myth /miTH/ : a widely held but false belief or idea.
Myths are commonplace in popular culture. Some myths are fun, like unicorns and Bigfoot. Others are not so fun, like when they have a negative impact on your financial well-being. Myths exist among LAGERS' membership as well, and believing these could negatively impact your financial future. So, just to clear some things up, here are the most common myths about your LAGERS benefits and the real truths behind them.
Consider yourself enlightened.
MYTH #1: Option A is the Best Retirement Payment Option
A member at a recent pre-retirement seminar told me, "I know Option A is the best, so that's obviously what I'm going to pick." I've heard similar comments from members in the past. Since Option A is the most popular beneficiary payment option among LAGERS retirees, it seems this is a widely-held belief. But the truth is, LAGERS payment options are not one-size-fits-all. There is no "best" option. No silver bullet. The retirement payment option you choose is dependent upon many factors unique to you. You may choose Option A because it really is the best choice for you. Just make sure you have a better reason than "that's what everyone else is doing."
MYTH #2: I Will Lose Money by Retiring After October 1st
I have written and entire blog about this one. This myth is so well-known, I hear it at every pre-retirement seminar I have ever done (and I've done a bunch). This myth refers to when you receive your first cost of living increase during retirement. The common belief is you HAVE to retire before October 1st or you will miss out on money that should be yours. Fake news! LAGERS' cost of living increases are based on your retirement date and are designed so your benefit doesn't lose value. In other words, LAGERS wants to ensure your benefit maintains 100% purchasing power. If you don't receive your first cost of living adjustment when most other LAGERS retirees receive their increase, we will catch you up on your next October payment by giving you a larger increase than everyone else. Bam! Purchasing power restored.
MYTH #3: If I Die Before I Get Back All the Money I Paid in, LAGERS Keeps My Money
This myth goes like this, "So if I die before I get back all the money I paid in, that money is just gone?" Poof! Gone into thin air. Not quite.
Any money you pay into LAGERS either through payroll withholding or for purchasing service credits is YOUR money. It does not just vanish if you die before LAGERS pays it all back. Your money is protected in LAGERS' trust fund and is not affected by the ups and downs of the markets. One way or another, you or your beneficiary, will receive back every dime you pay into LAGERS. Most likely, if you're vested in LAGERS, you will receive back much more than you paid. But it is not possible to get back any less. No magic tricks here. Your money is your money.
MYTH #4: My Employer Pays for My Entire Retirement Benefit
I often quiz members on who pays for their LAGERS benefit. Most of time, they can get two out of three. Not bad. The only problem is, the one they don't know is the most significant! The two sources members know are employer payments and employee payments. These two sources account for about 36% of the funding for your retirement benefit. The rest, the other 64%, comes from the money made off LAGERS' investments. Almost every dime LAGERS takes in from employers and employees is invested in the markets. Income generated from these investments ends up paying for almost two-thirds of your benefit! Keep in mind, the markets do not affect the amount of your retirement benefit, but they do play a large role making sure your benefit is fully funded.
MYTH #5: My LAGERS Benefit Will Be Based on My Last 5 (or 3) Years of Salary
This may be the biggest myth of all! LAGERS members commonly believe their retirement benefit will be based on their salary from their last 5 (or 3) years. The truth is, your benefit might be based on your last few years of salary, but not in all cases. LAGERS is going to look at the 120 months (10 years) of your salary paid to you immediately before your retirement date. The period of 60 (or 36) consecutive months of salary within the final 120 months that produce the highest average will be used in your benefit calculation. It doesn't have to be the last 5 or 3 years, but it does have to be within your last 10 years of LAGERS employment.
What is the moral of this story? Don't take what you hear about your retirement benefit as fact unless you hear it from LAGERS. Myths exist everywhere, but acting on a myth about your LAGERS benefit could impact your future financial security. Make sure you are informed. Contact LAGERS directly. Don't believe the myths!