Chapters

00:00 - Why understanding COLA calculations impacts your retirement planning

00:18 - Differentiating simple versus compound COLA: definitions and significance

00:42 - Ryan's channel goals: providing accessible financial insights for PERS members

01:01 - Legal disclaimer and importance of professional consultation

01:44 - Conceptual overview: fixed 3% rates, bases, and how they apply

02:00 - Deep dive: how simple and compound rates are calculated

02:34 - Official rules: age and tier-based transition to compound COLA

03:00 - Practical examples: Tier 1-3 at age 55, Tier 4 at age 60

03:29 - The impact of retirement timing on COLA benefits

03:49 - Call to action: follow-up resources and next episode preview

Transcript

Hi everyone, I'm Ryan Early, host of the PERS Pro YouTube channel. In our last video, we covered the critical full fiscal year roll to determine when you first become eligible for the cost of living adjustment. Today we're covering the second major question. When are you eligible to receive the simple 3% COLA and when are you eligible to receive the compound 3% COLA?

Before we jump in, make sure you hit that subscribe button so you don't miss future videos. Our goal with this channel is to provide you with short, easy to understand videos every day that are relevant to PERS members to help you gain financial clarity.

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 Mississippi Public Employees Retirement System. Always consult directly with a Mississippi PERS representative, a financial advisor, an accountant, and or a legal professional before making any decisions regarding your unique personal situation.

First, a quick explanation of the conceptual difference. Both rates are a fixed 3%, but the base they are applied to changes. A simple rate, COLA, is calculated each year based only on your original base retirement benefit amount. It's fixed and static. The compound rate, however, is calculated each year on your new higher benefit amount that already includes all previous COLA increases. This is where the power of compounding comes in.

We will be dedicating our next episode to breaking down the powerful numerical difference between simple and compound COLA with real-world examples. For today, let's focus entirely on the eligibility requirements, specifically when your 3% COLA transitions from a simple to compound rate. The key factor that determines when your fixed 3% rate starts compounding is a combination of your retirement tier and a specific age milestone. To start, you must know your retirement tier, which is based on your date of hire. As we will get into shortly, tier 1 through 3 are treated the same when it comes to transitioning to the compound rate.

Now let's look at the official rule from the PERS Service Retirement Guide that dictates when your 3% COLA transitions from simple to compound. The rule states the COLA is equal to 3% of your annual base benefit for each full fiscal year of retirement prior to the year in which you reach the age specified for your tier. This is the period where you receive the simple 3% rate. The rule then switches to 3% compounded for each fiscal year thereafter, beginning with the fiscal year in which you age.

Let's simplify this age and tier rule into a clear table. If you are a Tier 1, 2, or 3 PERS member, meaning you became a PERS member prior to July 1, 2011, then the COLA begins to compound in the fiscal year you reach age 55. If you are a Tier 4 PERS member, meaning you became a PERS member on or after July 1, 2011, then the COLA begins to compound in the fiscal year you reach age 60. So, if you retire early in Tier 3 at age 50, you would receive the simple 3 % COLA and then in the fiscal year you turn 55, your COLA switches to the compound rate for the rest of your life. For a Tier 4 member, compounding age is 60. Understanding this single rule is crucial for planning your retirement income.

That wraps up our dive into the eligibility requirements for simple vs. compound rate for COLA purposes. But there's more to the COLA story. Watch our next episode where we break down the financial difference between a simple 3% rate and a compounded 3% rate over your retirement and why compounding is so powerful.

If you have a follow-up question about COLA, PERS, or anything else related to personal finance that impacts PERS members, please visit our website at PERSpro.ms and submit your question for a future episode. If you found this video helpful, you can thank me by simply liking the video and sharing it with other PERS members who might benefit from it also. Thank you for your valuable public service to the state of Mississippi. We'll see you next time.