OPERS Retirement Planning with rebel Financial:
We specialize in financial planning for the Staff and Faculty of Ohio’s Public Universities. In fact, over 70% of our clients are/were staff or faculty at OSU, OU, or UC. Therefore, we have an inherent understanding and experience with OPERS because we have helped so many of our clients understand their pension benefits and retire with them over the years.
Below you will find introductory information that you should consider if you are looking to understand your OPERS benefits better, planning for an upcoming retirement and/or looking to hire a financial planner to help you with your OPERS planning.
How OPERS works and recent legislative changes:
OPERS has three different options (Read OPERS’ detailed explanation page):
- Traditional – This is the pension option in which most participants are enrolled.
- Member-Directed – This plan was created in 1998 (along with ARP – read more here) to serve as defined contribution plan (401k-like) option for state workers that may not spend their entire careers working for the state.
- Combined – This plan combines the above two plans to make a hybrid plan.
Most of our discussion is targeted towards the Traditional and the pension part of the Combined Plan. The pension or defined benefit plans are built on the premise of defining benefits in the future, thus, they promise some future payout which is usually defined by a formula. In the case of OPERS the formula for Straight Life Annuity (SLA – or taking lifetime payments over your life only) is: 2.2% (2.5% for years over 35) x # years contributed x Final Average Salary (FAS – highest 5yrs of service).
- A good example being that an admin with 32yrs or service would get 70.4% of their final average salary, say $65,000, which would yield $45,760/yr.
This is the fundamental nature of OPERS, service for a promised future paycheck.
Recent legislative changes:
The Ohio Legislature passed a series of changes to OPERS in 2012 which are summarized below (click here for OPERS official and detailed list):
- Created 3 transition groups (A, B, & C) whose pension changes will be gradually phased in based on age and previous service credit.
- Changed eligibility for retirement, which began in January 2013.
- Changed FAS from 3 highest to 5 highest years of earnings.
- Also, a new “anti-spiking” rule that would reduce benefits for individuals that have a few years which raise their FAS out of proportion with the contributions.
- Changed the benefit formula to 2.2% for 0-35 years and 2.5% over 35yrs.
- Reduced the amount of Cost of Living Adjustments (COLA).
- Healthcare eligibility increased from 10 to 20 years of service.
- Significant changes to healthcare stipend provided for spouses which phase in from 2016 to 2019 culminating in no financial assistance.
There are many other intricacies and nuances that should be understood before electing benefits or drafting a financial plan. You may reference OPERS’ website for detailed plan information and/or we are more than willing to explain STRS to you in further detail if you’d like to schedule a consultation.
Retirement Planning and the differences you face with OPERS:
Retirement planning can be difficult regardless of your age, employment history, and preferences. However, when you throw in the added complexity of the many choices that OPERS offers you, it can be difficult to know what to do. Unlike most people that will just file for their Social Security check when they retire, you will have to make many decisions such as survivorship benefits/percentages, beneficiaries, PLOP, healthcare choices. All of these must be weighed in collusion with your other accrued benefits, savings, retirement objectives, and estate plan.
Deciding when to retire:
Deciding when to retire is one of the most important decisions you will make and it involves balancing your non-financial desires with the financial consequences/opportunities of your various alternatives. This decision should not be taken lightly and generally should not be based on a trivial/subjective feeling of retiring at a certain age; even though you may very well be able to accomplish your goal, you just need to test it out to make sure it will work.
Your retirement date/age is one of the most important retirement planning variables that you can easily control that can make a significant difference in your retirement success so don’t throw it away by guessing or making decisions on sentimentality.
Electing and estimating benefits:
This is the culminating event of your many years of work and contribution into OPERS and it should not be taken lightly. We have heard too many people say that “it is too late for them to plan because they are already at/nearing retirement.” This is totally erroneous because at this point is where good planning can make a huge difference to the rest of your life and it will have multiple irrevocable effects:
- The benefits you elect with OPERS are irrevocable:
- You can’t change your mind and elect a different payout or survivorship option.
- You cannot elect PLOP later or return the payout for a higher monthly check.
- You cannot rejoin the system and build up more years.
- You can re-hire to an OPERS position but your contributions will go to a separate account or to ARP.
- You must coordinate with other benefit programs such as Social Security whose optimization can be tricky and whose elections may also be irrevocable.
Generally, you should seek the advice of a financial advisor/planner to determine what your retirement age should/will be at least a year before your desired retirement. You should then engage an OPERS counselor ~6 months before retirement to run estimates for you and to educate you further about the intricacies of your upcoming retirement – many of our clients schedule appointments with us immediately after this consultation to integrate this data and any potential changes into their financial plan.
*Please be aware that most financial advisor’s largest conflict of interest when giving advice on OPERS is whether you take a Partial Lump-Sum Option Payout (PLOP). This may be a good opportunity for you but you must understand if/how your advisor is biased so that you can ensure that a PLOP is in your best interest.
