Find Financial Advisors for PSEG Employees & Executives: Q&A Insights from the Experts

PSEG employees have many retirement benefits to utilize between their Cash Balance Pension Plan, 401k Thrift Savings Plan (Pre or Post Tax), Stock Purchase Plan (ESPP), VEBA (Health Savings Account), Group Life & Health Insurance, to name a few.

To determine the best way to utilize and get the most from their plans, we recommend creating a financial plan to understand where they are headed currently vs. where they would like to be financially. From there, we can identify recommended changes within their PSEG benefit plans (while working and when transitioning to retirement) and the best solutions outside of PSEG to get our clients to a better financial outcome.

Some examples of a better outcome are securely reaching their long-term goals, saving money in fees or taxes, and getting better investment returns on a risk-adjusted basis, to name a few, all while being educated along the way.

An employee retiring prior to age 65 (Medicare eligibility). PSEG has a couple of healthcare plan options available for retirees. You could utilize their current health care plan under COBRA, use the PSEG Retiree Healthcare plan, or alternatively enroll in a New Jersey ACA Plan. Depending on their family situation (i.e., Married, Single, Child Dependents) and if their spouse has health insurance separately, along with what their retirement income needs are, there can be significant cost differences amongst the plans.

Sometimes, using the ACA plan is most cost-effective because we are able to help obtain healthcare subsidies, which can significantly reduce the cost of insurance premiums, especially if retirement income is less than $80,000 (MFJ) annually. Whereas, other times, it may make more sense to use one of the PSEG Healthcare options. Importantly, if the PSEG employee chooses the COBRA benefit to start with, they are ineligible to enroll in the PSEG retiree medical plan later.

Spending the time going through this financial process can potentially save thousands of dollars a year on the cost of their health insurance premiums.

This is one of the most common questions we get for obvious reasons. We have a comprehensive process that we go through with each family to come up with the answer to their retirement income strategy. The strategy varies as each household has different spending goals, financial concerns, income source amounts, debts, risk tolerances, and tax rates, among other variables. To summarize, the process for maximizing retirement income is attained by coordinating PSEG plans with any assets, investments, and benefits you or your spouse may have outside of PSEG. We start by determining your annual lifestyle spending needs and what amount of it is being covered by steady guaranteed income sources like their Cash Balance Plan and Social Security.

We analyze all options to find the best income strategies with the Cash Balance Plan. Reviewing the tradeoffs between starting income immediately vs. delaying, along with the different income options (lump sum vs. monthly – single life vs. joint survivorship options. Similarly, will get a sense of your preference on starting Social Security (start immediately or delay one or both spouses).

We review the tradeoffs between starting Social Security at different ages and the effects on retirement income, survivorship income, and from a tax perspective. One example would be asking, does taking Thrift Savings (or IRA) withdrawals in lieu of starting Social Security allow our clients to take advantage of lower tax brackets while delaying and increasing Social Security income?

Additionally, we will identify if delaying income sources provides tax savings opportunities like Roth Conversion (moving money from your IRA to a Roth IRA, taking advantage of a lower tax bracket and tax-free future growth). As you can see, there are many potential directions one could go with respect to figuring out the timing of guaranteed income sources.

Once we understand the guaranteed income amounts, we will highlight any income gaps. This is where one’s retirement nest egg will need to fill in the remaining portion of income needed to meet annual spending goals that are not covered by their guaranteed income sources. The annual amount can and will be at different times depending on the start times of these guaranteed income sources.

Knowing the income needed along with one’s risk tolerance, we will know what changes, if any, should be made to come up with the best investment strategies. Additionally, we will figure out what investments specifically are funding one’s income, contingency plans for stock market crashes should accounts be consolidated (e.g., Thrift/Savings to IRA), which account type should my income be funded from, etc. Many people (advisors included) want to start with investment planning, but I truly believe it makes sense to “back into it” as we go through the financial planning process.

From there, we will look at their retirement income from a risk management standpoint. Identifying other possible financial risks (weak spots) like losing a spouse (tax bracket changes, losing income sources), a long-term care event (increasing retirement spending), policy changes like higher taxes during retirement, and stock market crash, to name a few. We will help determine the potential impact of these risks and how to protect against them, throwing you off course from reaching your long-term goals.

As we go through this entire process, we are taking the time needed to educate our clients so they can understand the information. As we go through the process, we are also creating easy-to-follow actionable steps within their plan so they know what actions are needed to secure their retirement income.

Whether they should make Roth Conversion (converting IRA to Roth IRA money) or not, and if they are, what year should the conversion(s) take place, and what amount should be converted?

Typically, we start by looking at their current tax rate versus future tax rates at different points in time as income sources turn on and/or as earned income stops so we can determine the best time and specific amounts to convert without jumping into a higher tax bracket. Specifically, we are looking for any years that the household’s tax rates will drop lower than their current tax rate.

Additionally, as we go through the tax planning process, we are trying to uncover ways to bring them into a lower tax bracket by changing the start time and/or type of an income source at different points in time. Importantly, we are delivering the information in an easy-to-understand manner so the clients are clear on what Roth Conversion action they should take.