How to Calculate PERs Retirement: A Step-by-Step Guide
Calculating retirement benefits can be a daunting task, especially for those who are part of the Public Employees Retirement System (PERS) in Oregon. However, understanding how to calculate PERS retirement benefits is crucial for anyone planning to retire soon. PERS retirement benefits are calculated using three different methods, including Full Formula, Formula Plus Annuity, and Money Match.
The Full Formula method is used to calculate the retirement benefits of those who have been members of PERS for a long time. This method takes into account the member's years of service, final average salary, and a benefit multiplier. The Formula Plus Annuity method is used for those who have been members of PERS for a shorter period of time. It combines a reduced benefit multiplier with an annuity purchased with a portion of the member's account balance. Lastly, the Money Match method is used for those who have been members of PERS for a short period of time and have a smaller account balance.
Each method has its own set of requirements and eligibility criteria. It is important to understand which method applies to your situation to ensure that you receive the highest benefit amount possible. In the following sections, we will discuss each method in more detail and provide step-by-step instructions on how to calculate your retirement benefits under each method.
Understanding PERS Retirement
PERS Retirement Basics
The Public Employees Retirement System (PERS) is a retirement program for public employees in the state of Oregon. It provides retirement, disability, and death benefits to eligible employees and their beneficiaries. The program is funded by contributions from both employees and employers.
PERS retirement benefits are calculated based on a formula that takes into account an employee's years of service, final average salary, and retirement age. The formula used for calculating PERS benefits varies depending on the type of retirement plan an employee is enrolled in.
Eligibility Criteria
To be eligible for PERS retirement benefits, an employee must meet certain criteria. Generally, employees must have worked for a PERS-covered employer for a minimum number of years to be eligible for retirement benefits. The number of years required varies depending on the type of retirement plan an employee is enrolled in.
In addition to meeting the minimum years of service requirement, employees must also meet certain age and service credit requirements to be eligible for retirement benefits. The age and service credit requirements vary depending on the type of retirement plan an employee is enrolled in.
Types of PERS Retirement Plans
There are several types of PERS retirement plans available to public employees in Oregon. The type of retirement plan an employee is enrolled in determines the formula used to calculate their retirement benefits.
The most common types of PERS retirement plans are Tier One, Tier Two, and the Oregon Public Service Retirement Plan (OPSRP). Tier One and Tier Two plans are defined benefit plans, which means retirement benefits are calculated based on a formula that takes into account an employee's years of service, final average salary, and retirement age. The OPSRP plan is a defined contribution plan, which means retirement benefits are based on the amount of contributions made to the plan and the performance of the investments in the plan.
Employees enrolled in PERS retirement plans should consult with their employer or a financial advisor to better understand the specific details of their retirement plan and how their retirement benefits are calculated.
Calculating PERS Retirement Benefits
Calculating PERS retirement benefits can be complex, but it is important to understand the process to ensure you receive the correct amount of retirement income. The following subsections explain the key factors used to calculate PERS retirement benefits.
Final Average Salary
The Final Average Salary (FAS) is the average of the highest 36 consecutive months of salary earned by the member. Overtime and other forms of compensation may be included in the calculation of FAS. The FAS is an important factor in determining the retirement benefit amount.
Service Credit Calculation
Service credit is the number of years and months a member has worked for a PERS employer. The more service credit a member has, the higher their retirement benefit will be. Service credit is calculated based on the number of hours worked and the member's salary.
Benefit Formula
PERS uses three methods to calculate Tier One/Tier Two retirement benefits: Full Formula, Formula Plus Annuity, and Money Match. The method used depends on the member's eligibility and which method produces the highest benefit amount. The Full Formula is the most common method used and takes into account the member's FAS and service credit.
Age Factor
The age factor is a percentage used to calculate the retirement benefit based on the member's age at retirement. The age factor increases as the member gets older, which means that the retirement benefit will be higher for members who retire at an older age.