Preparing your total financial plan with OPERS as a PART of your entire financial strategy:
Few people take this important step. Although OPERS is one of your largest assets/incomes, it is still only a piece of your entire financial picture. You need to figure out how all of your pensions, Social Security, retirement/investment accounts, insurance programs, wills, power of attorneys, goals and objectives are going to work together towards an optimal end-state for you and your family.
Understanding and planning for Inflation:
OPERS is good pension and exquisite in protecting you from the financial risks of longevity. However, while it excels as an income source in periods of low inflation or deflation, OPERS’ greatest weakness is against Inflation (rising prices). This Achilles heel has recently been exasperated (your inflation adjustment has been reduced) by the aforementioned legislative changes.
As a very important part of your retirement plan, you should be prepared for the potential of higher inflation and how the collusion of all of your retirement assets and income will protect you from this threat.
* This is arguably the largest threat to your retirement plan’s success and you should plan accordingly.
Weighing and optimizing healthcare options:
Unfortunately, healthcare costs have increased significantly and show little sign of slowing. Retirees are having to come to terms with planning for higher percentages of their net-worth and retirement savings being diverted to pay for healthcare in the future. How you plan now, electing your health plan from OPERS, private insurance, Medicare, what you self-insure, how you accumulate funds in HSAs, etc. – will determine how effective you will be in coping with these challenges and preserving your wealth and standard of living.
Maximizing Social Security:
Even without OPERS in the equation, there are 567 different strategies to claiming your Social Security benefits. Guess how many strategies most retirees consider and the impact that will have on their over-all retirement. Most retirees are leaving considerable amounts of money on the table and many OPERS participants are not even sure how their service will effect their SS, not to mention how they might maximize it.
The Windfall Elimination Provision (WEP) can reduce an individual’s SS payment based on income received from OPERS (and other pensions). OPERS participants should plan for and work to minimize the effect the WEP will have on their SS benefits (if applicable).
The government pension offset was designed to make sure that middle and upper income individuals and couples did not unfairly benefit from the progressive nature of Social Security’s design. Where this tends to have the most effect is that it can significantly reduce survivor benefits.
The main point is that these issues can have great impact and with good/early planning we can reduce and prepare for its effect on our OPERS retirees. – Read more about WEP & GPO here.
Managing Investments and creating income from them:
Whether you have a 403b, deferred compensation/457b, IRA, Roth IRA, after tax investments, annuities, life insurance with cash value, real estate, etc. these assets take a certain amount of TLC. You need to ensure that they grow effectively, that the right amount of capital is allocated to them based on the other areas of your financial plan, and recognize that they will require a different strategy as you begin to withdraw from them.
Investment management is something we excel in and we have a very thorough process in managing money for our clients, which can reduce costs significantly and provide a individual level of customization for our clients. We even provide our financial planning services to our full-service clients that keep more than $200,00 under our management at no additional cost.
Understanding, planning, and coordinating a tax strategy:
Deferring income, withdrawal sourcing (from taxable vs. tax-free vs. after-tax investments), tax harvesting (taking capital gains/losses at good times), roth conversions among many other strategies may significantly impact your future income and legacy outcomes.
Together, with your tax professional, we can help you to integrate a tax strategy that will help you to maximize your assets for you and your family, not the government.
Having a good estate plan:
Everyone has an estate plan, unfortunately, most people are just utilizing the governments’ (mainly your state’s) plan for their assets. While their intentions are far from nefarious, they certainly aren’t designed to optimize your estate for your loved ones or the organizations you would like to benefit from your years of hard work when the inevitable happens in the future.
Together, with your attorney, we can help you design an estate plan that addresses maximizing the benefits/assets you’ve accumulated for yourself and then efficiently passes them to those you desire. – Read more about estate planning here.
*Although we have some clients express the desire to not leave any assets behind, this is an unlikely scenario if you plan well. There will most likely be assets left-over after you pass so we might as well make sure that they go to where you want…
Implementing, monitoring and updating your plan as your circumstances change:
This is the crucial aspect of everything we have discussed. There is so much information out there that you can probably DIY it on your own, if you can:
- Find all of the relevant information to your specific situation.
- Organize that information into a plan that works well for you.
- Then institute that plan in a way that would hold you accountable for carrying it out successfully.
- Lastly, you need to update it over time as your real life deviates from the plan.
However, like so many of our other human endeavors, the implementation and follow-up just doesn’t get done. The opportunity cost to OPERS retirees are enormous – Please read our brochure page 4-5 for an explanation of the value added by a good financial advisor.
We provide these services to our clients in a symbiotic relationship that holds you and us accountable for helping you towards a more successful retirement.
*No advice on this subject can be truly universal or objective, you should consult with your appropriate financial, tax, and/or legal advisor about your individual circumstance(s) before taking any action.