Did you know that as a CalPERS member, you have a retirement plan called a “defined benefit” pension? That means your retirement benefit payment is calculated using a formula based on:
- How long you’ve worked for a CalPERS-covered employer.
- Your age when you retire.
- Your highest average monthly salary in the last 1 or 3 years of employment.
That’s different from a “defined contribution” plan, where retirement benefits are determined by how much money is contributed and how well those contributions are invested over time.
Having a CalPERS Pension Gives You 3 Important Advantages
- Money You Can Count On
For over 90 years we’ve delivered promised pension benefits to our CalPERS members. Your CalPERS pension provides a stable and predictable income stream throughout your retirement years. Unlike other retirement plans that are subject to market fluctuations, like a 401(k), you don’t have to be an investment expert. A fixed benefit amount in retirement provides peace of mind and improves your financial security.
- Planning for the Future
With a known income from your pension, you can plan your expenses more effectively, as you’ll have a clear idea of how much you’ll have available each month. This enables better management of living costs, healthcare expenses, and other financial commitments and reduces the anxiety that can come from worrying about running out of money during retirement.
- Protection From Rising Prices
Inflation can erode the value of your retirement savings. As a CalPERS retiree, you’re offered some protection from rising prices in the form of an annual increase to your benefit payment beginning the second calendar year after retirement. This increase, known as a cost-of-living adjustment, or COLA, depends on three factors:
- The Consumer Price Index for All Urban Consumers.
- The year you retire.
- Your employer-contracted COLA percentage. (Most state and all school agencies contract for a 2% per year COLA. Public agencies can contract for a 2%, 3%, 4%, or 5% per year COLA.)
If the rate of inflation since retirement is higher than the employer contracted COLA percentage, by law, we must apply the lesser of the two.
The Ideal Situation
According to the National Institute on Retirement Security, as of 2020 “only 7% of retirees have the ideal situation of income from three sources: social security, a pension and savings.” Your pension, along with other income streams like Social Security and a deferred compensation plan, can help ensure retirement security for you and your loved ones. Depending on your employer, you may be able to enroll in a CalPERS Deferred Compensation plan or through Savings Plus if you’re a state employee.
Remember, everyone’s financial situation is unique, so it’s a good idea to consult with financial advisors to learn how a CalPERS pension fits into your overall retirement plan.