The New Hampshire retirement system is fairly straightforward. Members are split into two broad categorizations, and a large majority is in the first category. Since your pension benefits will likely be only one part of your retirement savings, you may still find it beneficial to talk to a financial advisor, in which case the SmartAdvisor tool can match you with up to three advisors in your area.
Types of Retirement Systems in New Hampshire
New Hampshire’s retirement system is broadly split into two groups: Group I and Group II. Quite simply, Group I covers employees of state and local government as well as teachers. On the other hand, Group II covers police officers and firefighters. Keeping the categories broad can be helpful, since it means there are more employees in each category paying into the fund. The exact benefit you’ll receive in retirement is dependent on a number of factors. These include years of creditable service, average final compensation and when you became an employee.
|New Hampshire Retirement Systems|
|Plan Title||Eligible Employees|
|Group I||– State, county and municipal employees and teachers|
|Group II||– Police officers and firefighters|
Overview of New Hampshire’s Retirement Systems
Group I – Simply put, Group I consists of a defined benefit plan for state and local employees as well as school teachers. Members of Group I will become vested for benefits once they reach either 10 years of creditable service or 60 years of age. Almost 90% of system participants are in Group I.
Group II – By contrast, Group II is reserved for police officers and firefighters. Members tend to receive higher pensions on average than Group I members. They will have access to death and disability benefits but not health insurance.
Beyond these two categorizations, members also fall into three tiers. These depend on when they began work and when they became vested. The tiers are as follows:
- Tier 1: Members hired and vested before January 1, 2012
- Tier 2: Members not vested prior to January 1, 2012 but hired prior to July 1, 2011
- Tier 3: Members hired on or after July 1, 2011
Retirement Taxes in New Hampshire
You can delay federal income tax with many retirement plans, but eventually, you’ll always have to pay up. Pension plans are no exception. When you contribute to a pension fund, you do so with pre-tax dollars. This will allow you to contribute more, which means more interest. Once you begin to receive payments in retirement, you’ll also begin to pay taxes on that money. If you wish to delay the inevitable even longer, you can transfer your pension money into an alternative retirement account like a 401(k) plan. With that arrangement, you’ll just pay your taxes when you make withdrawals from that account.
If you’d prefer to pay income taxes as an employee instead of as a retiree, you can do one of two things in the New Hampshire retirement system. You can have your taxes withheld from your paycheck, or you can make estimated tax payments. Estimated tax payments are payments you make quarterly that you calculate to be roughly what you would owe in taxes. Choosing this option requires some math on your part, while the withholding option involves little to no work for you. You may also get a refund or a charge after tax season if the IRS withheld too much or too little.
New Hampshire is one of two states in the country (Tennessee is the other) that places no taxes on wages but does place them on dividends and earned interest. In the New Hampshire retirement system, you won’t pay taxes on any of the income you contribute to your pension. However, if you exit your New Hampshire retirement system and withdraw your accumulated contribution, you’ll have to pay a 5% tax on the interest you’ve earned. New Hampshire has no estate tax.
Current Financial Health of the New Hampshire Retirement System
Promised benefits in the New Hampshire retirement system grew 175% from 2003 to 2016, a rate that greatly outpaced the growth of assets in the pension fund. As of 2016, New Hampshire had $12.8 billion in promised benefits and $7.5 billion with which to pay those benefits. This doesn’t necessarily mean that the system is in dire straits at the moment. The state will never have to pay the entire $12.8 billion at once. Plus, there isn’t a single state in the country that has more in total assets than promised benefits. However, the balloon growth of promised benefits in New Hampshire over the last 15 years is concerning. Only New Jersey’s promised benefits grew at a higher rate over the same period.
Tips for a Less Stressful Retirement
- Your pension will probably need supplementing if you want to maintain your lifestyle in retirement. Therefore, having a concrete set of financial goals will help you to calculate what you need to save. Then, you can determine the steps you can take to get there.
- Navigating the complexities of retirement accounts and what you’ll need to supplement your pension can be a lot to keep straight. Finding a financial advisor who can explain the ins and outs of each option can reduce a lot of the headache of planning for retirement. With SmartAsset’s Smartadvisor tool, you can answer a series of questions about your financial needs and preferences, then the tool will pair you with three financial advisors in your area.
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