Ready to Retire? What You Need to Know.

How Much Do You Need In Retirement


It’s a big number for sure. A seemingly unimaginable number, especially on an educator’s salary. But according to some studies, fewer than half of all Americans have ever tried to even determine what their number is. Depending on your age, you may have different views on how much your pension and Social Security will actually help you in retirement. Regardless, financial advisors will tell you it’s a good idea to go back to that number that you should know and have perhaps been avoiding.

Depending on who you ask, financial experts suggest you need anywhere between 8 and 12 times your annual pay. That means a household earning $75,000 a year would need to have saved $825,000. The longer you work the less money you need as is true of the opposite. If you retire at age 62 under this same scenario you would need to have banked $1 million for your retirement. Of course, these are just estimates and how much you need will depend on your spending.

Surprising Things You May Not Know About Retirement


Medicare Does Not Cover All of Your Health Costs

When you hit age 65, it’s time to enroll in Medicare. But just as with the health insurance you’ve had throughout your working years, you’ll have to pay premiums for Medicare coverage and co-pays on covered services. And some services –such as long-term care — aren’t covered at all. The average 65-year-old couple will pay $240,000 in out-of-pocket costs for health care during retirement, according to Fidelity Investments. And that does not include those potential long-term-care costs.

Turning Half a Year Older Matters

Once you hit age 59 1/2, you are no longer subject to the 10% early-withdrawal penalty if you take money out of your IRA or 401(k). Withdrawals of your earnings from a ROTH IRA will no longer be subject to that penalty, either (assuming you’ve owned a Roth IRA for at least five years). And starting in the year in which you turn 70 1/2, you must take required minimum distributions from traditional IRAs and 401(k)s.

What To Do Now?

As an MEA member you have access to a variety of resources for free to help you plan going forward, whether you’re 25, 55 or 65.

For more on preparing for retirement based on your life stage, visit NEA Member Benefits Retirement Planning Center at neamb.com You’ll also find a retirement income calculator, tips on how to plan your saving strategy, information on investment mistakes you need to avoid and the monthly Kiplinger Retirement Report newsletter, which is free for MEA members.

Your Pension: What You Need To Know


When I receive my pension check in retirement, will taxes be taken out?

In short, yes, some taxes will be taken out. You are not taxed twice for your contributions; however when you pay into the System you have already paid State taxes on your contribution amounts. In addition, if you made contributions before January 1, 1989 you have already paid Federal taxes. However, you are responsible for the taxes on the amount of money the State contributed to your pension (that’s the 2.65% mentioned above). In addition, you have not paid State or Federal taxes on the interest your contributions earned while you were working, so you will be responsible for that amount as well. Each January, after you retire, MainePERS will send you a 1099-R form to let you know how much in benefits you received in the previous year. The form also indicates how much of your total benefit is subject to state and federal withholdings. This is true for both the Teacher Retirement Plan and a PLD.

I’ve contributed to the pension and I want to be sure I receive all benefits I’ve earned but someone told me I need to be vested in order to get a pension check when I retire. What does that mean?

Being vested means you have met the requirements to receive a monthly benefit at normal retirement age under your plan. In order to be vested, those who began work on or after October 1, 1999, must have five years of creditable public employment. Anyone whose last date of MainePERS contribution was before October 1, 1999, must have 10 years of public employment, contributing to the system, to become vested. This is true for those in the Teacher Retirement Plan and the Participating Local Districts (PLD).

I don’t plan to retire for another 30 years; will there even be any money left to fund the pension?

Yes. Per the Maine Constitution the pension system must be funded. The pension system is nearly 90% funded and one of the best-funded plans in the country. In addition, the pension system is required, by law, to be fully funded by 2028. The PLD is funded separately from the state plan.

I didn’t always work in education and contribute to MainePERS. I used to have another job and I contributed to Social Security. Will that affect my pension benefit?

