Chapters

00:00 Introduction

00:33 Where the data comes from

01:28 What Percentage of PERS Retirees Select a Partial Lump Sum Option?

01:54 Ranking the Most Popular PLSO (12, 24, and 36 months)

02:30 Insights into Popularity of PLSO Options

03:24 Income Level Impact on PLSO Choices

04:56 Why Does PLSO Popularity Change by Income Level?

06:11 Action Items for PERS Members

06:53 Preview of Next Video and Calls to Action

08:01 Disclaimer

Transcript

Hi everyone, I'm Ryan Earley, vested PERS member, former school finance officer, current financial planner, and host of the PERS Pro YouTube channel. Today, we're revealing what percentage of PERS retirees take a partial lump sum option, which of the three PLSOs is most popular, and how the popularity of a PLSO changes across income levels. Let's get started.

All of the data we are about to reveal comes from the most recent PERS annual comprehensive financial report. Specifically, we analyzed the selection behaviors of over 118,000 retirees currently receiving benefits as of the June 2024 reporting period. This data gives us a comprehensive look at how retirees across all income levels, from those receiving under $500 a month to those receiving over $5,000 a month, choose to handle their partial lump sum option selection. One important note here before we share our findings. Remember that not all PERS service retirees are eligible to take a partial lump sum option. Watch our previous video number 45 where we explain who is eligible and what benefit option is compatible with the partial lump sum option. For this reason, the percentage of PERS retirees that take a PLSO will never be 100%. 

The first big question is, how many people actually take the partial lump sum option? Out of the 118,197 total retirees we analyzed, 29,730 selected a partial lump sum option. This means that 25%, or exactly one out of every four PERS retirees, is both eligible for and has chosen to take a lump sum at retirement.

When a member decides to take a PLSO, they must choose between 12, 24, or 36 months of their un-reduced maximum retirement allowance.  Let's look at the breakdown of those who selected a partial lump sum option. By far the most popular option was the 36 month option with 63% of PLSO takers selecting this option. Next was the 12 month option with 21% of PLSO takers selecting this option. Finally, the least popular option was the 24 month option with only 16% of PLSO takers selecting this option.

Why is the 36-month option so popular? One likely reason is the all-or-nothing mentality. If a retiree has decided to permanently reduce their monthly check for life, many may feel they might as well take the maximum amount of cash possible to make the trade-off quote-unquote worth it.  The 12-month option likely appeals to those who have a specific smaller debt to clear, like a personal loan or a credit card without taking a massive hit to their monthly income. The 24 month option often gets stuck in the middle. It carries a heavier monthly reduction than the 12 month, but doesn't provide the wow factor of three full years of salary upfront like the 36 month option. I suspect a lot of PERS retirees selecting this 24 month option would like to take the 36 month, but chose not to for fear of falling in a higher federal tax bracket the year of their retirement.

Interestingly, the popularity of taking any PLSO changes significantly based on how much your monthly benefit is. This chart shows how the PLSO popularity follows an upside down smile. At low benefit amounts, those receiving $1- $500 a month, only 15% select a PLSO. At average benefit amounts, those receiving $2,000- $3,500 a month, this is the peak PLSO zone where 35%, over one-third, select a lump sum. At high benefit amounts, over $5,000 a month, popularity starts to drop again, with 27% selecting a PLSO. 

Also, interestingly, the popularity of 12-month vs. 24-month vs. 36-month PLSO changes significantly based on how much your monthly benefit is. For those in the lowest income bracket, $1- $500 a month, 67% of those who take a PLSO go for the full 36 months. However, as the monthly benefit amount increases, the preference for the 36-month option actually decreases. For retirees making over $5,000 a month, the selection of the 36-month option drops to 54%, while the 12-month option climbs to 29%. In fact, for almost every income bracket above $3,000, the 12 month option is chosen by nearly 30 % of PLSO takers compared to only 18 % in the lowest income bracket.

Let's look at why the shift in PLSO popularity happens across income levels. For those in the lower income brackets, one to $1,000 a month, a PLSO might reduce an already small check to a level that feels unsustainable. If your check is $500 a month, a reduction might leave you with very little for basic needs.  With that said, those choosing a PLSO at this income level are leaning heavily towards the 36-month demonstrating they need cash today. 

In the peak zone, $2,000 to $3,500 a month, these retirees often have enough monthly income to absorb the reduction while still covering their bills, making the $60,000 to $100,000 lump sum check very attractive for major goals like travel or paying off a mortgage.  

For the highest earners, over $5,000 a month, they may have less need for the lump sum because they likely have other significant retirement savings, like a 457B or 403B, that they can pull from to access cash and prefer the security of the largest possible guaranteed monthly benefit. Further supporting the thesis, this group doesn't need much cash, even if they do select a PLSO, this is the group most likely to select a 12-month PLSO across all income levels.

Now that you've seen the data, here are your action items for today. One, request an estimate. Contact PERS to get your unaudited estimate of benefits that shows what your monthly benefit amount would be for each of your seven PERS options if you chose a partial lump sum option. Two, become familiar with the partial lump sum option. If you aren't familiar with PLSO, go back and watch video number 42 where we provide an overview. Three, consult a professional.  Talk to a finance and or tax professional for personalized advice on selecting a PLSO. In my experience, when PERS specifically mentions in their literature to consult a professional, as they do with PLSO, it's an area where you may want to think twice before trying to DIY it.

I hope this video provides better awareness on the popularity of the partial lump sum option. In our next video, we'll explore should a PERS retiree select a partial lump sum option where we will look at the pros and cons and situations where it could make sense. 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, click YouTube and submit your question or topic for a future episode. And finally, if you are looking for a financial planner that specializes in helping PERS members plan for retirement, including selecting a partial lump sum option, please visit our website at perspro.ms to learn more about our firm and to schedule your initial consultation. 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.