Oregon PERS Benefit Estimate – How to Read Yours
Your Oregon PERS Benefit Estimate – An Important but Confusing Document
I recently attended a continuing education event where a representative from Oregon PERS spoke and walked us through a sample Oregon PERS Benefit Estimate. The room was filled with about 75 advisors. As we neared the end of her 60-minute presentation, the lifeless eyes, raised hands, and discontented mumbling made it clear that our state pension system baffled many advisors sitting in the room. It reminded me that although Oregon PERS is something I have reviewed, advised, and talked about regularly for the past decade, that doesn’t mean it’s common knowledge.
Today, I’m going to walk through reviewing your Oregon PERS benefit estimate. This is the formal estimate of pension benefits that you’re entitled to receive once you’re two years or less from retirement eligibility. (If you’re instead looking to review your annual Oregon PERS Statement, you can find my video walking you through that here: How to Read Your Oregon PERS Statement – A Step-by-Step Guide.)
You’re welcome to watch the video below or read the overview below.
The Types of Oregon PERS Benefit Estimates
There are two types of Oregon PERS benefit estimates: an informal estimate and a formal estimate.
Informal Oregon PERS Benefit Estimate
An informal Oregon PERS benefit estimate is a preliminary assessment of your potential retirement benefits. This type of estimate can be accessed online at any time using the PERS Online Membership System. This can help you gauge your financial outlook without delving into an exhaustive formal calculation. In fact, it’s the only way to get a sense of your benefits early on. Typically, an informal estimate relies on general assumptions and may not consider specific details or updates that could impact the accuracy of the projection. While it offers a broad overview of potential benefits based on the information available, it’s important to note that the figures provided in an informal estimate are subject to change as more accurate and up-to-date information becomes available.
Formal Oregon PERS Benefit Estimate
In contrast, a formal Oregon PERS benefit estimate is a comprehensive and detailed calculation that considers specific and accurate information about your credited service, final average salary, retirement plan option, and any other relevant details. This type of estimate you’ll request when you are closer to retirement and seek a more precise projection of your benefits. It involves a thorough review of your PERS record, ensuring that all relevant data is considered in the calculation. The result is a more accurate and personalized reflection of your potential retirement benefits, offering a detailed breakdown of various scenarios and options available to you. Unlike an informal estimate, a formal estimate provides a solid foundation for retirement planning, allowing you to make more informed decisions about your financial future.
As I mentioned at the start, formal estimates are available only to those of you two years or less from retirement eligibility. (To learn more about Tier One and Tier Two retirement eligibility, click here. To learn more about OPSRP retirement eligibility, click here.)
How Does an Oregon PERS Benefit Estimate Help Me Plan for Retirement?
A retirement benefit estimate serves several important purposes for individuals planning their retirement. Here are three main purposes:
1. Financial Planning
One of the primary purposes of a retirement benefit estimate is to help you financially plan for retirement. It provides a detailed projection of your expected retirement benefits based on your specific circumstances, including credited service, final average salary, retirement plan options, and other relevant factors. This information is crucial to help you assess whether your projected retirement income aligns with your financial goals and needs.
A benefit estimate allows you to explore different retirement scenarios and options. It helps make informed decisions about when to retire, which retirement plan option to choose, and whether to consider additional factors such as purchasing service time. The estimate provides a clear breakdown of the potential benefits under various conditions, empowering you to make choices that align with your preferences and priorities.
3. Verification and Accuracy
The formal retirement benefit estimate serves as a verified and accurate calculation of potential retirement benefits. It considers the most up-to-date and specific information about your employment history, salary, and retirement plan elections. This ensures that the estimate reliably represents the benefits you can expect upon retirement. An accurate estimate helps you (and your advisor) better understand your financial situation, contributing to better retirement planning.
Breaking Down Your Oregon PERS Benefit Estimate Page by Page
To look at a sample Oregon PERS Benefit Estimate, click and download the .pdf below.
Page 1: Your Brass-Tacks Information
On the first page of your Oregon PERS benefit estimate, you’ll find a recap of foundational information: your PERS ID, date of birth, retirement date that you entered when you requested the benefit, your projected last day of service, and age at retirement. I (and the woman who was speaking on PERS at this event) encourage you to double-check this information to ensure accuracy. It’s pretty easy to update your data with Oregon PERS before retirement; it can cause a slowdown in pension payouts if it’s not addressed until you’re filling out your final paperwork.