No. You will still receive your pension, as long as you are vested. However, your Social Security payment will likely be lower due to the fact that you are also receiving money from a pension. This may not be true for certain PLDs, but is the case for all enrolled in the Teacher Retirement Plan. Your Social Security benefit will also be decreased if you take a private sector job and contribute to Social Security after you retire from your public sector job. The reduction is known as the Windfall Elimination Provision (WEP) which again, reduces the Social Security benefits of workers who also have pension benefits from employment not covered by Social Security. You are eligible to receive Social Security benefits after you’ve worked for 10 or more years (40 quarters {4 quarters in a year}) in a Social Security eligible job. Social Security benefits received by those who also receive a pension are impacted on a sliding scale, depending on how many years you’ve contributed to Social Security. The chart below highlights the reduction in benefits due to the Windfall Elimination based on years of Social Security Coverage:

Years of Social Security CoverageMaximum Monthly Reduction due to
Windfall Elimination (for those
62 Years old in 2015)
20 or less
$413
21$371.70
22$330.40
23289.10
24$247.80
25$206.50
26$165.20
27$123.90
28$82.60
29$41.30
30$0


*Important: The maximum amount may be overstated. The WEP reduction is limited to one-half of your pension from non-covered employment. 
Source: Social Security Administration, How the Windfall Elimination Provision Can Affect Your Social Security Benefit, Washington, D.C.

What about my spouse-he/she pays into Social Security-does that affect my benefit?

Yes and no. You will still receive the same public pension benefit, regardless of your spouse’s benefit. However, if your Social Security eligible spouse passes away, the Government Pension Offset or GPO reduces the Social Security spousal benefits by 2/3 of the pension from the non-covered public employee. In other words, the GPO lowers the dependent/survivor benefit by 2/3 from your government pension. The GPO, however, does not reduce the benefits of your spouse who was covered by Social Security.

Example: Terry works in non-SS-covered employment for a State and Local Government. She will receive a government pension from the job of $600 per month. Her husband works in SS-covered employment. She is entitled to a dependent benefit from his work of $500 per month before the Social Security Administration (SSA) applies the GPO. To calculate the GPO, SSA does the following:
multiplies $600 by two/thirds (600 X 2/3 = $400); and subtracts the $400 from the $500 dependent benefit (500 – 400 = $100).

Result: Terry receives a dependent/survivor benefit of $100 per month. This is called a “partial GPO offset.”

In some cases the calculation under the GPO could mean when your Social Security covered spouse passes away you receive zero of his/her Social Security benefits; this is called a “total GPO offset.” There are some GPO exemptions.

For more information: www.ssa.org Both the WEP and the GPO apply to those contributing to the Teacher Retirement Plan and the PLD.

Social Security Benefits & What To Expect

The Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) deprive nearly 9 million hard-working Americans of the Social Security benefits they have earned – educators, police officers, firefighters, and other employees of state and local governments who dedicate their lives to public service. The GPO reduces public employees’ Social Security spousal or survivor benefits by two-thirds of their public pension; the WEP reduces the Social Security benefits of people who also receive public pensions from jobs not covered by Social Security.

How Do I Know Whether The WEP Affects Me?

There are three general criteria.

  1. You work or worked for a state or local government in non-Social Security-covered employment.
  2. You are entitled to a government pension from that employment. The Social Security Administration (SSA) deems you to be “entitled to a pension” when you file an application for the pension and a benefit is payable.
  3. You are entitled to a Social Security retirement or disability benefit. In order to receive any benefit from social security, you have to have 10 years in social security covered employment.

Can The WEP Eliminate My Entire Social Security Benefit?

It cannot be reduced by more than half, so if you have a pension of $500, the WEP reduction cannot exceed $250.

I Heard That If Someone Has A Government Pension From Non-SS Covered Military Reserve Service, He/She Is Not Subject To The WEP. Is That True?

Yes. Congress exempted that type of service from the WEP.

Why Is The WEP Reduction So Severe?

Table 2. Monthly Benefit for a Worker With Average Indexed Monthly Earnings of $1,500

Regular FormulaWEP
90% of first $791$711.9040% of first $791$316.40
32% of earnings over 791 and through $4,768$226.8832% of earnings over 791 and through $4,768$226.88
15% over $4,768$0.0015% over $4,768$0.00
Total Monthly Benefit$938.78Total Monthly Benefit$543.28

What Is The Government Pension Offset (GPO)?

The Social Security spousal or widow(er) benefit of a person who also receives a pension from government employment (federal, state or local) that was based on work not covered by Social Security is reduced by a provision known as the GPO. The GPO reduction to Social Security spousal and widow(er) benefits is equal to two-thirds of the pension from non-covered government employment. If the pension from non-covered work is sufficiently large in comparison to a person’s Social Security spousal or widow(er) benefit, the GPO may eliminate the entire Social Security spousal or widow(er) benefit. Refer to the chart below for an example of how the GPO could impact your benefits.

