Choosing to retire is a big decision. Knowing when you are “ready” to retire versus when you “can” retire are often two different decisions. You may be ready to retire, but may be unsure whether it’s the right time or if you can afford it. Retirement requires careful consideration and planning. Below are some things you should consider when deciding to retire.
My Retirement Income
Your SBCERA benefit is considered the “foundation for a secure retirement.” While you will earn a lifetime retirement benefit from SBCERA, it is important to think about what other sources of income you will need in retirement. Common sources of income could include social security, real estate, personal savings, defined contribution plans such as a 457(b) or 401(k), mutual funds, stocks, bonds and IRAs.
To determine how much income you will need in retirement, you should consider what your plans are for retirement. Where will you live? What activities would you like to participate in? Do you plan to travel? Once you have a “picture” in mind for your retirement, you can estimate your projected expenses and determine how much income you may need.
SBCERA offers several resources to assist you in calculating your future benefit. Your benefit is based on a formula that is predictable. It is very much like an algebraic formula. The value of the formula’s factors dictates the outcome. If you make one of these factors higher, the end result will be higher. There are four factors used to calculate your monthly, lifetime retirement benefit from SBCERA:
- Age at Retirement: Every quarter year counts. Therefore, every three months following your birthday your benefit increases. Your benefit will increase because of your age until you reach the maximum age as determined by your benefit formula:
- Tier 1: General Members - Age 65 Safety Members - Age 50
- Tier 2: General Members - Age 67 Safety Members - Age 57
- Years of Service Credit: Your years of service credit increase with every hour worked. Therefore, each pay period your benefit increases.
- Final Average Compensation: The amount of money you have earned prior to retirement that will be used when determining your benefit. The definition varies based on your tier.
- Tier 1: Your highest 12-consecutive months of earnable compensation at any time during your membership or with a reciprocal agency with which you have established reciprocity.
- Tier 2: The average of your highest 36-consecutive months of pensionable compensation at any time during your membership with SBCERA.
- Benefit Formula (Tier 1 or 2, General or Safety): Your benefit formula is used to determine how to calculate your benefit based on the other three factors. Ultimately, you will receive a percentage of your final average compensation for every year of service credit you have earned at a particular age. For example, the formula for Tier 1 General Members is 2% @ 55. Therefore, a member who retired at age 55 with 25 years of service credit could expect to receive 50% (2% x 25 years) of their final average compensation.
When choosing what day to retire, waiting a month or two can make a difference in your lifetime monthly benefit amount. Keep the following things in mind when choosing your effective date of retirement to optimize your benefit:
- Age/Birthday: Your retirement benefit increases with each quarter year of age until a maximum age (as mentioned above). Therefore, consider retiring on your birthday, immediately following your birthday, or in a three-month interval after to ensure you receive the latest quarter year of age credit available to you.
- Service Credit: The more service credit you have the greater your benefit will be. You can increase your years of service credit by working longer. You can also purchase service credit, if qualified.
- Spring: The cost-of-living adjustment (COLA) is determined in the spring of each year. By retiring on or before April 1, you will be eligible for a COLA if one has been approved for that year. If you retire after April 1, you will not be eligible for a possible COLA until April 1 of the following year.
- End of the Calendar Year: Upon retirement, you may receive lump-sum payments (i.e. cash-outs) for remaining leave accruals from your employer. These payments may be included in your taxable income and could place you in a higher tax bracket.
- Leave Accruals: Some Tier 1 members are eligible to complete cash-outs prior to retirement. If you are eligible to do so, you should consider completing these cash-outs prior to retirement. Doing so, may increase your final average compensation.
You can request a personal benefit estimate from SBCERA for various retirement dates to help understand your retirement options and choose the right time to retire. These estimates include your personal information, anticipated future retirement dates, and projected lifetime monthly benefit. You can request estimates online or by contacting SBCERA.
Deciding to Retire
After deciding you are serious about retiring, SBCERA recommends you take the following steps:
6 Months Prior
- Select your effective date of retirement, mark your calendar and begin your countdown.
- Submit an original or certified birth certificate for you and your beneficiary and an original or certified marriage certificate or domestic partnership registration information, if applicable. You can also bring these documents into SBCERA at any time and they can be added to your account for future reference at retirement.
- Test drive your retirement (optional). Consider living on your projected retirement income for a few months to give it a try.
60 Days Prior
Do you have years until your retirement? Use SBCERA’s Pre-Retirement Checklist to help chart a course for your retirement whether it is 5, 10 or 30 years away.