Categories
Local / State Employees Teachers / Professors

Will I receive Social Security if I have CalSTRS or CalPERS?

Person holding sheet with question mark over face

Will I receive Social Security if I have CalSTRS or CalPERS?

 

If you’re a California public school teacher or public employee, you may have asked yourself this very question. In fact, I get asked it a lot from my clients. Understanding your CalSTRS retirement benefits if you’re a teacher or trying to figure out your CalPERS retirement as a public employee is not that simple. So when we start factoring in Social Security, of course there are going to be questions.

That’s when the Windfall Elimination Provision comes breezing in. It turns out your tax withholdings and previous jobs make a big difference, so let’s clear the air! Because we don’t want to throw caution to the wind when it comes to your retirement. (Let’s see how many more references to wind I can make so you’ll never forget the name of this provision!)

According to the Cambridge English Dictionary, a windfall is a large amount of money that you win or receive from someone unexpectedly. Could that someone be Social Security?

The Facts

 

Magnifying glass with "facts"

Your SSI benefits will likely be affected if:

• You work for an employer who doesn’t withhold Social Security taxes from your salary. This can impact your retirement or disability pension. AND

• You’ve worked for another employer who did hold back Social Security retirement or disability benefits.

• You’re a public-school teacher. Most public-school teachers do not pay into SSI.

 

The Windfall Elimination Provision can also apply if:

• You turned 62 after 1985 OR

• You became disabled after 1985 AND

• You first became eligible for a monthly pension based on work where you didn’t pay SS taxes after 1985. Even if you’re still working, this applies.

 

If you’re a federal employee, you’re affected if:

• You performed federal service under the Civil Service Retirement System (CSRS) after 1956.

***If you only performed federal service under a system such as the Federal Employees’ Retirement System (FERS), your SS benefits won’t be reduced. Social Security taxes are withheld for workers under FERS.***

 

The Windfall Elimination Provision does NOT apply if:

• You’re a federal worker that was first hired after 12/31/1983.

• You were employed on 12/31/1983 by a non-profit organization that didn’t withhold SS taxes from your pay at first, but then began withholding SS taxes.

• Your only pension is for railroad employment.

• The only work you performed for which you didn’t pay SS taxes was before 1957, or

• You have 30 or more years of substantial earnings under SS.

• The standard 90% factor doesn’t get reduced.

• On page 2 of the Windfall Elimination Provision breakdown, consult the chart listing substantial earnings for each year. As long as you make that amount or over, that year counts towards the 30 years. The second chart shows the percentage corresponding to how many years of substantial earnings you have.

***This doesn’t apply to survivors’ benefits. Benefits for widows and widowers may be reduced because of the Government Pension Offset.***

The Calculation

 

Person with big abacus

Your Social Security benefit is based on your average monthly earnings adjusted for average wage growth. These average earnings are separated into three amounts and these amounts are multiplied by three factors to calculate your full Primary Insurance Amount (PIA).

Your PIA is what you would receive if you chose to receive benefits at the normal retirement age, neither later nor earlier.

If you become eligible for retirement or disability benefits in 2018, these three factors are calculated:

1.)  The first $895 of your average monthly earnings is multiplied by 90%

2.)  The earnings between $895 and $5,397 are multiplied by 32%

3.)  The remaining balance is multiplied by 15%

The sum of A, B, and C is your PIA, which is then decreased or increased depending on whether you start collecting benefits before or after the full retirement age (FRA).

 

Let’s look at some examples:

Example 1:

A worker retires at 66 (his full retirement age, FRA) in 2018 with average earnings of $6,000/month. The Windfall Elimination Provision (WEP) does not apply.

1.)  $895 (first $895 of earnings) x 90% = $805.50

2.)  $4,502 (next part of earnings between $895 and $5,397) x 32% = $1,440.64

3.)  $603 (remaining balance) x 15% = $90.45

Total PIA = $2,336.59 per month

 

Example 2:

A worker retires at 66 (his FRA) in 2018 with average earnings of $6,000/month. In this case, the WEP applies as he had 10 years of substantial earnings and then the rest in CalSTRS-covered employment that didn’t withhold any SS taxes.

1.)  $895 x 40% (see chart) = $358

2.)  $4,502 x 32% = $1,440.64

3.)  $603 (remaining balance) x 15% = $90.45

Total PIA = $1,889.09 per month

You can manually figure out your average monthly earnings by following this chart. However, due to its complexity, it’s easier to use the following calculators:

 

This chart that shows the maximum amount your benefit may be reduced because of WEP.

***

Even if retirement feels like it’s far away, it’s good to know this information now so you can make plans accordingly. So, remember the Windfall Elimination Provision . . . because the winds of change are upon us and retirement will be here before you know it!

 

 

Categories
Local / State Employees

How to calculate your CalPERS retirement benefits

figure standing on calculator

How to Calculate your CalPERS retirement benefits

 

More than 1.6 million California public employees, retirees, and their families.

Managing one of the largest public pension funds in the US for that many people seems daunting, doesn’t it? And if you’re a recipient trying to calculate your retirement benefits, you may feel a bit lost. But terms like “benefit factor” and “final compensation” don’t have to be intimidating. Let’s break down the benefits, the variables, and get you informed and ready for retirement.

First off . . . when can you retire?

In most cases, you can retire at age 50 with 5 years of service credit. However, if all service credit was earned on or after January 1, 2013, you must wait two more years until the age of 52.