Table 2. GPO Formula

JohnMary
Social Security retired or disabled worker monthly benefit (based on worker’s earnings record)$2,000N/A
Non-Social Security-covered (government) monthly pensionN/A$900
Maximum Social Security spousal monthly benefit eligible to receive (based on spouse’s earnings record, equal to 50% of the spouse’s Social Security retired worker benefit)N/A$1,000

Reduction in Social Security spousal monthly benefit due to GPO (equals 2/3 of the non-Social Security-covered pension: $900*2/3 = $600)
N/A$600
Actual Social Security spousal monthly benefit paid (subtracts 2/3 of non-Social Security-covered worker’s pension from Social Security spousal benefit: $1,000-$600 = $400)N/A$400
Total Monthly retirement benefits paid to John (Social Security only) and Mary (Social Security plus pension from non-covered employment)$2,000$1,300

MainePERS Retirement System Information And Retirement Incentives

Below is information around various provisions of the MainePERS teacher plan that questions frequently arise around. This is not a comprehensive analysis and individuals should always contact MainePERS to get precise estimates based on their own work history. Teachers, including Educational Technician IIs and IIIs are mandatory members of the MainePERS teacher plan.

The initial benefit is calculated as follows:

Average Salary (3 highest years) * Years of Service * 2% multiplier = Initial Benefit
Example: $58,000 X 25 X .02 = $29,000

In September of each year following receipt of the initial benefit for 12 months, the benefit will receive a cost-of-living adjustment (COLA). The COLA is applied to the first $20,941 of the benefit in 2016, indexed to inflation thereafter, at the rate of inflation or 3%, whichever is lower. The inflation factor is calculated based upon the June unadjusted CPI-U rate. The COLA is set in statute, so changes can be made legislatively to this provision.

For teacher members who were vested (10 years of service) prior to July 1, 1993 (i.e. normal retirement at age 60), up to 30 days of unused and accumulated sick leave can be put toward average final compensation (AFC). However, there is a separate rule that caps the maximum increase that can occur in each year of the average final compensation period that is applicable. The rule is referred to as an anti-spiking provision where compensation cannot be greatly increased in the final years of employment to increase the retirement benefit. This rule, in part, requires that Year 3 of the AFC calculation not be more than 5% greater than Year 2 of AFC or 10% greater than Year 1 of AFC calculation. An example of how this rule applies:

  • Year 2 Regular Salary: $58,000
  • Year 3 Regular Salary: $60,000
  • Year 3 Cap (5% above Year 2): $60,900
  • 30 days at Per Diem: $333.33 X 30 = $10,000
  • Year 3 Regular Salary with Per Diem: $70,000
  • Year 3 salary used for AFC purposes: $60,900


In short, the 30 days is not all counted toward the Year 3 salary for AFC as there is a cap. Per diem payout of sick leave beyond 30 days cannot count toward AFC, though in practice that is moot because of the rule capping maximum increases.

Teacher members who were not vested as of July 1, 1993 (i.e. minimum age of 62 or 65 to retire normally) are not allowed to count 30 days per diem toward their AFC. (Note, teachers who were not vested prior to July 1, 1993 but did have five years or more of creditable service on July 1, 2011 are in the age 62 plan to retire normally. Teachers who did not have five years of creditable service on July 1, 2011 are in the age 65 plan to retire normally.)

All teacher members can use 90 days of unused and accumulated sick leave as a credit for years of service.

For both the 90 days of service and 30 days toward AFC, teacher members need to have the sick time actually available to use (accrued time) upon retirement in order to use it toward the 30- or 90-day provisions. As an example, if a teacher has 100 days of sick leave accrued upon retirement and her/his contract pays out 30 days at per diem, the teacher will only have 70 days left to count toward the credit for years of service after cashing out the 30 days.

For teacher members of normal retirement age (attained 60, 62, 65 depending on plan), there are no MEPERS implications for being paid out beyond 30 days at per diem.

For teachers who are not of normal retirement age, there could be MEPERS implications to the employer for early retirement incentives. Districts that have been deemed to have offered early retirement incentives, as defined by MainePERS rules, have to pay a penalty, based on the added actuarial liability to the system that was created by the employee’s early retirement. This amount can be substantial. There is no bright line test for what constitutes an early retirement incentive. Being paid 30 days per diem when you are not a teacher of normal retirement age has never been considered an early retirement incentive by MainePERS. However, how many days per diem that can be paid out without triggering this penalty has not been defined, so some amount above 30 days likely would trigger it. As well, district contributions toward health insurance could trigger the early retirement incentive penalties, but what the benefit can be before triggering a penalty has not been defined. If a district wants to offer an early retirement incentive, it should run it by MEPERS to see if it will trigger a penalty.

