[V072] Late-Career Series: How Much Will a Promotion Increase Your Mississippi PERS Pension?
Transcript
Introduction: Why Your Promotion Timing Matters for PERS Pension
If you are a Mississippi public employee late in your career and you have an opportunity to pursue a promotion or earn extra pay for additional duties, have you ever considered how that promotion or additional duty pay will impact your PERS pension for the rest of your life? If not, you should, because it could increase your PERS pension by tens to thousands of dollars more per month.
What to Expect in This Video
By the end of this video, you will know approximately how much you can expect your monthly PERS pension to increase from a promotion late in your career, whether you plan on retiring with 25, 30, 35, or 40 years of service credit, whether your promotion and additional duty pay lasts for a period of one, two, three, or four plus years prior to retirement, and whether that raise is $5k, $10k, $15k, $20k, $25k, $50k, or even $100k per year.
How to Get Your Personalized PERS Pension Projections
As you watch this video, keep in mind that these figures are not to be used as personal projections, and note that this analysis does not take into account any additional Social Security retirement income that might result from higher lifetime earnings as a result of the promotion or extra duty pay.
However, I am a financial planner by day, so if you want to explore your own individual retirement projections based on your unique circumstances, including both PERS and Social Security income, you can start the conversation by scheduling an introduction using the link in the show notes below.
Effect on PERS Pension from Holding Promotion for 4+ Years Prior to Retirement
Now for the results. Let's start by looking at the monthly retirement income increase you can expect when you hold your promotion for four or more years prior to retirement.
When you hold a promotion for four or more years, 100% of the raise is included in your highest four average compensation for purse purposes. You can follow along in the table to see how your monthly pension benefit increases across different total years of service credit and raise amounts.
Let's start with an example. Let's assume you receive a $10,000 raise and retire with 25 years of service credit with at least four of those years including that $10,000 raise, then your monthly PERS benefit will increase by $417 per month.
If you work until 30 years of service credit, your monthly benefit increases by $521 per month. If you reach $35 years of service credit, that $10,000 raise translates to an extra $625 per month. And at 40 years of service credit, that raise boosts your monthly benefit by $729 per month.
Remember, these monthly increases are isolating and only capture the value due to the promotion or raise and are not and do not attempt to capture the value from working one more year. If you're interested in the value from working an additional year, please watch our previous video, video number 70.
In other words, this model assumes you will work 25, 30, 35, or 40 years and compares the difference of pursuing the promotion or extra duties for one, two, three, or four plus years prior to retirement versus not pursuing the promotion or extra duties for the final one, two, three, or four plus years prior to retirement.
Effect on PERS Pension from Holding Promotion for 3 Years Prior to Retirement
Next, let's look at the monthly retirement income changes you can expect when you hold your promotion for exactly three years before retiring. Because average compensation is calculated over 48 months having higher earnings for three years means 36 of those 48 months reflect the new promotion. As a result, the retirement income increases in this table are essentially 75% of the previous table for holding a raise for four or more years.
For example, if you receive a $10,000 raise and hold it for three years, a retiree with 25 years of service credit sees a monthly increase of $313 per month compared with $417 per month if held for four plus years. At 30 years of service credit, the monthly increase is $391 per month, compared with $521 if held for four plus years. At 35 years of service credit, it provides $469 more per month, compared with $625 if held for four plus years. And at 40 years of service credit, it provides $547 more per month compared to $729 if held for four plus years.
Effect on PERS Pension from Holding Promotion for 2 Years Prior to Retirement
Next, let's look at the monthly retirement income changes you can expect when you hold your promotion for exactly two years prior to retiring. With two years of higher compensation included in the 48-month average calculation, these retirement income increases are essentially 50% of the four-plus year numbers.
Following along with our example, a $10,000 raise held for two years yields a $208 monthly increase at 25 years of service credit. At 30 years of service credit, the boost is $260 per month. At 35 years of service credit, it is $313 more per month. And at 40 years of service credit, it comes out to $365 more per month.
Effect on PERS Pension from Holding Promotion for 1 Year Prior to Retirement
Finally, let's look at the numbers when you hold a promotion for just one year before retiring. Holding a higher salary for one year or 12 months out of the 48 month average calculation means these numbers are essentially 25% of the four plus year promotion increase.
Following along with our example, a $10,000 raise in your final year provides a permanent $104 monthly increase at 25 years of service credit. At 30 years of service credit, it adds $130 per month. At 35 years of service credit, it adds $156 per month. And at 40 years of service credit, it boosts your lifelong pension by $182 per month.
How to Find Assumptions Used & More Raise and Years of Service Credit Combinations
And if you are interested in exploring the assumptions used, as well as the 1,280 different combinations that were modeled for years of PERS service credit in one-year increments from 25 to 40 years and for raise amounts in $5,000 increments from $5,000 to $100,000, you can check out my blog post, which I will also include in the show notes below.
Action Items: How to Evaluate Your Promotion Strategy
If you are a Mississippi PERS member evaluating a potential promotion or late career additional duty pay increase, here are your action items for today.
Evaluate promotion timing. Look at how many full fiscal years you will hold the new salary before your planned retirement date to determine whether you will capture 25, 50, 75, or 100% of the raise in your pension highest for average compensation factor.
Estimate your monthly pension increase. Cross-reference your expected raise amount and projected years of service credit at retirement against our tables to estimate the monthly increase in your PERS pension.
Assess the trade-off, weigh the added responsibilities of a promotion against the lifelong increase in state government-backed monthly pension income to make an informed personal and career decision.
Preview of Next Video and Closing Remarks
I hope this video gives you a clear understanding of how much a late career promotion or pay raise will permanently increase your monthly PERS pension retirement income. In our next video, we will explore “How much income will my deferred comp or 403(b) account generate in retirement?”.
Please make sure you subscribe so you don't miss this and other upcoming videos in our late career series. If you found this video helpful, you can thank me by hitting the thumbs up button and sharing it with other colleagues.
And finally, if you are looking for a financial planner that specializes in helping Mississippi PERS members build tax-efficient retirement strategies, including evaluating later career options to optimize PERS retirement benefits, please visit our website at perspro.ms to learn more about how we help PERS members like you.
Thank you for your valuable public service to the state of Mississippi. We'll see you next time.
Legal Disclaimer
Disclaimer: This video is for educational and informational purposes only. Neither the host nor this YouTube channel are officially affiliated with, endorsed by, or sponsored by the Public Employees Retirement System of Mississippi. Always consult a qualified professional for personal advice specific to your situation.
