Question

Give an overview and discuss the pros and cons of CSU’s Faculty Early Retirement Plan (FERP).

Answer 1

Pros :

will receive more checks. Whether you retire on Social Security or take an early pension, you will see a reduction in income. If you are fortunate enough to live or work long enough to receive your largest possible benefit amount (age 70), waiting for your maximum monthly benefits might be more appealing. However, if you do take pension or Social Security benefits early, you have the opportunity to receive more checks in your lifetime. This situation would be ideal for someone who may need the extra time to care for a family member, can no longer work due to an illness or injury, or someone who may need the income right away.

You can still work. Maybe you don't need to punch in for regular 8+ hour shifts, but you want something to do. Working post-retirement can increase Social Security benefits, according to the Social Security Administration. Remaining active in a workplace can maintain physical and mental health as well.

Freedom. One of the primary reasons to take an early retirement is often to get more time to do the things you love. Whether you are spending more time with your family, working on your golf swing, or want to start a book club, being able to do what you want when you want is freedom.

Cons:

With the many perks of early retirement, there are downfalls as well. If you do not prepare properly, you could end up regretting retirement altogether.

You can't maximize Social Security or pension benefits. You can take a pension as early as age 55 for some companies, but be prepared for the income drop. If you do not retire on disability, you can take Social Security benefits at age 62, but according to the Social Security Administration your benefit amount would be less than your full retirement amount. The reduction of your benefits at age 62 is 25 percent; at age 63, it is about 20 percent; at age 64, it is about 13.3 percent; and at age 65, it is about 6.7 percent as listed on the Social Security Administration website. You may find that the amount you receive is not enough to maintain your standard of living.

Cost of living adjustment is not guaranteed. What is a cost of living adjustment (COLA)? It is a percentage increase in Social Security benefits based on the Consumer Price Index. Due to lower fuel prices in 2015, the Consumer Price index factors remained relatively low, and the federal government announced in 2015 that there would be no increase in Social Security benefits for 2016. Though fuel prices have gone down, rent and some food prices have risen. If you have been reduced to limited income from your pension or Social Security, you could experience a financial pinch if you do not allocate your retirement savings correctly.

Healthcare costs are high for early retirees. Along with the announcement of no COLA adjustment, many older Americans were frustrated to learn that Medicare Part B premiums will go up for people not on Social Security. So if you are a pension recipient, new Medicare enrollee, a Medicaid recipient, or in a higher income bracket, you will see an increase in healthcare costs.