Remember, early retirement incentives only apply to those who retire early, which is defined as before normal retirement age. For those of normal retirement age, there are no implications from MEPERS associated with receiving a retirement incentive.

BARGAINING IMPLICATIONS: While the 30 days of per diem cash out of sick time has been traditionally bargained and does provide a cash payment at retirement, the anti-spiking provision and phase out of the 30 days counting toward AFC has greatly diminished the utility of this provision to increase retirement income. Tradeoffs for eliminating the 30-day cash out should be given consideration. Local Associations will likely find that higher increases to salary provide a greater increase to retirement benefits than maintaining the 30-day benefit that more than offset the lost pay from the eliminated cash out. It may well be worth agreeing to a deal where a 30-day per diem is given up for 1% more on the scale. For instance, if there is an option of keeping the 30-day cash out and a 1% COLA or giving up the 30-day cash out for a 2% COLA, the latter may be a better deal both now and in retirement for members. However, the calculations will need to be made to determine if this works with a Local Association’s scale (and to demonstrate to members why they benefit from this trade). A phase-out of the cash out would likely be required to grandfather teachers in the 60 plan and allow the per diem cash out to be available for a year or two before eliminating it so no one is negatively impacted by this type of change.

The second implication that is often not understood is retirement incentives can be bargained without any MainePERS implications (districts oft cited reason for not offering incentives) for those of normal retirement age. These incentives can be for cash or benefits, such as health insurance (the state only pays 45%, remember). Retirement incentives can either be bargained into the contract or can be bargained on an ad hoc basis when there is an opportunity to do so.

Pre-Retirement Seminars

Pre-Retirement seminars are for MEA Members only and intended for those looking to retire within the next five years. The seminar will include retirement options available through ANTHEM of Maine (MEABT ANTHEM plan), the Maine Public Employees Retirement System, and the Maine Education Association.

Upcoming Dates

  • Waterville – March 6 – 4:00 p.m. to 7:00 p.m.
  • Topsham – March 13 – 4:00 p.m. to 7:00 p.m.
  • Machias – March 16 – 4:00 p.m. to 7:00 p.m.
  • South Portland – March 20 – 4:00 p.m. to 7:00 p.m.
  • Bangor – March 27 – 4:00 p.m. to 7:00 p.m.
  • Make-Up – April 3 – 4:00 p.m. to 7:00 p.m.

Visit Pre-Retirement Seminars To Register Today!

Medicare Eligibility

There are a number of current educators who are not Medicare eligible.

To be ineligible for Medicare:

An educator must have been employed as an educator prior to March 31, 1986, never changed employers since that date and never been subject to Medicare withholdings.

Even if an educator is ineligible as described above she/he may still be eligible for Medicare if she/he worked in another job that was subject to Social Security withholdings or has (or has had) a spouse who is Medicare eligible.

If there is a question about Medicare eligibility, the only way for a person to know her/his eligibility for certain is to contact a Medicare office. Regional offices can be found by visiting http://www.socialsecurity.gov/locator/ or by calling 1-800-Medicare.

Generally, Medicare credits are earned the same way Social Security credits are earned. Forty quarters of service are required to be vested. Normally, a person becomes Medicare eligible if the person or their spouse (or ex) worked for at least 10 years in Medicare-covered employment.

The difference in cost between Medicare and staying on an MEA Benefits Trust (MEABT) plan (Standard plans or Choice Plus) for those who are not Medicare eligible is not necessarily as great as one would suspect, however. Most Medicare-eligible educators elect to stay on the MEABT Companion Plan, which is less costly than the Standard or Choice Plus plans, but also must sign-up and pay for Medicare Part B. For cost, visit https://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html. (Note some Medicare-eligible educators are opting for Medicare Advantage plans recently instead of the Companion plan.) When the cost of Medicare Part B is considered, the cost of remaining on an MEABT plan for non-Medicare eligible educators, taking into consideration the state’s 45% contribution, is not necessarily a huge difference, though this depends partly on the local district insurance rates of the educator for those who are non-Medicare eligible.

