With around a million public retirement system participants in North Carolina, the state has plenty of residents to take care of. But although the number of retirees in the state and the subsequent costs are increasing, the fund currently boasts about $90 billion in assets. There are also many different programs to take advantage of in the Tar Heel State, so make sure you know all your options. Many financial advisors have the capabilities to handle this type of retirement planning, and SmartAsset’s free financial advisor matching tool can pair you with up to three experts in your area.
Types of Retirement Systems in North Carolina
Aside from the sheer number of retirement systems, pension funds and plans available in North Carolina, its typical benefit offers are standard. In fact, these come in defined benefit, defined contribution and personal investment plan options. However, the state still advocates for public retirees to find alternative ways to take care of health insurance, as it echoes the federal government’s expectation that out-of-pocket medical costs are on the rise and will likely continue doing so.
North Carolina Retirement Systems
| Plan Title | Eligible Employees |
| Teachers’ and State Employees’ Retirement System (TSERS) | – Full-time employees and teachers at a community college or on a state board of education – Employees of the state and eligible charter schools who work 30 hours a week, nine months a year |
| Local Governmental Employees’ Retirement System | – Regular employees of participating city, county, town and local government units |
| State Law Enforcement Officers’ Retirement System | – Full-time, permanent state law enforcement officers – Some benefits available for parole and probation officers |
| Local Law Enforcement Officers’ Retirement System | – Full-time, permanent local law enforcement officers, deputy sheriffs and county sheriffs |
| Consolidated Judicial Retirement System | – Supreme Court justices – Superior Court, Court of Appeals and District Court judges – Public defenders, clerks, solicitors, district attorneys, administrative officers and director of Indigent Defense Services |
| Firefighters’ and Rescue Squad Workers’ Pension Fund | – Firefighters who are at least 18 years old that work for a Department of Insurance certified fire department – Rescue squad workers who are at least 18 years old that are eligible for membership with the North Carolina Association of Rescue and Emergency Medical Services, Inc. |
| Legislative Retirement System | – Members of the General Assembly |
| National Guard Pension Fund | – Current and former members of the National Guard that have at least 20 years of overall service – At least 15 of those years must be in North Carolina – If a past member, must have been honorably discharged |
| Registers of Deeds’ Supplemental Pension Fund | – County register of deeds officials |
Overview of North Carolina’s Retirement Systems
Teachers’ and State Employees’ Retirement System – If you complete certain service time and age requirements, this system allows for early retirement as well as multiple ways to reach full, unreduced retirement. The annual distributions you receive are calculated by multiplying 1.82% of your average final compensation and the length of your creditable service. Some of the participants in this plan who are involved in education can also choose to join the optional retirement program of the state.
Local Governmental Employees’ Retirement System – This defined benefit plan calls for 6% of your pay to be contributed, whereas employer contributions are determined by an actuary. You are vested in this plan once you have completed five years of employment, which means at that point you’ll be eligible for lifetime monthly retirement benefits.
State Law/Local Law Enforcement Officers’ Retirement Systems – These two systems are extremely similar but simply distinguish between state and local police officers. In general, this program is very similar to the rest offered by North Carolina. One benefit area to consider, though, is the multiple styles of payment options you’ll have available to you, depending on if you want anyone besides you to receive distributions, and if so, who.
Consolidated Judicial Retirement System – A defined benefit plan, the Consolidated Judicial Retirement System is right in line with the other systems in the state. Unreduced retirement ages for this program are solid. These include being able to retire at 50 with 24 years of service or a retirement age of 65 with five years of service.
Firefighters’ and Rescue Squad Workers’ Pension Fund – This program allows eligible workers to receive $170 a month so long as you’re 55 years old and have 20 years of service credit. Should an unfortunate event occur that leaves you permanently disabled after at least 10 years of service, you’ll be eligible for disability benefits, even if it happens outside of your job.
Legislative Retirement System – Like all of the retirement systems of North Carolina, your employer’s share of plan contributions are decided by an actuary. For this plan, though, you’ll pay into the fund at a rate of 7% of your pay. You’ll also be fully vested once you’ve been in your eligible position for at least five years.
National Guard Pension Fund – As long as you meet the eligibility requirements of this fund, you will receive $105 a month once you turn 60 years old. For any month of military service credit that you have past the 20-year mark, you get an extra $10.50 a month.
Registers of Deeds’ Supplemental Pension Fund – There aren’t many participants in this plan, with just 99 residents taking benefits in North Carolina’s most recent data. Those involved in this plan typically come from the Local Governmental Employees’ Retirement System as well, so check with a financial advisor to see what your retirement payments should look like.
Retirement Taxes in North Carolina
Federal
As soon as you begin taking payments from your retirement accounts and pension funds, the federal government will charge you an income tax. Because this tax occurs during retirement, it will not apply when you receive your payment beforehand. This tax-deferred status helps individuals confidently build their retirement assets without the IRS stepping in.
When you begin getting charged income taxes, it can be taken from your account in two different ways: withholdings and estimated tax payments. Withholdings are much more commonly used, as the federal government takes out what it thinks it needs from each check, and either refunds or charges you the difference. On the other hand, estimated payments are in the hands of the taxpayer, and must be paid quarterly.
You can also choose to rollover all of your public retirement money into an alternative retirement account, such as a 401(k) or IRA. In the majority of instances, this will allow the money to continue to be tax deferred, at least until you begin taking distributions from it. However, a Roth IRA calls for immediate tax payments, as it’s an after-tax account.
State
All retirement income, regardless of the source it comes from, is taxable in North Carolina. The tax rate is 5.499%, and although there is no retirement-centric deductions, the state has sizable standard deductions. These include the following:
- Single: $8,750
- Joint: $17,500
- Head of household: $14,000
Current Financial Health of the North Carolina Retirement System
As of North Carolina’s most recent data, its retirement system serves more than 900,000 state and local employees. When it comes to financial size, the state has nearly $90 billion in a pension fund for these individuals. So while this puts it in a fairly good position for the long-term, its paid member benefits seem to be rising year over year. In fact, from 2015 to 2016, retirees received $5.8 billion in paid benefits, a $200 million spike.
Resources for Retirement Planning
- A financial advisor can be a great resource for anyone who’s planning for or approaching retirement. SmartAsset has made finding such a professional easy, as the financial advisor matching tool can pair you up with as many as three advisors in your area.
- Many people make the mistake of approaching retirement as an amorphous goal, but setting definite retirement goals is incredibly important. This allows you to plan for your retirement in specific segments, making your finances much more organized.
Photo credit: ©iStock.com/c-George, ©iStock.com/kali9, ©iStock.com/John-M-Chase