Start educating yourself now with the help of CalPERS tips and tutorials, and make sure to fill out a service retirement application within 120 days of your planned retirement date.

1. Calculating your Retirement Benefit

calculator on top of a document

If you expected a formula, this won’t disappoint:

Unmodified Allowance = Service Credit x Benefit Factor x Final Compensation

First things first. Unmodified allowance is your highest benefit payable, that doesn’t include any benefit for any beneficiary. (More on beneficiary options below.)

Now, on to those variables . . .

a. Service Credit

This equals the total years of employment with a CalPERS employer. Other types of service credit may be added, such as sick leave and service credit purchased.

To earn a full year of service credit, you must work at least:

  • 1,720 hours (for hourly pay employees)
  • 215 days (for daily pay employees)
  • 10 months full time (for monthly pay employees)

 

b. Benefit Factor (aka Age Factor)

The benefit factor is the percentage of final compensation for each year of service credit. It is based on your age at retirement and the retirement formula.

Access your retirement benefit formula chart to figure out your benefit factor or check with your personnel office. You can also check your CalPERS Annual Member Statement to verify your retirement formula.

Find your category below and click on the link to view how benefit factors increase depending on the retirement formulas. The tables illustrating the changes are towards the back, but the entire pamphlet for each member category is extremely helpful.

Local Miscellaneous Member Benefits

If you’re employed by a public agency or special district that has contracted with CalPERS, but you’re not involved in law enforcement, fire suppression, the protection of public safety, nor employed in a position designated by law as local safety.

Local Safety Member Benefits

If you’re employed by a public agency or special district that has contracted with CalPERS and you’re involved in law enforcement, fire suppression, the protection of public safety, or who are employed in a position designated by law as “local safety.”

School Member Benefits

If you’re employed in a classified position within the jurisdiction of a school employer, except:

  • local police
  • those who are covered under CalSTRS
  • those who work directly for the Los Angeles or San Diego County Superintendent of Schools
  • those employed under the jurisdiction of a Joint Powers Authority contract
  • eligible certified employees who elect to retain CalPERS membership

State Miscellaneous & Industrial Benefits

If you’re employed by the state and universities, but are not involved in law enforcement, fire suppression, the protection of public safety, or a position designated by law as industrial, patrol, peace officer/firefighter, or safety.

State industrial members are those who are employed by the California Department of Corrections and Rehabilitation or its Division of Juvenile Justice, other than state safety or peace officer/firefighter members.

State Safety Member Benefits

If you’re employed by the state and involved in law enforcement, fire suppression, the protection of public safety, or are employed in a position designated by law as “state safety.”

 

c. Final Compensation

time cost quality triangle

The final compensation is the highest average annual compensation during any consecutive 12 or 36-month period of employment, depending on your collective bargaining agreement or employer contract. This may include special compensation.

*If your membership date is on or after January 1, 2013, there is a cap on the compensation used to calculate your benefit.

  • If your service is coordinated with Social Security, the compensation cap used to calculate your benefit is equal to the 2013 Social Security wage base, adjusted by the Consumer Price Index for All Urban Consumers: City Average. For 2017, the cap was $118,775.
  • If your service was not coordinated with Social Security, the compensation cap used to calculate your benefit is equal to 120% of the 2013 Social Security wage base, adjusted by the Consumer Price Index for All Urban Consumers: City Average. For 2017, the cap was $142,530.
  • The compensation limit is calculated based on the limit in effect for each calendar year included in the final compensation period.

Are you still with me? We’ve gone through the variables, so now we can calculate your retirement benefit! Remember:

Unmodified Allowance = Service Credit x Benefit Factor x Final Compensation

Let’s look at an example.

A local police officer retires at 60 with 30 years of service and $100k/year as his final compensation.

i. Calculate manually

Before technology changed everything, we had to do this stuff by hand. Using the 3% at 55 retirement formula (3% being his benefit factor), we review the chart on page 46 of his benefits breakdown to see that his chart maxes out at 90% of final compensation.

30 (service credits) x 3% (benefit factor) x $100,000 (final compensation)

= $90,000 unmodified allowance

***If you want a rough estimate of your final compensation, use a Time Value of Money calculator and follow the instructions here.***

ii. Use the CalPERS online calculator

But yes, technology has changed everything, and you have options to find this out:

  • Log into your my|CalPERS account to obtain an estimate that incorporates data your employer already reported to CalPERS. You can generate and save a variety of scenarios.

The calculation we’ve been looking at is for unmodified allowance.

And if you want beneficiaries?

2. Choosing your Benefit Type

 

figures on five different platforms

a. Unmodified Allowance

This is the highest monthly allowance paid for life with no benefit to your beneficiary. The formula we have followed throughout this article is for this option.

 

b. 100% Beneficiary Option 2 with Benefit Allowance Increase

One beneficiary will receive 100% of your monthly benefit upon your death for the rest of his/her lifetime. If your beneficiary dies before you, your benefit will increase to the Unmodified Allowance.

 

c. 50% Beneficiary Option 3 with Benefit Allowance Increase

One beneficiary will receive 50% of your monthly benefit upon your death for the rest of his/her lifetime. If your beneficiary dies before you, your benefit will increase to the Unmodified Allowance.

 

d. Flexible Beneficiary Option 4

You name one or more beneficiaries and specify a specific dollar or percentage to be paid to each one.

 

You made it! I hope I’ve helped make these murky waters a bit more navigable. And remember, there is plenty more information and resources out there to take you confidently to retirement. You’ve worked a long time to get there. Make sure you’re prepared!