When a member retires and is of Medicare-eligible age (currently 65), she/he will be sent paperwork from Anthem/MEABT to provide the educator’s Medicare number (parts A&B) so they can be transferred to the Companion Plan. If the educator does not have a Medicare number due to ineligibility, then she/he will need to return the paperwork along with a statement from Medicare saying that she/he is ineligible; this enables them to remain on the Standard or Choice Plus plans.

There was no required opt-in option for those employed prior to March 31, 1986 as many incorrectly believe. The federal government mandated anyone hired after March 31, 1986 was required to be in Medicare but those employed as of March 31, 1986 were “exempt.” It did allow states and municipalities to offer an opt-in but only if the state or municipality chose to do so, which very few did.

Government explanation:
http://www.ssa.gov/slge/mand_med_cov.htm

Retiring And Returning To Work

Retiring And Returning To Work


1. Restoration to service. Any state employee or teacher who has reached normal retirement age and who retires after September 1, 2011 may be restored to service for up to 5 years. The decision to hire a retired state employee or retired teacher under this section is at the discretion of the appointing authority. The retired state employee or retired teacher must have had a bona fide termination of employment in accordance with state and federal laws and rules, may not return to employment after retirement with the same employer for at least 30 calendar days after the termination of employment and may not return to employment before the effective date of the person’s retirement.

1-A. Restoration to work of classroom-based employees. Effective August 1, 2014, a classroom-based employee who has reached normal retirement age and who retires after September 1, 2011 may be restored to service as a classroom-based employee with a school administrative unit as defined in Title 20-A, section 1, subsection 26:

  • A. In one-year contracts, which may be nonconsecutive. The maximum time that a classroom-based employee may be restored to service with an individual school administrative unit pursuant to this paragraph is 5 years;
  • B. Subject to the 5-year restriction specified in subsection 1 and the 75% compensation limitation for retired state employees and retired teachers specified in subsection 2, paragraph A; or
  • C. In any combination of paragraphs A and B, as long as the total time the classroom-based employee is restored to service does not exceed 10 years with an individual school administrative unit.


The retired classroom-based employee must have had a bona fide termination of employment in accordance with state and federal laws and rules, may not return to employment after retirement with the same employer for at least 30 calendar days after the termination of employment and may not return to employment before the effective date of the person’s retirement.

For purposes of this section, “classroom-based employee” means a teacher whose principal function is to introduce new learning to students in the classroom or to provide support in the classroom during the introduction of new learning to students.

2. Compensation and benefits. The compensation and benefits of the retired state employee or retired teacher who returns to service after retirement as set out in subsection 1 is governed by this subsection.

  • The compensation of the retired state employee or retired teacher who returns to service must be set at 75% of the compensation established for the position to be filled, at a step determined by the appointing authority. The compensation of the retired classroom-based employee who returns to service as a classroom-based employee pursuant to subsection 1-A, paragraph A must be set at 100% of the compensation established for the position to be filled, at a step determined by the school administrative unit, for up to the maximum 5-year period that a classroom-based employee may contract with an individual school administrative unit.
  • The retired state employee or retired teacher who returns to service under this section is not a member and therefore may not accrue additional creditable service or change the retired state employee’s or retired teacher’s earnable compensation for benefit calculation purposes.
  • During the period of reemployment, the retired state employee or retired teacher is not entitled to health insurance, dental insurance or life insurance benefits. The retired state employee or retired teacher is entitled to all other benefits for the reemployment position under collective bargaining agreements or civil service laws and rules. Health insurance benefits must be provided under the provisions of section 285, subsection 1-A for retired state employees or Title 20-A, section 13451 for retired teachers and life insurance benefits must be provided under the provisions of section 18055.


3. Contributions to the Maine Public Employees Retirement System and state group health plan. The portion of the employer contribution that goes to pay the retirement system for the unfunded liability and the state group health plan for retiree health care must be continued and based on the retired state employee’s or retired teacher’s compensation as provided under subsection 2 during the reemployment period.

4. Notification requirements. Employers under this section are required to identify and report to the retirement system, in the manner specified by the retirement system, each individual who is a retiree who becomes an employee of the employer under the option provided in this section. Departments shall also report each retiree who becomes an employee to the Bureau of the Budget in a manner specified by the bureau. The employer shall report each such employee whenever and so long as the employee is the employer’s employee.

5. Exclusion. A retired state employee or retired teacher who is hired as a substitute teacher is not subject to the restoration to service 5-year limitation in subsection 1 or the compensation limitation in subsection 2, paragraph A.

If You Have Questions Concerning Your Retirement,
Please Call MEA Offices At 207-622-4418