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Understanding the formula – CalSTRS 2% at 60


Hi I'm Sheila a member of the CalSTRS team. If you became a CalSTRS member before January 1, 2013 you're under the CalSTRS 2% at 60 benefit structure which determines how your retirement benefit is calculated and what benefit enhancements may be available to you at retirement. CalSTRS administers a hybrid retirement plan for your financial security. This comprehensive package includes a traditional defined-benefit program, a cash balance defined-benefit supplement program and a voluntary defined-contribution program we call Pension 2. As a vested member of the CalSTRS defined benefit program you're entitled to a guaranteed lifetime a monthly benefit when you retire. This benefit is based on a formula, not on how much you've contributed. Let's look at how your benefit is calculated. The calculation is made up of three factors; your service credit, your age factor and your final compensation. Now let's take a closer look at each of the three factors. Service credit is the number of full and partial school years you've worked and contributed to CalSTRS since becoming a member.


Full-time employees generally earn one year of service credit for each fiscal year which is the maximum a member can earn in a school year. Part-time employees earn service credit based on the percentage of each full-time contract they work. For example if you work fifty percent of your full-time contract you should earn a half year of service credit. You can keep track of your service credit by logging onto myCalSTRS to review your annual retirement progress report. You should address any service credit discrepancy directly with your employer. Age factor: The second component of the formula is a percentage determined by your age at retirement and years and months. For example if you're 60 years and nine months of age at retirement your age factor would be 2.1%.


The maximum age factor is 2.4% normally reached at age 63. You can find the age factor table in the CalSTRS member handbook. Final compensation is the last factor of the formula. It's your highest average compensation earnable for 36 consecutive months unless you retire with 25 or more years of service credit. In that case you qualify for a benefit enhancement which allows CalSTRS to calculate your final compensation using 12 consecutive months. This could result in a higher final compensation. Let's take a look at an example of how to calculate final compensation. George has been working full-time for 23 years.



His highest annual compensation earnable for three consecutive school years or thirty six months is $60,000, $62,196 and $64,500. CalSTRS ads these amounts together and divides by 36. George's final conversation is $5,186. Now let's see how the three factors of the formula work together to determine George's monthly retirement benefit. If George retires with 23 years of service credit at age 60 years and nine months with an age factor of 2.1% and with a final compensation of $5,186, this will give him a lifetime monthly retirement benefit of $2,504.83. George can increase his monthly retirement benefit by increasing any one of the three factors of the formula. His service credit, his age factor or his final compensation. For example, working two more years increases George's age factor and adds two years of service credit bringing his total to 25 years. This qualifies George for the final compensation benefit enhancement. These additions to the formula increased George's initial retirement benefit by $675 per month. To see how working longer or increasing your age factor or final compensation can increase your own lifetime retirement benefit, use the retirement benefit calculator on CalSTRS.com.


For additional information on benefit enhancements and for more on how final compensation is calculated, please see the CalSTRS member handbook available online by clicking the Publications link on CalSTRS.com. While you're there register for myCalSTRS to access and manage your personal information online, anytime. Start making plans for your future. Thanks for watching..



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