How to Maximize a Public Service Pension

Pensions are a great benefit when working in the public sector, but not all pensions are created equally. Don't assume you can retire in a few years and have no worries. Now is the time to figure out what your pension offers so you can accurately plan for your retirement.

Things You'll Need

• Benefit estimates from your pension plan or plans
• Information booklets from your plan or plans, detailing health care benefits and vesting schedules
• Information from your current plan about the cost of transferring service from another plan
• An appointment with a tax preparer or an accountant

Instructions

1. Look closely at the payout plan. A straight life annuity gives a payout as long as you live. Other pensions offer a joint and survivor benefit which pays a reduced amount to your spouse or significant other that lasts until the last payee dies. A term guarantee pays for a fixed amount of time, which is a good option if there is a dependent child relying on your benefits.

2. Find out if the plan offers graduated or full vesting. Graduated vesting means that you get to keep a little bit more of your employer's contributions in your own account every year. (Typically, this type of vesting starts at around 20 percent of your employer's contribution in your fifth year, and you become 100 percent vested in your tenth year of service.) Full vesting means you have to accumulate a certain amount of service before you get any of the employer contribution, but once you reach that point, you get to keep it all. If you leave before that predetermined date, you lose all of the employer contribution.

3. Identify whether your plan offers health insurance benefits. This benefit is in addition to your regular pension and will help you cover the cost of your premiums. Health insurance can be very expensive if you are old enough to retire but still too young to get Medicare.

4. Calculate the earliest retirement age for full benefits. Each fund is a little bit different, but they all use certain kinds of formulas to determine when you can leave public employment and start getting a pension check. The most common way is by adding your age and years of service to get a number like 80 or 85. Until you hit that golden number, the best you can hope for is partial benefits.

5. See if your current plan will allow you to "add" years of service you accumulated in another retirement plan. You may be able to get credit for military service or another public service career in a different state or city if you make an additional financial contribution to your current plan. This can be done by transferring over money held in the other plan, by cash payments deducted from your paycheck, by rolling over money held in an IRA or other personal retirement account, by writing a personal check or a combination of all of these options.

Tips & Warnings

• If your previous service was accumulated in a more generous plan, you might end up with less money by consolidating it all in your new plan. Get estimates from both plans to see if consolidation will give you a larger payout before signing any paperwork.

• Check with an accountant or a tax professional before buying service accumulated in another plan. The cost of buying the additional service might outweigh the benefit.

• Most health insurance benefits are based on years of service. Avoid leaving a public sector job a month or two before you get bumped up to the next level.