So, you’ve decided that, for whatever the reason, the investment plan is better for you than the pension plan, and you’re currently in the pension plan. When do you make the switch over to the investment plan? Is there an optimal point to do it? Well, it all depends.
So do you move into the investment plan now, as soon as you’ve made the decision that it’s the right plan for you? Or do you wait until some point in the future, and if so, when is that going to be?
What we have learned over the many years of helping Special Risk FRS participants with this exact question is that the answer can vary on a number of factors.
For example, my good friend, retired Battalion Chief Gary Gonzalez, writes in his book, “From my own example, by simply waiting one more year to switch into the Investment Plan, my estimated lump sum payout increased approximately 13% with no market risk.”
In his case, waiting gave him a guaranteed return of nearly 13%, when there would be no such guarantee that his investments would do that well. Kind of a no-brainer, if you were to ask me.
So, your age, your income, and your expected future income all come into play on this one. A lot of it is numbers and getting a hold of the right numbers. What you need to do is get good estimates of what your investment plan benefit would be if you converted right now and if you converted right before you think you’ll be retiring. You might even want to pull down a date halfway between now and when you think you’ll be retiring, just to compare.
You can get these estimates on the myFRS website and, if it were me, I’d also call the Division of Retirement to have them run it as well. The more information you have on this important decision, the better.
So now that you have these numbers, you have what you need to make the decision. If it’s not making sense to you, or you just want a second opinion on this important decision, this is where an experienced fiduciary advisor in the matter, or one who’s not interested in selling you something, can really be helpful, helping you analyze what makes the most sense for you, in your particular situation.
Give us a call—we’d be glad to help.
Schedule a complimentary consultation with a fee-only financial planner to discuss your personal situation in more detail.