Episode 10 – Frequently Asked Questions
Episode transcript:
[musical intro]
Jenny
Welcome back to Fund Your Future with DRS. And today we’re taking a couple of questions that we’ve received from audience members, and we always welcome questions from audience and listeners. You can email us your questions at to drs.podcasts@drs.wa.gov.
So our first question today comes from Beverly, who had asked: “Is there any advantage to waiting past age 65 to start taking my pension? If I wait, does the monthly benefit continue to increase after 65, as it would with Social Security?”
Seth
Yeah, this is a good question and a common question that people give to DRS, ask DRS because people just think about Social Security and understand that it’s in the news a lot and so people kind of have a sense that there might be some advantages to waiting until later age to collect your pension or collect your Social Security, and they translate that to their pension.
So what I would say is for people who have already stopped working, there’s no advantage and actually we’ll always retire you at age 65 or whatever your normal retirement age is for your plan. For most plans at 65. So even if you forget to contact the DRS until 66, when you start your Social Security, your contact is at age 70 because that’s when you’re going to draw your Social Security will retire you effective back to age 65.
But for people who are still working, there is an advantage in that your pension would be larger because the pension benefit is based on the number of years you work. So working one additional year will make your pension benefit a little bit higher. You know, you have to weigh that for the pension payments you miss because you’re you haven’t started collecting your pension at age 65 if you wait until 66.
So the pension will be a little bit higher, but you’ll have missed out on those payments. So I think those are the things that people usually weigh when they’re deciding when they want to start collecting their pension. Some people feel like it’s important to work another year or two to get a slightly higher benefit because they know what their budget is and they know how much they need to make to continue to maintain the same lifestyle.
So I think that’s one of the reasons some people would decide to work longer, work till age 66 or 67 or 70 or beyond because they need the pension benefit to be a little bit higher.
Jenny
Yeah, I think that’s a great option for people and this great spot to plug our Benefit Estimator tool that we have, you can log in to your DRS online and retirement account and look at your plan. And there’s an option for Benefit Estimator that you can do at any stage in your career to see what your pension could be.
Seth
Yeah, it’s a super great tool. Like you said, wherever you’re at. One of the things I love about it when talking to our customers, if you’re having a really bad day, you can see what would it be like if you quit today? I’m going to quit today and wait till 65 and collect my pension or I’m already eligible to retire.
What might benefit be right away or… Okay, maybe I can put in another year or two years or five years and then wait. And so see, you can read all those sorts of different scenarios. One of the things I really like about that tool is you can see how much your pension benefit is if you work one more month.
Jenny
Oh yeah. So even just that small little bump a few days.
Seth
Yeah, I’m going to stick it about one more month than usually when people do that, they realize it’s only, you know, six or eight or $10 more.
Jenny
Six dollars more a month for the rest of your life.
Seth
Yeah, Yeah. Maybe not worth that additional month. So yeah, no, I think that’s a great recommendation to always check out that tool. I know lots of people who use it very frequently when they’re trying decide if they want to want to stop working.
Okay. So we have another question that comes from Keith, who asks: “With inflation so high, how do you prioritize saving for retirement? And do you have any tips or tricks?”
Jenny
Yeah, this is a good one and obviously a very popular one right now with inflation being so high. And I, I think honestly, it just kind of gets back to that, really examining your budget and knowing where you can maybe have some wiggle room. So obviously, one of the things with DCP that we like to mention is that you can always change your DCP contributions.
So if you’re feeling a little stretched towards your budget right now, you could lower the amount that you’re contributing towards your DCP account. And of course also maybe looking at your tax withholdings for the year. So that was something that I did last year of the and now I’m looking at my taxes. It’s getting closer to March and I’m like, well, maybe I want to withhold a little bit more as we get at least a tiny bit of a refund next year.
But you can always change your tax withholdings for the year to be able to either if you want that big bump in in March or being able to get that money throughout the year.
Seth
Yeah, that’s a really great example. If you if you get like a $1,200 refund, that could have been 50 more dollars a paycheck or, you know, rough, rough numbers that might give you some additional wiggle room throughout the year that you need in your budget. I’m really curious if any listeners have tips or tricks or things that they’ve been thinking about with inflation.
I know I’ve had a number of DRS employees come up to me and say they’re listening to the podcast, so maybe we’ll just have random people stop us in the hallway and suggest a tip or a trick. One of the things that really stood out to me early on in the pandemic was people reevaluating their overall budget and realizing kind of how much they were spending on transportation or how much they were spending on coffee because they stopped at Starbucks every day on the way into the office.