Page 2: The Salary Information Used
Page two will provide you with a snapshot of the information that plays a crucial role in determining your retirement benefits. This includes essential details such as:
- Your credited service time, which represents the total years you’ve contributed to the PERS system.
- Any service purchases that are available to you. If you are a tier one or tier two member, you have the ability to buy back the first six months of waiting time when you were ineligible to contribute to PERS, which can increase your lifetime pension amount.
- Any accumulated sick or vacation hours, which are reported to PERS by you when you request your benefit estimate.
- Your highest three years or your final average salary representing the average of your highest-paid consecutive 36 months. This is a critical factor influencing the calculation of your retirement benefits.
Page 3: Your Pension Amount Options
Page three is the holy grail of an Oregon PERS benefit estimate. It tells us what you are eligible to receive as a pension in retirement. At the top of the page, you will find the current and projected account balances. Below that, you’ll find benefit options and amounts. As a self-proclaimed super-nerd, these are the numbers I drool over when we get to planning work. They’re incredibly powerful in helping to inform not only what option is right for you, but also when to claim Social Security, which investment buckets to pull from and when, and how to plan for a tax-efficient shift from your accumulation or working years, into your distribution or retirement years.
Breaking Down Your Pension Options
No purchase is the monthly pension benefit available to you if you choose not to make any service purchase credits available from PERS.
With purchase is the monthly amount available if you do make those purchases; more on that in a minute. For now, let’s break down each of these pension options and what they mean.
- Option 1: Single life; you receive the benefit for your life, and it ends when you die; highest monthly benefit.
- Refund Annuity: Benefit paid for your life, then a designated beneficiary receives a lump sum if there’s anything left in the account when you die; the usual breakeven is ten years, meaning after ten years, there is no balance left for a beneficiary to receive.
- 15-Year Certain: paid for your life; if you die before receiving 15-years of benefits, your beneficiary is entitled to the remaining payments.
- Option 2: 100% survivorship benefits. If you passed, your partner would receive the same pension amount monthly for life.
- Option 2A: 100% survivorship benefits, but if your partner predeceases you, you can move to Option 1 – the full single life amount.
- Option 3: 50% survivorship benefits to your partner.
- Option 3A: 50% survivorship benefits, but if your partner predeceases you, you can move to Option 1.
You’ll also see some options for lump sum payouts. With over a decade of experience in advising public employees on their pension options, I have yet to meet a client for whom a lump sum payout makes financial sense. Here are three reasons why that might be:
- Removes Monthly Benefits: Opting for a lump sum payout can affect the overall amount of retirement benefits received. While it provides immediate access to a significant sum of money, it means forgoing the security of a steady monthly income for the rest of your life and in some cases, the rest of your partner’s life. For many public employees, other income sources in retirement include Social Security, which is also fixed, and investments, which are not fixed (unless you have an annuity or some other product). The uncertainty of the markets often makes the steadiness of a pension much more attractive. You must carefully consider your financial needs, risk tolerance, and long-term plans before choosing this option.
- Tax Implications: Lump sum payouts may have tax implications, and it’s advisable for you to consult with a tax professional to understand how choosing a lump sum might affect your tax situation.
- Death Benefits: It’s important to consider how a lump sum payout may impact death benefits. As I just mentioned, Oregon PERS offers options with survivor benefits for spouses or beneficiaries, and opting for a lump sum could have implications for those benefits.
At the bottom of page 3, you’ll see the calculation method used to come up with your benefit. Oregon PERS uses 2-3 calculation methods; you get the highest of the three.
Page 4: Assumptions and Caveats
It wouldn’t be a government document without some fine print. That’s mostly what you’ll find on page 4. To make this post digestible, I’ll avoid breaking down the nuance in the language.
Pages 5+: Service Purchases
This page (or pages) typically provides a detailed breakdown of service purchase options you have available. Service purchases are most readily available for Tier One and Two members. They refer to your ability to buy additional service credits, which can impact the calculation of retirement benefits and, in some cases, bump up your retirement eligibility date. The page may include the following elements:
- Explanation of Service Purchase: There will likely be a clear explanation of what service purchase entails. This may include information on purchasing service for waiting time, previous public service, military service, or other eligible periods.
