25 Jul What pensions mean for unemployment

Q. I have to retire from my state job on Sept. 1, 2016 to get health benefits paid for life — an offer I can’t refuse. I’m 62 and will start collecting a small pension. Can I also collect unemployment? Dealing with cancer, I find myself in panic mode. Help!
— Retiring very soon

A. Let’s start by saying when it comes to retirement benefits, each person’s situation is unique.

But trouble like yours is not uncommon.

There is good news, actually, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

Here’s what he means.

For starters, he said, unemployment benefits are a state issue, not a federal one.

“Each state can vary but for New Jersey, if you are receiving a pension and you are trying to collect unemployment, chances are your unemployment benefits may be reduced,” he said. “Depending on your next steps, your unemployment benefits can be reduced by either 0, 50 or 100 percent.”

Here’s a closer look at each scenario.

If your employer completely contributed towards your pension, your unemployment benefits may be reduced by 100 percent of your pension amount, he said.

“For example, if your monthly pension amount is $500, then your calculated weekly pension amount is around $125,” he said. “Then, if your weekly unemployment amount is $200, New Jersey will subtract $125 — 100 percent of your weekly pension — from $200, leaving you with $75 for your weekly unemployment check.”

Lynch said the $75 weekly unemployment check plus your $125 weekly pension check comes out to $200 per week. Instead of having $325 as a combined weekly pay as you may have thought, you will have $200 to spend per week.

Next, if you and your employer both contributed towards your pension, your unemployment benefits may be reduced by 50 percent of your pension amount.

Take the same example of a $500 monthly pension with a weekly pension calculated to be around $125.

Lynch said if your weekly unemployment amount is $200, New Jersey will subtract $63 — 50 percent of your weekly pension — from $200, leaving you with $137 for your weekly unemployment check.

“This $137 weekly unemployment check plus your $125 weekly pension check comes out to $262 per week,” he said. “Instead of having $325 as a combined weekly pay as you may have thought, you will have $262 to spend per week.”

Finally, if you contributed the entire amount towards the pension and your employer did not contribute anything, then no reduction will be made to your unemployment benefits, Lynch said.

How can you avoid the mess? This is the good news.

“You can roll over your pension, say into an IRA, and New Jersey does not consider that as you receiving your pension and thus, the above calculations won’t matter,” Lynch said. “If you decided to perform a pension rollover, you then can decide when and how much to take out later on.”

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This post was first published in July 2016.