The Affect of "When?" on Your Pension

When considering retirement there are a lot of factors to think about, but did you know that the decision of when to retire affects your pension benefit? The ASRS uses the following fairly simple formula to calculate the Straight Life annuity, the highest paying retirement option to calculate your baseline monthly benefit:

Average Monthly Compensation x Years of Service x Graded Multiplier = Monthly Pension

Let's take a look at each part of the equation separately to get a better understanding of how the timing of your retirement effects your pension benefit.

Average Monthly Compensation

To start calculating your pension, the ASRS looks at your last ten years of your contribution history. For people who became a member on 7/1/2011 or later, we'll then take the average of your highest consecutive 60 months within those 10 years. For those who were members prior to that (but after 1/1/1984), it's your highest consecutive 36 months within those 10 years.

Graded Multiplier

Wondering what that "graded multiplier" is? The graded multiplier is one of the major factors used to determine how your pension is calculated. Therefore, it is an important piece in deciding when to retire. The graded multiplier is tiered based on your total years of service. As you accrue more service, you qualify for a higher multiplier of your final average monthly compensation, which increases your benefit. When selecting your retirement date it is important to look at your service and review if you are close to the next graded multiplier threshold. If you are, it could be worth it to work longer to reach the next graded multiplier and increase your benefit for your lifetime.

Graded Multiplier Table

Years of Service & Age

Although your years of service are updated with each contribution applied to your account, the ASRS cannot guarantee your total years of service until a detailed audit is performed on your account, triggered by the processing of your retirement application. We suggest members consider working an additional month past their target retirement date to build a cushion and cover any needed adjustments that could be found during the audit.

When looking at how many years of service you may need to reach normal retirement, remember that your age also becomes a factor. A great way to evaluate your options is to play with the personalized benefit estimator in your secure MyASRS account. Keep in mind that members who retire early will received a reduced benefit for their lifetime based on their age and total credited service at retirement.

Your Pension Benefit Options

Another major factor to consider is the annuity option you decide to select. The ASRS offers seven annuity options, and the option you select will have an effect on the amount of your pension benefit.

 All of the annuity options provide a guaranteed lifetime payment to the member along with different options for survivor benefits. If you choose an annuity option to guarantee a benefit to a beneficiary upon your passing, then your monthly benefit will be reduced. The amount of the reduction is determined based on factors such as the annuity option selected and the age of your beneficiary.   

For more information on any of the above, make sure to check out Retirement Central or the Member Tool Kit pages of AzASRS.gov.

Also, remember that the ASRS provides a personalized Benefit Estimate tool in your secure MyASRS account at AzASRS.gov. This tool is one of the best ways for you to determine when the best time for you to retire may be. You can see general estimates for your first point of normal retirement or you can customize the estimate based on a date you select. Login to your secure account click ‘Retirement’ under ‘Your Benefit Estimates’ to check and customize your own personalized estimate.

by Katie Daigneault, Strategic Planning

Published in Expanding Your Financial Horizons digital newsletter August 2019 

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