- Cost Breakdown: The page should detail the cost of purchasing additional service. This may include the current cost per year or unit of service and any additional fees or interest that may apply.
- Impact on Benefits: There should be information on how purchasing additional service will impact the member’s retirement benefits. This could include an estimate of how the additional service affects the calculation of the final pension amount.
- Eligibility Criteria: The page might outline eligibility criteria for service purchase options. Certain conditions or timelines may need to be met for you to qualify for particular service purchases.
- Payment Options: Information on how the service purchase can be paid, whether through a lump sum payment or installment options, may be included.
- Calculation Examples: The page may provide examples or scenarios illustrating how different service purchase decisions could affect retirement benefits.
Purchase of Waiting Time
The most common service purchase available is the waiting period, which is accessible to most Tier 1/2 PERS employees. This is an offering to buy back the 6-8 months where you were ineligible to contribute at the start of your PERS employment. This can both accelerate your eligible retirement date with the state and increase your monthly pension amount. The only way to determine the cost of buying waiting time is through a formal Oregon PERS benefit estimate, and you can make this purchase within 90 days of your retirement date. You can learn more about buying waiting time here.
Other general service purchases include for those of you who have worked out of state, served in the military, seasonal service, etc. You can learn more about other service purchases here.
It’s probably clear by now that unraveling the intricacies of your Oregon PERS benefit estimate is no small feat. It’s evident that deploying your PERS retirement pension wisely requires careful cultivation. Whether you’re tending to the foundational roots on page one, exploring the diverse pension options on page three, or considering the opportunities within service purchases, each element contributes to the overall health of your retirement plan.
Navigating your way through your Oregon PERS benefit estimate is only one piece of your financial puzzle. Understanding how it compliments your other income streams and investment sources is vital to the confidence you need to retire well. If you’re looking for a thought partner to help you traverse these complicated decisions, I hope you’ll reach out.
FAQ About an Oregon PERS Benefit Estimate
I haven’t asked for an Oregon PERS benefit estimate yet; what should I do to prepare?
Oregon PERS suggests you verify your data before requesting a benefit estimate. This is particularly helpful if you:
- Blatantly see an error on your Oregon PERS annual statement
- Have worked for multiple PERS-participating employers during your career.
- Have worked for multiple PERS-participating employers at the same time.
- Have worked many part-time hours in your PERS-qualifying employment.
You can request data verification using the Oregon PERS Online Member Services login.
How and when should I request my Oregon PERS Benefit Estimate?
For informal estimates, you can use your Oregon PERS Online Member Services login.
Formal estimates consider specific and up-to-date information about your credited service, final average salary, and retirement plan options. Requesting a formal estimate is recommended when you are two years or less from your retirement eligibility date. This detailed calculation empowers you with precise information to make informed decisions about your retirement, ensuring your financial planning aligns with your goals and needs. If you’re Tier One or Two, click here for the estimate request form. If you’re OPSRP, click here for the estimate request form.
How does purchasing waiting time impact my Oregon PERS benefit, and is it worth considering?
Purchasing waiting time, particularly the 6-8 months at the start of your PERS employment when you were ineligible to contribute, can significantly impact your Oregon PERS benefit. This service purchase option accelerates your eligible retirement date and increases your monthly pension amount. The cost of buying waiting time is accessible through a formal Oregon PERS benefit estimate, and it’s advisable to consider this purchase within 90 days of your retirement date. While the decision to buy waiting time depends on individual circumstances, it’s often a strategic move for Tier 1/2 PERS employees seeking to enhance their retirement benefits and potentially improve their overall financial picture in retirement.
Is opting for a lump sum payout ever a financially sound choice in the Oregon PERS system?
Opting for this choice in the Oregon PERS system requires careful consideration. Generally, choosing a lump sum payout means foregoing the security of a steady monthly income for the rest of your life. For many public employees, the uncertainty of markets often makes the reliability of a pension more attractive. Additionally, a lump sum payout may have tax implications, and it’s advised to consult with a tax professional to understand how it might impact your tax situation. Moreover, the decision could affect death benefits if you have beneficiaries or a spouse. Ultimately, whether a lump sum payout is financially sound depends on your specific circumstances, risk tolerance, and long-term plans, making it crucial to weigh the pros and cons thoroughly before making this decision.