Ready to Retire and Thinking Through Your Oregon PERS Benefit? Read this!
By Phillip Smith, CRPC®, AIF® | Financial Planner | Tidepool Wealth Strategies
So you're finally about to retire - your last day on the job is circled. Congratulations! You log in to PERS, maybe run an estimate, and feel both excited and uneasy. The pension is real, but so are all the choices. File too fast or do things in the wrong order and you can leave money on the table or lock yourself into an option that doesn't fit your family or your retirement planning needs. Let’s slow down, get clear, and line up the moves that matter. Here are seven key decisions to consider before your file:
1) Know your plan type first
Oregon PERS has three member groups based on hire date: Tier One, Tier Two, and OPSRP. Your group drives the benefit formula and some of your choices. If you are not sure which plan you are in, start here and confirm before you do anything else:
2) Understand how your pension is calculated
Tier One and Tier Two benefits are determined using the highest result from allowed methods. The core methods include Full Formula, Money Match, and for some Tier One members, Formula Plus Annuity. Full Formula multiplies your years of service by a set factor and your final average salary. For general service, the factor is 1.67%. For police and fire, it's 2.0%.
OPSRP uses a single formula based on your service, service type (general or P&F), and final average salary.
Final average salary for Tier One and Tier Two is usually the greater of your last 36 months or your highest three calendar years. That detail can materially change your estimate if you had a big overtime stretch or a recent promotion.
3) Age, service, and early-retirement reductions
You can retire with unreduced benefits at normal retirement age for your plan. Filing earlier generally lowers the monthly amount by a "multiplier" (referred to as an actuarial factor). For Tier One and Tier Two, reductions apply if you retire before the normal age threshold. OPSRP has its own early-retirement factors and thresholds by service type.
4) Pick the right payment option for your household
At retirement you will choose between a non-survivorship option (your life only) and several survivorship options (your life and your spouse's life). In plain English, you are choosing how much income you want during your life and what continues to your spouse/beneficiary after you pass. Common choices include (but are not limited to):
- Option 1 - Single life, highest monthly amount, ends at your death.
- Option 2 - 100% survivor to your beneficiary.
- Option 2A - 100% survivor with a step-up (sometimes referred to as a 'pop-up') to Option 1 if your beneficiary dies first. (The amount of benefit reduction is determined by the difference in age between you and the beneficiary (typically your spouse)).
- Option 3 - 50% survivor to your beneficiary.
- Option 3A - 50% survivor with a step up to Option 1 if your beneficiary dies first.
Once you file, you generally won't be allowed to change your option, so model the impact on lifetime income and survivor needs before you sign.
5) Don't ignore your IAP
Since 2004, most members contribute 6% of pay into the Individual Account Program. Your IAP is an invested account that complements the pension. As you approach retirement, review the investment mix, your payout choices, and how the IAP fits into cash flow and taxes in your first five years. Consult with a financial advisor and/or a PERS specialist if you have questions.
We commonly council PERS members on how best to utilize their IAP balance to enhance their retirement planning.
6) Have a variable account? Know your choices
Some Tier One and Tier Two members elected the Variable Annuity Program. At retirement you can consider a one-time transfer to the regular account or keep it variable. Understand how annual gains or losses will adjust your annuity before you decide.
7) Timing and taxes still matter after you stop working
Oregon taxes PERS benefits subject to specific rules that depend on your hire date and any past “remedy” increases. Consult wit ha tax pro on this. If you move out of state, your state tax may change. Coordinate your filing date, your payment option, and your IAP withdrawals with your broader tax plan. Good news: as of 2024, designated Roth accounts in employer plans no longer require RMDs, so you can make rollover decisions for flexibility rather than to dodge plan RMDs.
Bring it together with a simple plan
Think of your PERS decisions as part of your whole retirement picture. Your pension sets the base. Your IAP and other savings add flexibility. The payment option you pick should match both you and your spouse’s needs, as well as your health picture and your desire for stable income. Then layer in Social Security timing and your Medicare start date to keep your tax bracket and possible IRMAA surcharges in check.
Let’s take some action on this…
Confirm your plan type and run side-by-side estimates for Options 1, 2, 2A, 3, and 3A. Align your IAP payout decision with your long term retirement income strategy. Check early-retirement factors if you plan to file before normal age. Then line up your filing date, survivor choice, and tax plan with your advisor so your pension supports the life you want to live.
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