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. Here 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 and you've terminated employment. The date you terminate your employment is your choice-it can be any time in the year, and any day of the month.
Note: You must have a bona fide termination of employment before your retirement effective date. A bona fide termination is a complete severing of your employee/employer relationship, and you cannot have a promise of reemployment or a contract for future employment in place prior to your termination of employment.
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 health insurance premiums deducted from your pension. For information on Social Security benefits, go to www.ssa.gov, call toll-free
Note: If you elect one of the equated plan options, your pension will be reduced at age 62 regardless of when you actually begin receiving your social security and regardless of how much it actually is. Remember, your age 62 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 state and federal income tax (except for any portion of the pension representing DB pension contributions or service credit purchases made with post-tax dollars). Taxes will be withheld from your pension according to the withholding instructions you give us when you retire. If you live outside of Michigan, you should check the state and local income tax regulations in your area.
State of Michigan 401(k) and 457 Plans and other savings.
Before choosing a date, it would be wise to think about how you plan to use your savings and investments. If you're in the Defined Contribution (DC) retirement plan or have the Personal Healthcare Fund, Voya Financial® can give you payout options and tax information. 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.
For more information about the State of Michigan 401(k) and 457 Plans, go to http://stateofmi.voya.com.
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 pension 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 the health, prescription drug, dental, and vision insurance until you apply at age 60.
If you have the Graded Premium Subsidy and you have earned at least 25 years of service as of your retirement effective date, you will qualify for the maximum subsidy. If you have fewer than 25 years of earned service, you will qualify for the graded subsidy at age 60 based on your years of service as of your retirement effective date.
If you take a deferred retirement, it could reduce the amount of or eliminate your eligibility for an insurance premium subsidy. Click here for details about the effects on your insurance subsidy.
MIP retirees will receive a fixed 3 percent, noncompounding increase each October after being retired a full year. Basic Plan retirees will only receive an increase if the plan's investments exceed predictions.Click here to learn more about postretirement increases.
Effects of divorce.
If you divorce while you're 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 be on file with ORS before your retirement effective date. You can download a fillable Eligible Domestic Relations Orders: Background and Instructions (R0911X). This publication will help you create an accurate and complete EDRO that can be administered under the retirement statute. It is the preferred document to file with ORS.
The retirement statute prohibits continuing insurance benefits for a former spouse after a divorce.
Are you buying service credit?
If you're in the process of purchasing service credit, remember the purchase must be paid 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're making. Don't stop working until you are positive ORS receives all service credit payments. Start working with us early so we can help you coordinate your payoffs.
Note: MIP contributions and interest due on Weekly Workers' Compensation must be paid in full before you establish a retirement effective date.
Keep in mind that certain types of service credit purchases may result in a delayed insurance subsidy.