In conclusion, calculating PERS retirement benefits can be complex, but understanding the key factors used in the calculation process can help ensure that members receive the correct retirement benefit amount. Members should consult with PERS or a financial advisor to ensure they fully understand the process and make informed decisions about their retirement.
Contribution Rates and Limits
Employee Contribution Rates
As of the fiscal year 2024-25, the employee contribution rates for CalPERS retirement benefits are as follows:
- Classic Members: 8% of their monthly salary
- New Members: 50% of the total normal cost of the benefits
It is important to note that these rates are subject to change and may vary based on the member category and other factors. Employees should consult with their employer or CalPERS directly for the most up-to-date information on contribution rates.
Employer Contribution Rates
CalPERS retirement benefits are funded through contributions paid by contracting employers, members, and earnings from CalPERS investments. The employer contribution rates per member category for fiscal year 2024-25 are as follows:
| Member Category | Employer Contribution Rate |
|---|---|
| Classic Members | 22.68% |
| New Members | 21.30% |
It is important to note that these rates may vary annually and are subject to change. Employers should consult with CalPERS directly for the most up-to-date information on contribution rates.
Overall, understanding the contribution rates and limits is crucial for employees and employers alike when calculating CalPERS retirement benefits. By staying informed and up-to-date on the latest rates, individuals can make informed decisions about their retirement planning.
Payout Options
When it comes to receiving retirement benefits from PERS, members have several payout options to choose from. This section will cover two payout options: Lump Sum vs. Annuities and Beneficiary Designations.
Lump Sum vs. Annuities
One of the first decisions a PERS member will have to make when retiring is whether to receive their benefits as a lump sum or as an annuity. A lump sum payment gives the member a one-time payment of their retirement benefits, while an annuity pays out the benefits in regular installments over a set period of time.
There are advantages and disadvantages to both options. A lump sum payment can provide the member with a large sum of money upfront, which can be useful for paying off debts or making large purchases. However, it also means that the member is responsible for managing their retirement funds and ensuring that the money lasts throughout their retirement.
An annuity, on the other hand, provides a steady stream of income for the member throughout their retirement. This can be beneficial for members who want to ensure a stable income during their retirement years. However, it also means that the member may not have access to a large sum of money upfront, which can be a disadvantage for those who have immediate financial needs.
Beneficiary Designations
Another important decision that PERS members will need to make is who will receive their retirement benefits in the event of their death. Members can designate one or more beneficiaries to receive their benefits, and they can change these designations at any time.
It is important to keep beneficiary designations up to date, as changes in a member's personal life, such as marriage, divorce, or the birth of a child, can affect who they want to receive their benefits. Members should also consider naming contingent beneficiaries, who will receive the benefits if the primary beneficiary is unable to do so.
In conclusion, PERS members have several payout options to choose from when it comes to receiving their retirement benefits. They should carefully consider their options and consult with a financial advisor to ensure that they make the best decision for their individual needs.
Tax Implications
Retirees who receive benefits from the PERS retirement plan must consider the tax implications of their income. Retirement benefits are generally taxable, and the amount of tax owed depends on the retiree's income and tax bracket.
Federal Tax Considerations
Retirees who receive PERS retirement benefits must report the income on their federal tax return. The amount of income that is subject to federal income tax depends on the retiree's filing status, income, and deductions.
Retirees may also be subject to federal income tax on their Social Security benefits. The amount of Social Security benefits that are subject to tax depends on the retiree's income and filing status.
State Tax Considerations
In addition to federal income tax, retirees who receive PERS retirement benefits must also consider state income tax. Oregon does not tax Social Security benefits, but it does tax retirement income. The amount of retirement income that is subject to state income tax depends on the retiree's income and deductions.
Oregon offers a retirement income credit, which can reduce the amount of state income tax owed by retirees. The amount of the credit depends on the retiree's income and filing status.
It is important for retirees to understand the tax implications of their PERS retirement benefits in order to properly plan for their retirement income. Retirees should consult with a tax professional or use tax preparation software to ensure that they are properly reporting their income and taking advantage of available tax credits and deductions.
