Choosing a Date

Some people are ready to go the minute they're eligible. Others like to weigh every factor before deciding on a date. Below are some things you might want to consider when choosing your retirement date. 

Retirement effective date.

Remember, your retirement effective date is the first day of the month following the month in which you've met all the eligibility requirements, you've terminated employment, and you've submitted your retirement application to ORS. 

Social security.

Your social security benefit will not affect your pension, but it could affect your overall finances. Your taxable income will be higher, so you may want to take a look at your tax withholding rate when you begin receiving social security. When your Medicare coverage begins, typically at age 65, we will reduce your portion of the state health insurance premiums deducted from your pension. For information on social security benefits, go to www.ssa.gov, call toll-free (800) 772-1213, or visit your local SSA office.

Note: If you elect one of the equated plan options, your pension will be reduced at age 65 regardless of when you actually begin receiving your social security and regardless of how much it actually is. Remember, your age 65 pension reduction is based on the social security estimate you provide to ORS when you apply for your pension. 

Taxes on your pension.

Your pension is subject to federal income tax (except for any portion of the pension representing personal contributions or service credit purchases made with post-tax dollars). Federal taxes will be withheld from your pension according to the withholding instructions you give us when you retire. Your pension is exempt from Michigan and local income taxes. If you live outside of Michigan, you should check the state and local income tax regulations in your area. 

Early reduced or deferred?

If you're thinking about retiring before age 60 and you're debating whether to take the permanent reduction of the early reduced benefit or defer your retirement until age 60 to get your full pension, consider the insurance ramifications. If you opt for an early reduced pension, your insurances can begin immediately. As a deferred member you (and your dependents) will not be eligible for health, dental, and vision insurance until you apply at age 60.

Deferred compensation and other savings.

Before choosing a date, it would be wise to think about how, and when, you plan to draw your savings, deferred compensation funds, and other retirement accounts. Your 401(k)/457 plans administrator can give you payout options and tax ramifications. You might also wish to consult a financial advisor who can help you gauge how long your savings might last into your golden years, and maybe even tell you how to minimize taxes and make your money go further.

Postretirement increases.

As explained in the Postretirement Increases section, you'll receive a fixed 3 percent, noncompounding increase (not to exceed $25 per month) each October after you've been retired a full year. 

Effects of divorce. 

If you divorce while you are an active or deferred member, the court may order that a portion of your pension be paid to an alternate payee such as your former spouse or dependent child. The order (known as an eligible domestic relations order, or EDRO) must contain specific information in a specific format, and must be on file with ORS prior to your retirement effective date. Details and sample language can be found in the ORS publication Eligible Domestic Relations Orders . The EDRO Act doesn't apply to a divorce after retirement. 

Note: The retirement statute prohibits continuing insurance benefits for a former spouse after a divorce.

Are you buying service credit?

If you're thinking about or are in the process of purchasing service credit, remember that the purchase must be made in full while you are still an active, working member of the retirement system. This can get tricky when tax-deferred payroll deductions, final paychecks, plan-to-plan transfers, or a combination of payment methods are being used to pay for service. And it's especially important if your pension eligibility depends on the purchase you are making. Don't stop working until you are positive that all service credit payments have been received by ORS. Start working with us early so we can help you coordinate your payoffs.

Working after retirement.

If you retire under the regular age and service provision (not under a disability), you do not need to report any employment other than work for the state of Michigan that commences on or after October 1, 2007.

If you begin working for the state, either directly or indirectly, on or after October 1, 2007, your pension will be suspended. You will remain eligible for the health, dental, and vision insurances with premium subsidies. Please notify ORS in writing if you return to work for the state; we will arrange for premium billings when you report your employment. This provision became law under PA 95 of 2007. Click here for more complete details on retirees returning to work for the state.

If your pension is based on a disability, special limitations apply if you go to work (whether for the state or another employer). Contact ORS in advance if you're a disability retiree under age 60 considering a return to employment.