Are you thinking about retirement? Are you trying to figure out when would be the best time to take the plunge? This is a common question that is asked of me at pre-retirement seminars. Some people think they should leave on their anniversary date; others may say it has to be the first of the year; and yet others say you need to retire on October 1st. When you should retire is a personal decision only you can make. However, there are some things you may want to consider when timing your retirement in regards to your LAGERS benefit.
Should I retire early with a reduction or leave at normal retirement? I won’t be able to tell you which one you should do, but I can tell you what will happen with your LAGERS benefit if you choose to leave employment under early retirement. Members who qualify for normal retirement age (General Employees: 60, Police & Fire: 55) may choose to leave employment up to 5 years early with a reduced monthly benefit. When someone chooses to draw an early retirement, it is permanently reduced by a ½ percent for every month the member is younger than their normal retirement age. That adds up to 6% per year.
Those of you who have the Rule of 80, as you know, this is an early retirement provision that allows you to retire when the sum of your age and service is 80. Rule of 80 does not allow you to draw your benefit early with reductions. Instead, if you quit before your Rule of 80 age, you will be subject to normal retirement ages and will have to wait until your normal retirement age for an unreduced benefit.
Do I need to work until my anniversary date to receive additional service credit? No. Your LAGERS service credit accrues on a monthly basis. Instead of earning years of service in the system, you are actually earning months. So, it will have less of an impact working to an anniversary date than you might think. However, if it is a matter of principle, and you want to be able to say “I worked for 25 years at my employer,” go for it!
I heard that if I don’t retire on or a little before October 1st I will miss my first cost of living adjustment. Is this true? In short, this is not true.
LAGERS cost of living adjustments can be a bit tricky. LAGERS cost of living adjustments are granted by the Board of Trustees and paid on October 1st of every year. They are based on the Consumer Price Index and are cumulative year-to-year. Finally, to be eligible for your first cost of living adjustment, you must be retired for 12 full months, including an October 1st.This is what is being referred to in the above question. By this definition, if you were to retire on November 1st, you would have to wait 23 months until your first adjustment.
However, what is not included in the above assumption is that your cost of living adjustments are cumulative year to year, including your first one. In other words, if you retire on November 1st, your cost of living adjustment will catch up to 100% purchasing power 23 months after retirement. This means your first adjustment will be more than the majority of retirees that year. To read more about why having an October 1st retirement date is not as important as you might think, read this blog.
As you can tell, there are many considerations for timing your retirement and knowing these may help you feel more comfortable with your upcoming “plunge." Of course, if you have any questions about technical aspects of your benefit, feel free to contact us!
Jeff Pabst, CRC
Jeff is the Education and Outreach Coordinator for Missouri LAGERS.