Applying for PERS Retirement
Application Process
To apply for PERS retirement, the member must complete the Service Retirement Election Application. Members can complete the application process through their myCalPERS account at my.calpers.ca.gov. Step-by-step instructions will guide the member through an online application that is pre-populated with their personal information. Members can also download the Service Retirement Election Application and other forms they may need to complete the retirement application process from the CalPERS website.
Required Documentation
Members must submit the following documentation with their retirement application:
- Birth certificate or other proof of age
- Social Security card
- Marriage certificate or domestic partnership registration, if applicable
- Certified copy of the final judgment of divorce or legal separation, if applicable
- Beneficiary designation form, if applicable
- Power of Attorney, if applicable
Members should check with their personnel office to confirm which formula they are under and what age they are eligible to retire. It is recommended that members start the retirement application process at least six months before their intended retirement date to allow enough time to gather all necessary documentation and complete the application process.
After Retirement
Cost of Living Adjustments
After retirement, the cost of living adjustments (COLAs) are applied to the monthly benefit amount to help keep up with inflation. The COLAs are based on the Consumer Price Index (CPI) and are calculated annually. Members who retired under the 2% at 55 formula receive a maximum of 2% COLA, while members who retired under the 2% at 62 formula receive a maximum of 2.5% COLA.
Healthcare and Insurance
Retirees may be eligible for healthcare and insurance benefits through CalPERS. The benefits and eligibility requirements vary depending on the type of retirement plan and the member's years of service credit. Retirees can choose from a variety of health plans, including HMOs, PPOs, and Medicare Advantage plans. They can also choose to enroll in dental, vision, and life insurance plans.
Retirees who are not eligible for CalPERS healthcare benefits may be eligible for coverage through the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA allows retirees to continue their health coverage for a limited time after retirement, but they must pay the full premium cost.
Frequently Asked Questions
What is the formula for calculating PERS retirement benefits?
The formula for calculating PERS retirement benefits varies depending on the member's hire date and membership tier. Members who were hired before January 1, 2013, fall under the "Classic" membership tier, while those hired on or after January 1, 2013, fall under the "PEPRA" membership tier. The formula for Classic members is based on a percentage of their final compensation and years of service credit, while the formula for PEPRA members is based on a combination of age, years of service credit, and a benefit factor.
At what age can I retire with full PERS benefits?
The age at which a member can retire with full PERS benefits varies depending on their membership tier and the formula used to calculate their retirement benefits. In general, members can retire as early as age 50 with five years of service credit, but some members may have to wait until they are older to retire with full benefits. For example, PEPRA members must be at least age 52 to retire with full benefits.
How is final average salary determined for PERS retirement calculations?
Final average salary (FAS) is the average of a member's highest consecutive 12 or 36 months of compensation, depending on the member's hire date and membership tier. Compensation includes base pay, shift differentials, and other pay items that are included in the member's retirement plan. For Classic members, FAS is based on the highest consecutive 12 months of compensation, while for PEPRA members, FAS is based on the highest consecutive 36 months of compensation.
What are the steps to use a PERS retirement calculator?
To use a PERS retirement calculator, members must input their hire date, membership tier, years of service credit, and other relevant information. The ma mortgage calculator will then generate an estimate of the member's retirement benefits based on their input. CalPERS offers a retirement calculator on their website, which can be accessed by clicking here.
How many years of service are required to be eligible for PERS retirement?
Members must have at least five years of service credit to be eligible for PERS retirement benefits. However, the age at which a member can retire with full benefits varies depending on their hire date and membership tier.
Are there different calculations for PERS disability retirement benefits?
Yes, there are different calculations for PERS disability retirement benefits. Disability retirement benefits are based on a percentage of the member's final compensation, similar to the formula used for Classic members. However, disability retirement benefits are not subject to the same age and service credit requirements as normal retirement benefits. Members who are approved for disability retirement can receive benefits regardless of their age or years of service credit.