To DROP or Not to DROP…That is the Question
They say the hardest mile in a marathon is the final one. When it comes to retirement, nothing could be truer.
That’s because before the final farewell lunch and speech can happen, financial retirement decisions must be made. And they are anything but simple.
Many Florida Retirement System employees opt for DROP. After all, it provides an opportunity to double dip: continue working and earning a salary for up to five years while accumulating retirement benefits. Win-win.
This DROP CHART highlights the four DROP options, with an example for each case.
But for some people, there are better choices than DROP. How can you know what’s best for you?
The first step: carefully examine your personal situation. Are you married, do you have additional savings, assets, property or stock investments, how much debt do you have, and do you want to keep working a bit longer? Or are you sick and do not expect to live much longer? What kind of retirement lifestyle do you want?
If you are single and healthy but have significant debt and no other source of retirement income, the best choice for you may be to select Option 1 of DROP, work for five more years, and then receive the largest monthly pension amount available for the rest of your life.
Option 2, on the other hand, may be perfect for your 60-year-old co-worker who has recently been diagnosed with stage 3 lung cancer. Even if she dies, she can be assured that her spouse will continue earning monthly payments for 10 years from whenever she officially entered DROP.
But your other healthy, married co-worker who has limited debt and a spouse who is generating his own retirement savings may profit most from an entirely different plan. Her best option may be to forgo her FRS Pension Plan and DROP altogether and choose the Second Election Option.
Second Election, or ‘The Investment Plan’, converts the retirement savings that you have accumulated over your years of work into a lump sum payment—which can be invested in a number of Florida State approved assets. For an employee who has worked for thirty years and earned an average of $70,000 per year, that lump sum amount is usually around $500,000. As long as you select this option while you are still fully employed, you can continue working for as long as your professional allows.
As you can see, there are thousands of scenarios, and no one case is exactly the same.
That’s why it is imperative to meet with a qualified financial planner who has expertise in the FRS and retirement planning.
At Silverman Financial, we provide complimentary consultation meetings to FRS members. After discussing your personal situation, we create an individual retirement plan tailored specifically to your needs and goals. Unlike large banks and brokerage houses, we do not push you into Second Election so that we can invest your money. We answer your questions and explain all your options thoroughly. You make the final decision.
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