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Choosing a Date
Once you know when you'll be eligible and have an estimate of your monthly benefit, you'll want to decide when the time is right to retire. Naturally, there are health, leisure, and family considerations, in addition to financial obligations. Answering these questions may provide some insight into how well prepared you are to retire.
- Do you own your home free and clear? If not, will you have enough income to pay for it?
- Have you planned for the future of children or others financially dependent on you?
- Have you estimated how much retirement income you will receive from all sources? Is your estimate between 60% to 80% of your pre-retirement income?
- Have you included a realistic inflation factor in estimating the income you will need throughout retirement?
- Have you considered your future healthcare costs when projecting your income needs in retirement?
- Have you saved for or planned for major expenses such as home repairs or an automobile purchase you expect to make during retirement?
- Do you plan to maintain cash in reserve for a family emergency?
- Do you have a current estimate from the Social Security Administration of what your benefits will be?
- Have you considered that at a time of increasing life expectancies, greater demand is placed on your personal savings and investments since they must last for a longer period of time?
- Do you already have a fulfilling leisure time activity or hobby you plan to devote more time to in retirement?
The more yes answers you have, the more adequate your retirement preparation and the more likely you'll be able to preserve your standard of living.
If you have more no than yes answers, should you delay your retirement date and continue to work? Only you can answer this question.
Things to Consider
Some people are ready to retire 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.
Your retirement effective date is the first day of the month following the month in which you've done ALL of the following:
- You satisfied the eligibility requirements.
- You submitted your retirement application to the Michigan Office of Retirement Services (ORS).
- You terminated employment with the State of Michigan.
Your termination date is usually the last day you are a state employee. For some, it is the same as the last day worked.
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 choose an early reduced pension, your insurance benefits can begin immediately. As a deferred member you, your spouse, and your dependents will not be eligible for health, dental, and vision insurance until you apply at age 60.
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 the Social Security Administration (SSA) website, 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 permanently reduced at age 65 regardless of when you actually begin receiving 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 state and federal income tax (except for any portion of the pension representing personal 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.
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. Voya Financial 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.
As explained in the Post-Retirement Increases section, you'll receive a fixed 3%, noncompounding increase (not to exceed $25 per month) in your pension 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 be on file with ORS before your retirement effective date. ORS has developed an online fillable EDRO form to allow members to create accurate and complete EDROs that can be administered under the retirement statutes. It is the preferred document to file with ORS. Background information and instructions are provided separately in Eligible Domestic Relations Orders: Background and Instructions (R0911X).
If you have a 401(k) or 457 plan, contact Voya for information on the effects of divorce.
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 initiated while you are an active, contributing member of the Defined Benefit (DB) Plan and paid in full while you are still a 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 ORS receives all service credit payments. Start working with us early so we can help you coordinate your payoffs.
Working after you retire.
If you go to work after you retire, your earnings usually won't affect your pension, with the following possible exceptions:
Disability retirement pension. If you are receiving a disability retirement, special limitations apply if you go to work for any employer. Contact ORS in advance if you're a disability retiree under age 60 considering a return to work.
State of Michigan employment. If you return to work for the state as an employee, independent contractor, or through a contractual agreement with another party, you must forfeit your state pension for the duration of the reemployment.
You should complete the Retiree Rehire Certification (R0792G) form at the time of hire.
You will have a choice of active or retiree insurance plans. If you choose to keep your retiree insurance coverage, we will arrange for premium billings when you report your employment.
If you are rehired as a state employee, you will be enrolled in the Defined Contribution 401(k) Plan.
For more details, refer to Working After You Retire.