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CalPERS Quick Tip | Choosing a Retirement Date

Members often ask, “When’s the best time
to retire?” While there’s no one-size-fits-all answer
to that question, there are a few things you should consider when choosing a retirement
date. Choosing a retirement date is an important
decision, and can depend upon a variety of factors. One approach is to determine how much money
you’ll need in retirement, and work backward from there – taking into account the three
factors that impact your pension: your service credit, benefit factor, and final compensation. Now, Service Credit is your total time spent
on the job with CalPERS-covered employers. Of course, the longer you work, the more service
credit you’ll earn.

But because of the way it’s calculated,
10 months of full-time employment during a fiscal year amounts to one full year of service
credit earned. So, if you work full-time, starting in July,
you’ll earn one year of service credit by the following April, and won’t earn any
more in May or June. Something to consider if you’re aiming at
a bump in service credit prior to retirement. Depending on your employer, you may have the
option to convert your unused sick leave to service credit when you retire. (In fact, 2,000 hours of sick leave equals
one year of service credit). Vacation and other leave types, however, can’t
be converted; so, you might decide to use those hours while you’re still employed,
earning more service credit as you delay retirement. We recommend contacting your employer’s
personnel office for specifics on how your unused leave time is handled. Now let’s consider your benefit factor,
which is the percentage of pay you’re entitled to for each year of service credit you’ve
earned.

It’s based on the retirement formula contracted
by your employer, and your age at retirement. Once you’re eligible to retire, your benefit
factor increases with each quarter year of age – that is, four times per year based
on your birthday. For example, if you were born on February
first, then your benefit factor would increase on that day, then again on May first, again
on August first, and then again on November first. So, retiring on or after your next birthday
quarter could mean a greater benefit factor, resulting in a higher pension amount in retirement. The third factor impacting your pension is
final compensation, which is an average of your highest monthly pay rate.

Your final compensation period may cover your
last 12 or 36-months of employment, depending on your start date and your employer’s contract
provisions. To maximize your final compensation amount,
consider planning your retirement date around a promotion or any other event resulting in
a pay raise. Check out the retirement estimate calculator
in “My CalPERS” to explore how changes to your service credit, benefit factor, and
final compensation amounts might affect your pension. Which should help in choosing a retirement
date that works best for you.

To learn more about planning for retirement,
visit calpers.ca.gov/education..

As found on YouTube

Retirement Guide

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