4 Ways to Maximize Your Pension in the Wisconsin Retirement System

Check out Jeremy’s latest podcast on the Wisconsin Retirement System by listening on “Apple Podcasts” or “Google Podcasts” or read below for 4 Ways To Maximize Your Pension in the Wisconsin Retirement System.

#84 – Pension plans often contribute heavily to your retirement income.

If you’re living in Wisconsin, you might have heard of The Wisconsin Retirement System (WRS), the 9th largest public pension fund in the U.S.

Today, we’ll talk about how you can maximize your pension with the WRS!

Although the numbers discussed mostly pertain to Wisconsin, the strategies can be applicable to your retirement, even if you’re living outside of Wisconsin or part of a private pension system.

In this episode, Jeremy Keil speaks with Dennis Eisenberg of Eisenberg & Associates, who is a Wisconsin pension consultant. Dennis explains what the WRS is all about and the different benefits it offers retirees.

Dennis discusses:

  • How to tackle the risk of “outliving” your retirement savings
  • Caveats concerning accelerated retirement benefits
  • How delaying your pension by only two years can earn you thousands of dollars every year
  • Alternative plans worth looking into before contributing to your 403(b) accounts
  • And more

4 Ways To Maximize Your Pension in the Wisconsin Retirement System

1) Maximizing the Long-Term Payout for Women

Longevity is a serious issue in retirement. Having a system like the WRS manage your money and providing consistent payments for the rest of your life can be a blessing for retirees.

When it comes to longevity, on average, women tend to live longer than men.

Having said that, most people interested in the Wisconsin Retirement System are teachers, who are mostly female (approximately 70%). However, the payouts are the same for all genders.

With a greater life expectancy and an equal payout, the annuity for females can be more valuable — mathematically speaking. After all, it’s the same dollar amount, but you’re likely receiving it for more years.

This means that if you’re a couple, you can maximize your total annuity value by maximizing the long-term payout of the wife, even if it requires waiting on the pension for a few years (discussed more later).

2) Beware of Accelerated Benefits

Oftentimes, you have the option of increasing your retirement benefits through age 62 by reducing your future payouts.

Such accelerated programs are rarely beneficial for retirees. Dennis Eisenberg suggests that unless you have a health problem which severely reduces your life expectancy, don’t compromise on your future payouts.

Let’s take a look at an example to understand the effects of accelerated programs better.

You might choose to accelerate your pension benefit and have it increased by 30% at age 59 for three years until you turn 62. Your pension might increase from $1,000 to $1,300.

How are you paying for this benefit? By having a lower pension for the rest of your life! You might only receive $800-$900 after 62.

To determine the amount by which your future pension is reduced, the WRS uses a discount rate of 5%. In reality, the current market conditions point to only a 3% rate of return. In other words, you’re giving up the opportunity to base your long term pension numbers by 5% every year, which is 2% more than the current market rate!

The WRS also adjusts pension payouts to account for inflation. So, if you take your pension early, your long-term pension numbers will be adjusted by less. An inflation adjustment on a lower number is a lower number!

If you want to maximize the value of your pension over your entire retirement, beware of accelerated benefits.

3) Two Years That Are Worth Waiting

The Wisconsin Retirement System is premised on the individual having worked for 30 years and reaching age 57-65. If you’ve worked fewer years than that, your pension payout will be discounted and you’ll receive less money.

This is a common challenge for women, who might spend a lot of their working years on childbirth and childrearing.

If you wish to retire at the minimum early as 55, know that the paycut you take for an early pension is different every year.

Here, the magic number to highlight is 57. The discount applied on pushing the pension from age 55 to 57 is huge — a lot more compared to moving it from age 57 or later. So, when you hit 55, consider waiting on your pension for only two more years to significantly improve your pension payout. (These two years can make a difference of thousands of dollars every year!)

Remember, working just two extra years to fulfill the 30 years requirement and minimize the actuarial discount can be well worth it for the rest of your life.

4) WEA Tax Sheltered Annuities, Wisconsin Deferred Compensation Plans and After-Tax Pension contributions

Before contributing further to your 403(b) account, consider putting money into the alternative plans offered for Wisconsin Retirees.

The two main plans are the WEA tax-sheltered annuities and Wisconsin Deferred Compensation Plans, which don’t carry commissions like most 403(b) annuity contracts sold by financial advisors.

And don’t forget about additional contributions into your WRS pension!

These plans generally have lower fees compared to external money managers and fiduciarily obligated oversight. Plus, you could have the benefit of the State of Wisconsin Investment Board managing your money by contributing additional amounts out of your paycheck into your WRS pension.

These options can be a lot cheaper and more valuable than perhaps contributing directly to 403(b)s or using external financial advisors. For more information, check out: 

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Do you want to learn more about pension planning? Check out the resources below!

If you have any questions, feel free to contact us or our guest Dennis Eisenberg using the contact information provided below!

Resources:

Connect With Dennis Eisenberg:

Connect With Jeremy Keil:

About Our Guest:

Dennis G Eisenberg, Eisenberg & Associates LLC, has worked for education associations and:

Is focused on pension and group insurance issues including monitoring the Minnesota and the Wisconsin Retirement Systems (WRS). He has acted as a negotiator and arbitration specialist

and had executive responsibilities within the WEA Tax Sheltered Annuity (TSA) planhe also chaired a defined contribution pension committee for 20 years.

Dennis currently provides financial education for members and staff of regional teacher organizations. He consults and lecturers on pension plans and group insurance issues for the National Staff Union and their affiliates.

Disclosures:

Content

Results and figures presented within the above links are hypothetical, unaudited, and are intended for illustrative purposes only.

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Keil Financial Partners does not provide any tax advice. No information or results from the links should be interpreted as tax advice. Please seek guidance from a qualified tax professional for any and all tax-related matters.

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The content and information provided through the links should not be interpreted as being investment advice or a recommendation of suitability for any particular security, portfolio of securities, transaction, or investment strategy, or related decision. Please seek assistance from a qualified investment professional for any and all investment matters.

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