Maximizing and Protecting Your PSERS Retirement Benefit

Knowing when you can retire is only part of the PSERS planning process. Members also need to understand how service purchases, Final Average Salary, pension calculations, and payout options can affect their retirement income.

The decisions you make approaching retirement can affect both your monthly income and the financial protection available to a spouse or other beneficiary.

Purchasing Out-of-State Service Credits

Eligible PSERS members may be able to purchase credit for certain out-of-state public-school service.

The purchase is subject to specific PSERS eligibility requirements, and the rules depend on the type of service and the member’s class.

You must generally be an active PSERS member and meet the applicable statutory requirements to purchase service. Once you terminate Pennsylvania public-school employment, it may be too late to initiate a purchase, so members considering a purchase should address it while they are still active.

Rules for Purchasing Out-of-State Service

For an out-of-state service purchase:

You cannot be receiving, have received, or be eligible to receive a benefit from the other state’s retirement system for the service being purchased.
If you have not received a benefit, PSERS generally requires you to withdraw from the other state’s pension system.
The withdrawal generally may include only your employee contributions and interest on those employee contributions.
A withdrawal that includes employer contributions, employer matching contributions, or interest attributable to employer contributions can make you ineligible to purchase the service.
The applicable PSERS form is PSRS-278, Purchase of Out-of-State Service.

Eligibility and purchase limits can vary depending on the particular service and circumstances. Members should obtain a formal PSERS determination rather than relying solely on a general rule of thumb.

What Does It Cost to Purchase Service?

For Class T-E, T-F, T-G, and T-H members, the cost of purchasing most non-school or non-state service is generally based on the full actuarial cost of the additional benefit.

PSERS calculates the purchase cost using factors such as projected credited service, Final Average Salary, contributions, interest, and the projected cost of the additional lifetime benefit.

Military-service purchases can be subject to different rules.

Depending on the circumstances and PSERS approval, payment may be made through available PSERS payment methods, which can include:

Lump-sum payment
Installment/payroll payments
Eligible retirement-plan rollover funds
Other payment arrangements permitted by PSERS

The exact payment options and deadlines depend on the purchase and the member’s circumstances. Members should obtain the purchase estimate directly from PSERS before making a decision.

Purchasing service should be evaluated as part of the member’s overall financial situation. A purchase can increase the eventual PSERS benefit, but that does not necessarily mean it is the best use of available retirement assets.

How Is Your PSERS Pension Calculated?

For members with a defined-benefit component, the basic pension calculation uses:

Final Average Salary × Years of Service × Pension Multiplier (%)

The applicable multiplier depends on the member’s PSERS class.

Final Average Salary

The definition of Final Average Salary differs between membership classes.

For most:

T-C, T-D, T-E, and T-F members: FAS is the average of the three highest paid school years’ salaries.
T-G and T-H members: FAS is generally the average of the five highest paid school years’ salaries.

This distinction is particularly important for newer PSERS members.

Example

Suppose a member has:

20 years of credited service
A $60,000 FAS
A 2.5% pension multiplier

The basic annual pension calculation would be:

20 × $60,000 × 2.5% = $30,000 per year

or approximately:

$2,500 per month

This example illustrates the basic defined-benefit calculation. The actual retirement benefit can be affected by the member’s retirement class, retirement date, service credit, benefit option, and other PSERS rules.

PSERS also provides retirement-estimate tools through Member Self-Service.

PSERS Pension Adjustments and Survivor Options

At retirement, PSERS provides several ways to receive a defined-benefit retirement allowance. The choice of payment option can affect both the retiree’s monthly benefit and the amount available to a beneficiary or survivor.

Maximum Single Life Annuity

This generally provides the maximum monthly benefit available.

If the member dies before receiving an amount equal to the member’s contributions and interest, the remaining balance may be payable to the member’s beneficiary or beneficiaries.

Therefore, it is not accurate to describe the maximum single-life option simply as providing “nothing” to a beneficiary.

Option 1 — Present-Value Benefit

Under Option 1:

The monthly benefit is reduced.
A present value is assigned to the member’s account.
If the member dies before receiving monthly benefits equal to that present value, the remaining balance is paid to the beneficiary or beneficiaries.

Option 2 — 100% Survivor Benefit

Under Option 2:

The member’s monthly benefit is reduced.
After the member’s death, the same monthly benefit continues to the designated survivor annuitant for the survivor’s lifetime.

Option 3 — 50% Survivor Benefit

Under Option 3:

The member’s monthly benefit is reduced.
After the member’s death, one-half of the member’s monthly benefit continues to the designated survivor annuitant for the survivor’s lifetime.

Customized Option

PSERS also offers a Customized Option for situations in which the standard options do not meet the member’s needs. This option is subject to specific requirements and should be discussed with PSERS before retirement.

How Should You Choose a PSERS Pension Payout Option?

Choosing a PSERS retirement option is an individual financial decision. Factors to consider may include:

Retirement assets such as 403(b) accounts and IRAs
The health and life expectancy of the member and survivor
The survivor’s other sources of income
Social Security eligibility, where applicable
Other pension income
Desired monthly retirement income
Tax considerations
The need for beneficiary protection
The member’s overall estate and financial plan

There is no universally best PSERS payout option.

The Maximum Single Life Annuity generally produces the highest monthly benefit, while survivor options provide additional lifetime protection for a designated survivor at the cost of a lower monthly benefit to the retiree.

A “pension maximization” strategy — taking a higher pension benefit and using the difference to purchase life insurance — may be appropriate in some circumstances but should not be assumed to be equivalent to a PSERS survivor option. The cost, availability, coverage amount, underwriting, and duration of life insurance all need to be evaluated.

For that reason, members should compare the actual PSERS benefit-option estimates with their broader financial circumstances before making an irrevocable retirement election.

Get Expert Help With PSERS Retirement Planning

A retirement analysis should consider the member’s PSERS class, credited service, Final Average Salary, retirement eligibility, benefit option, other retirement assets, Social Security, taxes, and income needs.

Professional guidance may be helpful for members considering retirement and collecting a PSERS pension.

Frequently Asked Questions

Can I collect PSERS and work part-time?

It may be possible to collect a PSERS retirement benefit while working after retirement, but restrictions can apply, particularly when returning to Pennsylvania public-school employment or other PSERS-covered employment.

Members considering post-retirement employment should review PSERS’ reemployment rules before accepting the position.

How can I calculate my PSERS pension?

For a defined-benefit member, the basic calculation uses:

Final Average Salary × Years of Service × Applicable Pension Multiplier

However, the FAS period varies by membership class. T-C/T-D/T-E/T-F members generally use the three highest school years, while T-G/T-H members generally use the five highest school years.

PSERS also provides retirement-estimate tools through Member Self-Service.

What happens to my pension if I die early?

The answer depends on the retirement option selected.

PSERS provides a Maximum Single Life Annuity, Option 1, Option 2, Option 3, and a Customized Option. Options 1–3 and the Customized Option can provide beneficiary or survivor protection, but generally result in a lower monthly benefit than the maximum single-life amount.

How is Final Average Salary calculated for T-G and T-H?

In most cases, the FAS for T-G and T-H is the average of the member’s five highest paid school years’ salaries. T-C, T-D, T-E, and T-F members generally use their three highest paid school years.

Does PSERS provide a COLA to retirees?

PSERS does not provide an automatic annual COLA to all retirees. However, legislation can provide COLAs to specified groups of retirees. For example, PSERS currently reports that retirees who retired on or before July 1, 2001 are eligible for a COLA effective July 1, 2026.