There are numerous factors to consider when determining the best date to retire, based on your age, years of service, and personal circumstances. We’ve provided general guidance below, but feel free to contact us if you have questions or need assistance. This information is provided for service retirements only; contact LACERA if you will be applying for a disability retirement or if your disability application is pending.
Look at Whole Years for Your Healthcare Subsidy
When you retire, the percentage amount that the County pays toward your healthcare premium subsidy is a major consideration. The subsidy percentage is based on your whole years of service and is applied to the current benchmark plan rate or your premium amount, whichever is less. (If you previously purchased additional retirement credit (ARC), please note that it does not count toward retiree healthcare subsidy.)
- Once you have 10 years of service credit, the County will provide a subsidy starting at 40 percent.
- Every additional full year of service earns 4 percent, until you reach the maximum 100 percent at 25 years of service.
It’s important to know that years are rounded down when calculating your years of service counted toward the subsidy. For example, if you have 24 years and 11 months of service, your service will be rounded down to 24 years, and you will get a 96 percent subsidy—so it’s probably worth it to work another month to get the full 25 years and maximum 100 percentage.
Service credit is earned twice a month, on the 15th and the 30th. Working until the second pay period of the month will earn you additional credit toward completing a full year of service.
Note: For Tier 1 members (those permanently hired through June 30, 2014), the subsidy applies to the member's premium amount, whether single coverage or family coverage; for Tier 2 members (those permanently hired on or after July 1, 2014), the subsidy applies to the retiree-only amount.
Look at Birthday Years and Quarters for Your Retirement Allowance
You’ve probably seen your plan book’s retirement calculation tables based on your age and years of service, which gives you a general idea of the salary percentage you will receive at retirement.
Most LACERA plans are calculated by age quarters (except Plan E, which is calculated in whole years), meaning your allowance percentage increases quarterly until you reach the maximum benefit return age. Maximum benefit return ages vary by plan, as follows:
- Plan A: 62
- Plans B, C, D, and E: 65
- Plan G: 67
- Safety Plans A and B: 55
- Safety Plan C: 57
When it comes to narrowing in on your exact retirement date, you want to look at your birthdate to maximize your benefit. Here’s how one day can make a difference!
- If your plan is based on quarters: Let’s say your birthday is January 15. Your quarter dates are January 15, April 15, July 15, and October 15, Your percentage for calculating benefits increases on each of those days until your maximum benefit age. Retiring even a day shy from your birthday quarter date would prevent you from receiving that increase.
- If you are in Plan E, based on whole years: the percentage difference is substantial. Say you have 25 years of service and are about to turn 65, the maximum benefit return age. If you retire one day prior to your 65th birthday, your allowance percentage for calculating benefits would be 44.99 percent. One day later, at age 65, it would be 50 percent, a difference of 5.1 percent.
Tip: Log in to My LACERA to try out some different scenarios based on your age at various quarters and years.
Look at the Calendar Year for Taxes, Buybacks, COLA, and Compensation Limits
You may want to retire toward the beginning of the year due to taxes on your termination pay. When you terminate service for retirement, the County payroll department issues you a payment for unused sick, vacation, holiday, and/or nonelective leave hours that remain on the books. Although this payment is not calculated into your final average compensation toward your retirement allowance, it is taxable.
One way to minimize taxes on your termination pay is to conduct a rollover to your Empower 401(k) and 457(b) savings accounts. Both types of accounts are subject to IRS contribution limits. If you are close to reaching your annual contribution limit in the latter part of the year, you may want to consider waiting after January 1 to retire, to take advantage of the reset on your contributions limit. This will allow you to roll over your termination pay before or without hitting the annual limit. Contact Empower at 800-947-0845 for assistance.
Sick time, vacation, and holiday buybacks are a good way to increase your final average compensation toward your retirement allowance. This applies to legacy plans only (General Plans A, B, C, D, E, and Safety A and B). Buybacks are not included in final average compensation for members of General Plan G and Safety Plan C.
You may want to wait for the new year so you can complete unused sick leave, vacation, and holidays buybacks. Depending on your department, most sick time buybacks post to payroll by end of January and end of July. Vacation and holidays typically post by end of January. (Some departments vary on posting dates.) Contact your department to coordinate the buyback to ensure that it is included in your final average compensation and also posts prior to your planned retirement date.
LACERA retirement and survivor allowances are subject to an annual cost-of-living adjustment (COLA). The adjustment is set by the Board of Retirement, based on changes in the cost of living over the previous 12-month period, The Board of Retirement makes any COLA adjustment effective on April 1.
If you retire by March 31, your COLA adjustment will start with your first payment.
Visit your plan center anytime to see the Current COLA page for your plan.
Compensation Limits for Highly Compensated Employees
IRS-defined annual compensation limits can also affect the day you choose for your retirement. The compensation limit will be applied based on the year that your final average compensation (FAC) period begins.
Let’s assume your highest FAC period is at the end of your career. Since compensation limits are usually raised annually, you may want to wait for the end of the year to retire so that your FAC period starts in the year with the higher limit. For example, if your plan has a 12-month FAC period, and you retire in November, your FAC period and applied compensation limit would start in December of the prior year. But if you wait until the end of December to retire, the FAC period and the applied compensation limit would start in January of that same year, resulting in a higher monthly benefit.
Look at the End of Calendar Month for Service Credit, Allowance Payments, and Healthcare
Service Credit and FAC
First, make sure that you have sufficient earnings within the pay period to cover your contributions for that pay period and ensure that you get your half month of service credit.
However, for Plan members in G-General and C-Safety, Final Average Compensation (FAC) is based on the highest consecutive 36-month period of actual earnings. Having partial earnings during a pay period can lower your FAC. If you do not work the entire pay period ends, your FAC may be affected. Working until the 15th or 30th of the month will ensure you maximize your FAC.
For most members—those who have a substantial healthcare subsidy and who submit their healthcare enrollment and retirement paperwork at the same time—retiring at the end of the month makes for a smoother healthcare transition.
Exception: Members who are retiring with a lower retiree healthcare subsidy may want to consider retiring at the beginning of a calendar month, since working even for a few days earns them employer-paid coverage for the following month.
Your department must provide LACERA your termination date before we can place you on payroll, so provided you have submitted all your required paperwork for processing your retirement and setting up payments, you will usually receive your first direct deposit allowance 30 to 60 days from your retirement date. LACERA payments are posted on the last business day of the month. Retiring in the second half of the month means there will be a smaller gap between your last full County payment and your first LACERA payment.
Look at Your Work Schedule
After you have picked the year and month you want to retire, your final consideration is your work schedule. Here are some things to consider:
- If your retirement date is close to a holiday, it’s best to retire after the holiday since you will be paid for it as a Holiday by the County.
- If you work a Monday—Friday schedule, it’s best to retire on a Saturday or Sunday since you won’t be paid for the weekend by the County, but you will be paid for it by LACERA.
- If you have an alternate schedule, it’s best to retire on your RDO day, since you won’t be paid for it by the County, but you will be paid for it by LACERA.
- If you are a firefighter working a varied schedule, it’s best to retire on the first day back after your four scheduled off days.
Keep in mind that the date you select as your retirement date is your first official day of retirement and the first day to which you will be retroactively paid. Do not work on your chosen retirement date.