion below)"
If you picked option A: "You put in what was required and an additional 5%. Thus you have $400,000 in your account. Here is a check for $40,000 and you will start getting your pension next month."

If you picked option B: "You put in what was required and an additional 5% plus 50%. Thus you have $500,000 in your account. Here is a check for $150,000 and you will start getting your pension next month."

If you picked option C: "you put in what was required. You will get your first check next month."

If you picked option D: "You put in what was required and an additional 5%. Thus you have $450,000 in your account. Here is a check for $100,000 and you will start getting your pension next month."

The 5% extra contribution goes in pre-tax. Thus, it reduces your taxable income and liability. The additional 50% is done post-tax, and thus, grows tax free!

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Deferred Comp
-You select a percent of your pre-tax pay to go into a account which is invested in annuities (invested in stocks). You pick the one that resembles when you intend to retire and it adjusts accordingly, going from risk to conservative. There is no guarantee of returns! It goes where the market goes!

Negatives: no guaranteed return!

Positive: Reduces you tax liability. For example, you make $50K, but put 10% in deferred comp. So instead of your paying taxes on $50K, you pay taxes on $45K; City manages for you; Ensures a well rounded portfolio.



I personally don't like having all my eggs in one basket. I did the ITHP Waiver with 50% and did deferred comp at 5%. That way, I was getting 8,25% guaranteed on my ITHP and then whatever the market did on my deferred comp. You make your own decision! But remember, ITHP gives a guaranteed return of 8.25% on any excess for 20 years. If your looking at something else...make sure your getting that return.

[lax854]

thank you joey that is reallly helpful! i just have one additional question for you, what happens if in 5 years, im like i cant stand the nypd and i want to move on with my career and go federal or go to nassau pd??? what happens to that money if i put it in deferred comp. or ITHP??

[Joeyd6]

thank you joey that is reallly helpful! i just have one additional question for you, what happens if in 5 years, im like i cant stand the nypd and i want to move on with my career and go federal or go to nassau pd??? what happens to that money if i put it in deferred comp. or ITHP??

Deferred Comp:
1) Leave money in there with no further contributions
2) Roll over to a IRA
3) Roll over to your new agency plan
4) Take the money out

ITHP
1) Can leave the money for 60 monthe where it will earn 8.25% and after 60 months it no longer earns any interest.
2) Roll the money over to a IRA
3) Roll over to your new agency plan
4) Take the money out

[Vikdmoan]

Excellent post Joey, much appreciated.

[KiDWoNDeRZzZ]

I agree. Excellent post. I finally understand this stuff.

[04SteveR6]

That was the most informative thing i have ever read on this site! Great Post

[RudyA]

wow JoeyD oldie but very informative

much appreciated

should be a sticky

[phantasm]

One thing to note about the ITHP 50%. While the money you put in, the taxes are paid now, so the money is tax free when taken out, the interest earned is NOT tax free. Falls in with the rest of the interest. Not a huge deal, but just something that people should be aware of.

[maz]

I agree. I never saw this before, very informative, thanks joey!

[CelticSmackdown]

Sticky nomination.

[RudyA]

Joey , where are the forms to enroll for deferred comp?

If you can give me a direct link to the form I need that would be greatly appreciated

do you recommend doing the 50% for a month or so - I already did the 5% waiver but i would like for more money to earn 8.25% interest but cant go with 50% entire career - not enough money to get by each week

thanks
rudy

[lax854]

Joey , where are the forms to enroll for deferred comp?

If you can give me a direct link to the form I need that would be greatly appreciated

do you recommend doing the 50% for a month or so - I already did the 5% waiver but i would like for more money to earn 8.25% interest but cant go with 50% entire career - not enough money to get by each week

thanks
rudy

go to nyc.gov/deferredcomp and sign up the 457(deferred comp) they will send u packet in the mail......and i would do ITHP and 50/50....i have 15 percent deferred comp ithp and 50/50 and i bring in about 720 a check with no overtime and full night diff.....it sucks but itll be worth it!

[RudyA]

is there a difference between the 457 and 401 deferred comp?

also im graduating academy july 2nd - 50% of the 700ish paycheck we get every 2 weeks would be 350 every 2 weeks - i cant pay my bills on that

[phantasm]

457 has less penalties for early withdrawn funds than the 401. There should be a comparison of the two on the website.

Obviously don't put away so much money towards retirement that you can't afford to live. Budget as best you can, and try to maximize your retirement savings, but don't get yourself into debt so you can put an extra 5% towards retirement. Doesn't make sense to pay 10-15% interest, and only earn 8% or less.

[mcsap]

My pension $$ is 100% untouchable. And it is a big pool , not a specific account. Our balance is over $17 million for a dept of 50 officers.

I also have deferred comp on top of the pension. Can't touch that either. And we just got the drop pension for 2 years , cant touch that until FULL retirement.

But when I do retire...I'll be doing well.