What Pension Options Should FRS Members Consider
Dear FRS Member,
Are you wondering what pension option you should take?
Silverman Financial Inc. is a local independent financial
If you work for the State of Florida and are part of the Florida retirement System, by default you will accumulate benefits in the monthly pension plan. The amount that you will ultimately receive is based on your earnings, your time in the system and whether you are high risk or a regular class member. There are 4 total options that you can choose from.planning firm that has been working with Florida retirement System employees for many years. We have extensive knowledge in helping employees make this decision. In this blog we will review the options available to you.
Option 1 will provide you with a monthly pension benefit from the State Of Florida for the rest of your life. There will also be a cost of living benefit which is formula driven. If you are married, you might want to think twice about this benefit. Upon your demise, your spouse would receive nothing.
Option 2 is known as “life and 10 year certain.” This will provide you with a slightly reduced benefit from that of option 1 and will guarantee to you this amount for the rest of your life. In the event of your death during the first 10 years of retirement, this slightly reduced benefit will continue to go to your spouse for at least 10 years from the date you retired. If however you were to pass in the 11th year following your retirement, nothing would be paid to your spouse.
Option 3 is what I commonly refer to as the marriage option. The FRS participant will receive an amount of money reduced from option 1 by approximately 33%. The amount of the reduction is based on the age of the spouse. The younger the spouse, the more the reduction in benefit because this money must be paid to the surviving spouse for the rest of their life. The younger the spouse, the longer they are expected to live, thus the reduction in the monthly benefit. Under option # 3 your beneficiary (spouse) must qualify as a joint annuitant. You may change your joint annuitant up to two times, provided that you have a new spouse. You may not change the option you have selected even in the event of divorce or death after a benefit payment has been received and cashed.
Option 4 is approximately 86% of option # 1. The age of your spouse will determine the exact reduction in benefit. However, upon your demise, the benefits would be reduced by half.
Most retires choose option # 3 because they want to take care of their spouse. We are often asked if this choice makes the most sense. The answer however, is that it depends on your particular situation. Why not consider taking option #1 (the increased benefit) and purchase an amount of term life insurance to offset what you are giving up by taking option # 1 over option # 3. The cost of term life insurance (assuming you can qualify) will usually be less expensive than the difference between option # 1 and option # 3. This difference can in turn be put back into your pocket to be enjoyed.
The right decision to make is the decision that best suites your needs with respect to your specific financial situation. We advise you to seek out a Certified Financial Planner to find out what makes the most sense for you and you individual financial situation. Many people ask if they should even take the monthly pension benefit or go into DROP. We will discuss this option as well as the second election a bit further in our BLOG.
Silverman Financial has worked with FRS members for a number of years. We specialize in working with FRS members to help answer many of these common questions and concerns. Having my wife as an FRS member forced me (a number of years ago) to take a hard look at the answers to these questions and many others that would affect FRS members. At Silverman Financial we will help you to answer many of these questions as well as any concerns you may have. Please give us a call at 1-888-229-7163 to start today. Don’t forget to tell your friends!