Chapters

00:00 Introduction to Maximum Retirement Allowance Option

00:38 Single Life Annuity Definition

01:13 Monthly Benefit Calculation

02:08 Beneficiary Provisions

02:49 Provisions to Change Benefit Option

03:41 PLSO and IRC Limitations

04:15 Who Benefits From This Option

04:55 Action Items

05:20 Next Video Preview and Disclaimer

Transcript

Hi everyone, I'm Ryan Earley, vested PERS member, former school finance officer and host of the PERS Pro YouTube channel. In our last video, video number 34, we looked at a high level overview of all seven base benefit options. Today, we are diving deep into the first and by far the most common choice, maximum retirement allowance option. We'll discuss what it is, how it's calculated, and most importantly, who can benefit the most from it. Let's dive in.

To understand the maximum retirement allowance option, you have to understand the term single life annuity. In simple terms, this option is designed to provide the highest possible monthly benefit payment to you, the retiree, for as long as you live. Unlike joint and survivor options, where you take a pay cut for life to provide a lifetime check for someone else after your death, the maximum retirement allowance option focuses entirely on your lifetime. And because PERS does not have to factor in the life expectancy of a second person, a beneficiary, they can pay you a larger amount every month under this option.

How is the monthly benefit amount for the maximum retirement allowance option actually determined? It comes down to two main ingredients, your average compensation and your service credit factor. The formula works like this, service credit factor. For tiers one through three, you receive 2 % for the first 25 years and 2.5 % for every year after that. And for tier four, you receive 2 % for the first 30 years and 2.5 % for every year after that. Watch video number 32 for more information on how other service credit can be accumulated and included in your service credit factor. Average compensation: This is the average of your four highest earning years. Watch video number 33 for more information on how this is calculated. By multiplying these two ingredients together, you get your maximum annual benefit amount. Because this option has no reduction for survivor protection, it results in the highest monthly check and the highest annual COLA or cost of living adjustment payment available to you.

Now, just because the monthly benefit stops when you pass away doesn't mean you can ignore naming beneficiaries under this option. How many beneficiaries? You can name one or multiple beneficiaries. Who can be named? You can name a natural person like a spouse and or child or even an entity like an estate or trust. What do they get? If you die before you've received total monthly benefits equal to your own personal contributions to the PERS system, your named beneficiary or beneficiaries will receive the remaining balance in a one-time lump sum. Can I make changes? You can change your beneficiary at any time after retirement by filing the proper form with PERS.

A common question is, if I pick the maximum retirement allowance option now, am I stuck with it forever? Generally, your choice is irrevocable once you start receiving checks. However, there is a pop-down provision that applies here. If you select the maximum retirement allowance option and later get married, you may be able to pop down to a different option option 2, 4, or 4A to provide a lifetime benefit for your new spouse. This will result in an actuarial reduction of your monthly benefit to pay for that protection. Special note, you must apply for the pop-down within one year of the date of the new marriage. If you select the maximum retirement allowance option, you cannot, however, pop up to a higher amount. That feature is reserved for people who started with a reduced benefit and had their beneficiary pass away first or they divorced from their beneficiary.

What about partial lump sum options and internal revenue code limits? If you are eligible, you can add a partial lump sum option to the maximum retirement allowance option. This gives you 12, 24, or 36 months of pay upfront, but it will permanently reduce your monthly benefit amount. Since the maximum retirement allowance option is based only on your life, Internal Revenue Code 401A9 usually does not limit this benefit amount under this option. Those limits typically only kick in when you name a much younger, non-spouse beneficiary for a lifetime survivor benefit.

So who should choose the maximum retirement allowance option? It is generally best for: single retirees - If you have no dependents or spouse who relies on your income, there is less of a need to take a pay cut for survivor protection. Retirees with healthy spouses who have their own pensions. - If both partners have strong independent retirement incomes that on their own can support themselves if the other spouse were to pass, such as if both spouses are PERS retirees, there is less of a need to take a pay cut for survivor protection. Those with significant life insurance - If you have already provided for your loved ones through separate insurance policies in the event of your death, there is less of a need to take a pay cut for survivor protection.

If you are considering the maximum retirement allowance option, here are your action items for today. One, run the math. Review your annual member statement. It already calculates your monthly benefit based on the maximum retirement allowance option. Use that as your baseline to see if it covers your retirement spending plan. Two, check the beneficiary. Ensure your beneficiary information is current and if updates are needed, file Form 1B.

In our next video, we'll provide an overview of option 1 and who would benefit the most from it. Option 1 is the other single life annuity option, but with a different twist on beneficiary protection. Please make sure you subscribe so you don't miss this and other videos in our new retirement series. If you found this video helpful, you can thank me by hitting the thumbs up button and sharing it with other PERS members. If you have a follow up question about PERS or anything else related to personal finance, please visit our website at perspro.ms and submit your question or topic for a future episode. Thank you for your valuable public service to the state of Mississippi. We'll see you next time.

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.