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Navigating your PSERS Retirement can be quite complicated. You have to decide when the best time is for you to retire. You must choose a pension option and how to handle your contributions and interest. You might also need to think about health insurance options, buying back service credits, and making sure you’ll have enough income in retirement. That’s enough to make anyone feel a bit overwhelmed and worried that they’ll make a mistake along the way.
To help make your retirement easy and low stress, let’s explore two common mistakes made by PSERS members as they approach retirement and how you can avoid them.
Mistake #1- Using Your PSERS Statement of Account for Retirement Planning
Every year in October or November, you receive a PSERS Statement of Account. This statement gives you a summary of your current pension information including:
- Years of credited service
- Contributions and interest
- Death benefit should you pass away before retirement
- Projected pension payments
While the PSERS Statement is a useful way to get a quick snapshot of your pension, it is not a great tool to help you plan for retirement. Here’s why:
The information on the statement are as of the previous June 30th. Depending on when you’re reviewing your statement, it could be outdated.
Page 3 of your statement shows you some projected pension payments. There are two issues with using these pension figures for retirement planning.
The assumed PSERS retirement date (detailed at the top of Page 3) may not match your desired retirement date. For example, the pension payments on your statement may be based on you retiring at Normal Retirement at age 62. However, you might be planning on retiring “early” at age 58. This means the pension payments on your statement are probably higher than they will be at your retirement.
Only two of the five pension options are shown on the statement. Typically, Page 3 illustrates pension projections for the Maximum Single Life Annuity (MSLA) and Option 1. This leaves out Options 2, 3 and 4 which might be a better fit for you. The MSLA and Option 1 provide higher monthly payments than the other options. Only showing these two choices can lead someone to believe their future pension payment will be higher.
What should I do instead?
Rather than your PSERS Statement, use the retirement estimate calculator available in your Member Self-Service Portal. This calculator allows you to input your target retirement date, compare different retirement dates and see all of the five pension options available. It allows you to get more accurate and specific projections of your retirement benefits.
If you are within 12 months of your retirement date, you should request a PSERS Retirement Estimate. This is the best projection of your pension benefits based on the date of your retirement. A retirement estimate is required to attend Exit Counseling so it is advisable for everyone to request theirs be prepared. You can do so by completing and submitting this form to PSERS.
Those retiring in June of 2023 should send in their request in July.
Mistake #2- Retiring Just Before Reaching Normal or Special Early Retirement Status
More than ever, PSERS members are considering retirement. Many want to retire earlier than originally planned and some ASAP. For some, retiring a few years earlier may not impact their pension benefits much. For others, it could mean a difference of several hundred or even a thousand dollars per month for life.
Those who are more severely impacted by an earlier retirement typically retire right before achieving a retirement milestone like Normal or Special Early Retirement. Reaching either before retirement can really boost your pension, sometimes significantly.
It is important for everyone to know how close they are to achieving Normal Retirement or Special Early Retirement status before making a final decision. You should know what you would gain by working just long enough to reach either milestone. Let’s explore the benefits of each PSERS retirement status and how you can achieve them.
PSERS Retirement Status- Normal
Normal Retirement is sometimes considered “full” retirement. This means you will receive your full PSERS retirement benefits without a reduction for retiring early. There are 3 ways you can reach Normal Retirement:
- Reach age 62
- Reach age 60 with at least 30 years of credited service
- Reach 35 years of credited service
Attaining Normal Retirement can significantly increase your pension. Let’s take a look at an example of how this can make a difference using real pension figures from one of our clients:
Mary is 59 years old and has 27 years of credited PSERS service. If she retires now, she will be retiring early. If she works for 3 more years, she will reach Normal Retirement. Here is how it could impact her monthly pension payment. The below figures factor in Mary’s Final Average Salary of $90,000 with a 2% annual increase and assumes she withdraws her contributions and interest.
|Retire Now (Early)
|Retire in 3 Years (Normal)
You can see how working a few more years could add about $500 per month to Mary’s pension payment. While she may want to retire anyway, it’s important for her to know what she may be giving up if she retires this year.
PSERS Retirement Status- Special Early
Special Early Retirement is the retirement status between Early and Normal. By reaching it, your pension will be reduced by less than if you simply retire early. To achieve Special Early Retirement, you must be at least 55 years old and have at least 25 years of service. You may also hear it referred to as 55/25 or Special 55/25.
Working long enough to reach 55/25 can give a huge boost to your pension. Let’s see how this can work for Phil who is thinking about retiring.
In this scenario, Phil is 53 years old and has 25 years of service with PSERS. If he retires now, he will be considered retiring early. If he works for 2 more years, he will reach Special Early Retirement. Let’s see how it could impact his pension. The below figures factor in Phil’s Final Average Salary of $80,000 with a 2% annual increase and assumes he withdraws his contributions and interest.
|Retire Now (Early)
|Retire in 3 Years (Normal)
In this scenario, Phil should seriously consider working a few more years as his pension could increase significantly. Since Phil has already reached 25 years of service, he has another option. He could retire this year but not start his pension until he reaches age 55 in two years. This way, he can still reach both the age and service requirements for Special Early Retirement.
By doing this, he won’t accumulate the pension figures from above because he will have two less years of credited service and a lower Final Average Salary. However, his pension will be much higher than if he retired early and started the payments right away.
What should I do instead?
To avoid unintentionally retiring right before reaching Normal or Special Early Retirement, you should do a few things:
- Use the retirement estimate calculator in your Member Portal to calculate the benefits for your target retirement date. Check your retirement status in the results- it will show you whether you are retiring at Early, Special Early or Normal Retirement.
- If your status reads Early or Special Early, run another calculation where your retirement date is far enough out to reach the age and service requirements for Special Early or Normal Retirement.
This exercise will help you see if you’re close to an important status milestone and, if so, how much your pension will go up if you work long enough to reach that status. The goal is for you to have all the information necessary about the pros and cons of retiring soon or working a few more years.