To ensure you receive the best possible retirement benefit, you need to first understand the three factors that make up your basic retirement calculation.
Understanding Your Basic Retirement Calculation
Our basic retirement calculation is as follows:
Service Credit x Benefit Factor x Final Compensation = Highest Pension Benefit
- Service credit is the number of years you work as a CalPERS member. You earn these service credit years on a fiscal year basis (July to June), and there are certain parameters and limitations to how they accrue.
- Benefit factor is the percentage of pay you’re entitled to at the age you retire. This figure is determined by several variables, including your employer and when you became a CalPERS member, among other elements.
- Final compensation is the highest monthly salary you earn for a defined period before retirement.
Tips to Get the Most Out of Each Category
There are ways to get the most bang for your buck on each of these basic retirement calculation factors.
1. Service Credit
One creative way to boost this figure — beyond just continuing to work — is to consider converting unused sick leave hours or educational leave hours into service credit, which some employers’ contracts allow.
There’s a formula for this as well (Days of Sick or Educational Leave x 0.004 = Years of Service Credit), and there may be restrictions to the amount of sick leave or educational leave hours that you can accrue.
Keep in mind that if you want to use your unused sick leave hours or educational leave hours toward your retirement calculation, you must retire within 120 days of your final day of employment.
2. Benefit Factor
Amplifying your benefit factor is somewhat finite, so the best way to do so is to know when it kicks in and when it taps out — because, yes, your benefit factor does have a beginning and end depending on your age and which employment track you’re on.
For instance, if your benefit factor is 2% at 55 and you retire at 55, you’ll get 2% of your pay for each year of service credit, and this percentage will increase incrementally every quarter after age 55 until it reaches its maximum of 2.5% at age 63.
In this example, you could technically retire before 55 and still receive a benefit factor, but it wouldn’t be the full 2%. Likewise, continuing to work past 63 would not increase the benefit factor beyond 2.5%, as that is the limit established for this formula.
Again, knowing your specific benefit factor and what type of employment category you fall under is vital to understanding the age you can begin to capitalize on it, and when it reaches its limit. The full range of these figures and formulas can be viewed on our Benefit Factor Charts webpage.
Talk to your employer for further clarification on which benefit factor applies to you as a CalPERS member or check your myCalPERS account.
3. Final Compensation
This factor is perhaps the easiest to boost, because there isn’t much you can do except promote and then make sure your highest rate of pay is reflected in your retirement calculation.
The best way to make sure your latest raise gets captured as your final compensation is to be on the job at that new salary for at least one fiscal year. At that point, it’s locked in and will be counted in full.
In Review
Hopefully you’ve learned useful tips on how to optimize our Basic Retirement Calculation. The best part — there are even more at your fingertips within our publications, including Planning Your Service Retirement (PUB 1) (PDF), which contains more information beyond what’s covered here.