And when they were working from home, they weren’t doing that. And so I think trying to put yourself in that mindset of what are the things that I’m willing to change and what are the things I’m not willing to change. I think it’s worth a discussion. You know, if I spend a lot of money on soda and I don’t want to be drinking so much soda, maybe figure out how to replace that with a less expensive drink and then put that money intentionally away for something else, save it for retirement or fund a 529 college savings plan or some other…goal that you want to have.
Jenny
The other thing I want to mention too, and that a lot of people have [done] … is starting a side hustle. It’s beneficial that there’s a lot of resources online now for being able to make maybe make a little extra income on the side. It is unfortunate that a lot of people are having to go towards that now. But with the Internet and all of this information available, it’s also become, I don’t want to say easier than ever, but it’s accessible for people who have an Internet connection.
Seth
Yeah. And I think one of the things that can be exciting about that is like there are ways to do things that you might enjoy outside of work and figure out if there’s ways to make it profitable in some way. Or, you know, I have friends who like, raise chickens and they sell some of their eggs and that is something they would do any way, like they would have the chickens and then realized like, oh, I can make a little bit of my costs or expense back and lower some of my budgeted expenses.
So, yeah, I think there are lots of opportunities to look for different ways to increase your income or decrease your spending. And so kind of looking at both sides of the equation is worth investigating. I know for some folks it’s like I’m going to buy fewer clothes because I have a wardrobe that I can wear over and over in more settings.
Jenny
Yeah, I think we had also mentioned the library too, and that’s actually something that I’ve started to consciously make a decision of instead of buying a book, seeing if it’s available at the library just because I’m trying to declutter my house. But also it’s cost effective that way. And the library has had a lot of great resources for renting movies in our local library here in Tumwater, Washington even has a 3D printer, which I thought was so cool. Shout out to them.
Seth
Yeah, that’s I think one of the things you hit on is really important in trying to figure out how to tie multiple goals together, like declutter in your house. Like, okay, well I see I have a lot of books and so is there a way to restrict those? I had a very similar experience where like I had what felt like a dozen pairs of running shoes in my closet.
So I just said, A rules that I’m not going to buy any running shoes for the entire year. And it worked well. And I know people have done similar things with like diet or exercise and trying to figure out why I’m spending a lot of money on the gym, but I’m not going to the gym. Maybe I set up a home workout routine.
Yeah. So there are ways to kind of combine the frugality, money saving and saving for retirement, piece with some other thing that you’re also motivated to do.
Jenny
Yeah. I think that’s a great way to put it together. And again, with budgeting, it’s personal and it shouldn’t feel not necessarily that you should have to restrict it, that you feel so like trapped, but just being able to make your hopefully make your budget work for your needs and the kind of lifestyle that you want.
Seth
Yeah.
Jenny
Our third question comes from Laura, who had asked: “What is the rule of 85?” This comes up a lot in different retirement circles.
Seth
Yeah. So the rule 85 is a rule that some pension plans have. But I will stress just right off the top that Washington does not have the rule of 85. But the rule of 85 is where you can add your age plus the years that you worked. And if those two numbers added together reach 85, then you can start collecting your pension, unreduced, full pension benefits.
So when you become eligible to collect your retirement. In Washington, almost all of our plans are based just on age. So once you reach a certain age, you’re eligible to start collecting your pension. In most of our plans, that normal retirement age is 65, some of the plans, if you if you’ve worked more than 30 years, it could be 62.
So there are different ages for different plans. But in general, it’s age 65 and the rule of 85 comes up often because it is a semi common thing for pension plans across the country that have some rule like that, a rule of 85, a rule of 82, a rule of 90 different numbers that people hit where they value your age and your service together.
Jenny
Gotcha. Oh, it’s great to to clear that up for folks. Yeah, it’s that rule. The retirement rules are different for every state.
Seth
Yes. Yeah. And the rules change at times. So there’s been times in the past where legislation has been introduced to add a rule of 85 to some of the plans in Washington. It hasn’t ever gone too far as far as through the legislative process, but it is something that comes up, especially every time one of those bills is introduced.
People will point at it and say, Hey, that would be great. So but it’s not something that currently exists in our Washington plans.
Jenny
Yeah, perfect. Well, thank you very much, Seth. I appreciate it and we can’t wait to hear more questions from our listeners. Awesome.
[musical outro]
Disclaimer
Thanks for listening. And now we’d love to hear from you. What topics would you like to hear about? What questions do you have for us? Send an email to drs.podcasts@drs.wa.gov that’s drs.podcasts@drs.wa.gov. The Department of Retirement Systems provides this podcast as a public service, but it’s neither a legal interpretation nor a statement of DRS policy.
References to any specific product or entity do not constitute an endorsement or recommendation. The views expressed by guests are their own and their appearance on the program does not imply an endorsement of them or any entity they represent. Views and opinions expressed by DRS employees are those of the employees and do not necessarily reflect the view of DRS or any of its officials.
