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Switch to HHC Cuts Allowance

By JOEL L. FRANK

Q.: I currently work for the city's Department of Transportation. I'm 55 years old and have 25 years of service. I do not belong to the 55/25 Plan. Can I retire from this job and collect a pension and go work for the Health and Hospitals Corporation, or would I have to continue my pension into HHC.

Mr. Frank is a fee-only Retirement Financial Planner and a retired NYC High School Teacher of Accounting. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net .

T.B.

A.: A public employee is allowed to retire and draw his/her pension and then go to work for a Public Benefit Corporation and continue to receive his/her pension. The HHC is one of a number of public authorities that the Corporation Counsel has determined to be a public benefit corporation. The others are: New York City Housing Authority, New York City Transit Authority, New York State Dormitory Authority, Off-Track Betting Corporations, Metropolitan Transit Authority, Urban Development Corporation, New York/New Jersey Port Authority, Water Front Commission, New York City School Construction Authority, and New York City Convention Operating Corporation.

Please note that insofar as you are not a member of the 55/25 Plan, your pension will be reduced by 27 percent because you are seven years younger than 62.

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As we enter the last month of 2007, we should start to draft some resolutions for the New Year.

Some of the usual suspects are: Prepare a monthly budget. A budget should be prepared, not because you are cheap, but because you want to know where your money goes and where you can cut back (if you have the will to do so). Use your credit card only for expensive purchases, and only if you are able to pay the balance due in full with the first billing cycle. Use your debit card for all other purchases.

Understand that when saving via a salary-reduction plan (457,401(k) 403(b)) you are not saving "after-tax dollars" but "pre-tax" or "gross dollars". This means if you can afford to save $100 after-tax, you can afford to save about $130 (or more) pre-tax. Just as you are compelled to pay into the Social Security Program with after-tax dollars, make believe that you are compelled to pay into a pre-tax retirement savings program offered by your employer. Make believe that the law requires you to contribute at least 10 percent of your salary to a pre-tax retirement savings/investment program.

Save all you can via the Deferred Compensation Plans of the City of New York. Use the NYCE IRA for not only current pre-tax retirement savings, but for rollover and consolidation purposes. Use the appropriate Pre-Arranged Portfolio (Target Date Funds).

Never pay a commission to buy a mutual fund. Use a discount broker to buy stocks. Buy only low-cost term life insurance.

Do not borrow against your pre-tax retirement savings account. Do not make hardship withdrawals from your pre-tax savings account. Get a second job to place you over the hump.

Do not have too much withheld from your paycheck unless you enjoy giving an interest-free loan to the government. This means when you file your tax return, the government owes you very little or you owe the government very little.

When using an out-of-network health provider, ask him or her to accept your insurance company's reimbursement. Only have a first mortgage with a fixed-interest rate.

If retired and in need of more regular income, check into taking out a reverse mortgage. A reverse mortgage is a financial arrangement where the bank sends you a monthly check based on the equity in your home and your age. Each monthly check is a loan from the bank and must be paid back with interest after you sell the house or die, whichever comes first.

Before you take out a reverse mortgage, I invite you to call me for my two cents worth of advice. A reverse mortgage is a marvelous financial planning tool, but like anything else it must be shopped.