What’s a DRS annuity?
DRS annuities are guaranteed income plans. They are in addition to your pension plan and not tied to market risk. Unlike some private annuities, you cannot outlive them, even if you’ve exhausted your balance. Once purchased, your DRS annuity will pay you monthly for the rest of your life.
How much does an annuity cost?
How much your monthly annuity payment will be depends on your plan, purchase amount and your age. For example, an age 65 PERS Plan 2 member with no survivor who purchases an annuity for $50,000 could expect to receive a $291 payment added to their pension for the rest of their life.
Minimum buy-ins for annuities range from $5,000 to $25,000. To create an estimate, Log in to your online account and select Purchasing Annuity.
Keep in mind that once you set up an annuity, you cannot change the income amount. Once you begin receiving payments, you cannot cancel the annuity. Annuities are taxable income. It’s important to speak with a tax advisor to understand how that may impact you.
When does the average annuity “break even”?
It takes an average of 10-15 years to break even on an annuity. It’s one thing you should consider when choosing to purchase. Other factors are your overall retirement picture and how long you expect to live. “Retirement looks a lot different today than in the past,” said Defined Contribution Plan Manager Malia Bonham. “Many folks are retiring while still paying a mortgage. If you’re on a fixed income, having a guaranteed income source may be the route that feels best.”
Types of annuities
DRS offers three types of annuities: a service credit annuity, plan annuities and a TAP annuity. Plan and TAP annuities offer survivorship options, COLAs (Cost of Living Adjustments) and a balance refund if you die before you’ve received your purchase amount in payments.
Service credit annuity
This annuity allows you to purchase up to 60 additional months of service credit. The increased monthly amount you receive will add to your pension, but it does not give you actual service credits, and you cannot use it to reach vesting status or to retire early.
If you’re planning on returning to public service work after retirement, you’ll need to understand the return to work limits and how they may impact receiving your pension and annuity payments.
A service credit annuity has the same survivor option and Cost of Living (COLA) adjustment as your pension and must be purchased at time of retirement. You can use your pretax DCP funds or cash to purchase it. If you have a DCP Roth balance, you can also take a cash withdrawal from your Roth balance to purchase this annuity.
To create an estimate, Log in to your online account and select Purchasing Service.
Plan annuity
Plans 1, 2 and 3 for all retirement systems each offer their own annuity. Plan annuities offer the same survivor and Cost of Living (COLA) adjustment as your pension. Your beneficiary will receive a balance refund if you die before you (and your designated survivor) receive your purchase amount in payments.
Plan annuities must be purchased at the time of retirement and can be purchased with your pre-tax DCP funds or through other approved funding sources. You’ll continue to receive these payments if you return to work.
TAP annuity
TAP annuities are only available to Plan 3 members. TAP annuities feature a guaranteed 3% yearly Cost of Living (COLA) increase. They offer the ability to extend your annuity payments to a survivor, and a balance refund if you pass before you (and your designated survivor) have been paid out your purchase amount.
This TAP Annuity calculator can help you estimate your monthly income, including the annual 3% increase.
When to purchase a TAP annuity
TAP annuities can be purchased any time after you separate from employment but may only be purchased once per plan. You do not need to be retired or receiving a pension to purchase one. Payments can begin at any age and are paid separately from your pension, with the first payment typically issued within 90 days of purchase. The TAP annuity can only be purchased with Plan 3 investments.
Additional resources:
DRS Annuities
Annuities An annuity is a guaranteed income plan that you purchase. The money you receive from your annuity is in addition to the money that you receive from…
