Episode 57 – Understanding separation vs. retirement dates
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. Today we’re looking at the difference between separation date and retirement date. When you apply for retirement with DRS these are two very different dates. But they’re both super important to know. So, let’s kind of dig in. So, the separation date is typically the last day that you’re paid for employment, typically your last day in public service.
But your retirement date is the first day of the month after you’ve separated and you’ve applied to retire. So, we have like a little graphic on our website that kind of shows this, you know, maybe a traditional retirement. They separate the middle of April and then they retire, and then their retirement date would be in May 1st.
Seth
Right. So, this is something that people oftentimes get confused about because it is really DRS technical language. I think more than how people think about their own retirement. It’s like I quit, I’m done, I’m retired. And when we talk about retirement, we’re talking about when you’re starting to collect your pension. And for a lot of people those separation dates and retirement dates are really close to each other. As you mentioned somebody could quit employment on June 30th and their retirement date is July 1st.
Jenny
Right. So they’re like, “I’m turning 65 this year. I’m going to retire and collect my pension.” And there you go. Separation date in June. Retirement date in July.
Seth
Yeah. And so, I think where people frequently get tripped up is if you work in a month, we can’t retire you in the month. And so, what happens oftentimes is a person wants to work the first of a month because they want to get health insurance coverage. Makes total sense, it’s expensive. You say “oh I want to make sure I stay covered with my employer provided insurance. And so I’m going to work on August 1st or I’m going to use leave on August 1st. I’m still gonna be paid by my employer for August 1st.” And then DRS will say, “oh, well, you worked in August, so we can’t retire you until September 1st.”
And then what’s even more confusing or more problematic in that situation is we don’t pay benefits until the end of the month you retire. So, you quit August 1st, you retire September 1st. DRS pays you at the end of September, it could be almost two months without much of a paycheck. For some people, that’s no big deal. But for a lot of people, it can be really challenging to have a really small last paycheck from your employer and then have to wait almost a full another month until DRS is going to start paying your pension benefit.
Jenny
Gotcha. Yeah. And I know the other issue that comes up too, is for maybe folks who separate from public employment in maybe, say, their 30s or their 40s or whatever age it is, and they’ve worked for a certain number of years. They’re qualified to receive a pension, but they say, “hey, maybe I’m going to go work somewhere else for the last decade or so of my career. And then when I turn 65, I’m going to retire.” And so, for those folks, that separation date and that retirement date could be decades apart.
Seth
That’s exactly right. And that’s the other point that oftentimes causes confusion for people who either have a career transition or in their mind, they’ve retired early. You know, I retire at 55. I’m living off my DCP, but I haven’t actually started collecting my pension.
Jenny
Yes.
Seth
And so, my retirement date is still 65 when I start collecting my pension. But my separation date was way back in the past. And in that case, for people, the retirement date usually is the first of the month following the month they turn 65. So, if I turn 65 in the middle of March, my retirement date is effective April 1st. Then it’s really based around your retirement date.
You mentioned DRS has a graphic on our website about this. This is something we’ve tried to provide a lot more education around so that people can understand the importance and the difference between these two dates.
I don’t think I’ve told this story on the podcast, but I was at a friend’s brunch party that he was hosting there was some other public employees there, and my wife and I were there and we didn’t know really anybody there, and mentioned to somebody that I work at DRS and he immediately tells me the difference between separation and retirement, like he’d been reading our website.
And for him, I think it was the thought of he knew he wanted to stop working early. He had this goal of early retirement. And so, his mind, he understood. I’m going to separate from employment at 55, but I’m going to wait and retire and collect my pension at 65. So, in some ways, that technical language is really specific to DRS, because when you retire at 55 and you’re living off of your savings or whatever, you’re retired in the grand scheme of things, what someone would think of being retired. But it’s really about collecting your pension for DRS.
Jenny
Yeah, that’s the big distinction. And we talk about those two separate pots of money between your DCP and your pension fund. And then obviously Plan 3. That’s even more kind of the three pots of money. But yeah, really, when we talk about retirement date, we’re talking about the months that you’re starting to collect your pension specifically.
Seth
Yeah, it’s really “pension initiation month.”
Jenny
There we go! Yeah.
Seth
Yeah. It doesn’t quite roll off the tongue as nicely. When we’re talking about retirement, we’re really talking about initiating that additional income stream from your lifetime pension.
Jenny
Perfect. I had a question that came up too about, you know, in terms of sick leave or vacation leave. So say, you know, someone is turning 65 this year. They’re thinking about retiring in September, but then they have, let’s say, two weeks of sick leave saved up. So, would their separation date be then the very last day that they would receive sick leave or…something like that?
Seth
Yeah, it’s a really good question. And what we try to say is that your separation date is the last date you’re in paid status with your employer. So, if you’re using leave up through the end in your example up through the end of August, even though you’re not in the office, you’ve already cleared out your desk. All of those things.
Yeah, your separation date is the last day your employer is paying you for working or using leave. And they might not pay you until the next month, like because, you know, state employees, we get paid the 10th and the 25th. So, if I get paid on the 10th, that’s not my separation date. My separation date is the last of the month before. That was the last day I work.
There’s a lag in when you actually receive the payment. And so that sometimes causes confusion as well. But for people that have, you know, a significant amount of leave built up, there are a number of different options. And this actually can vary quite a bit by employer. And so, it’s worth talking to your payroll office or your HR office about what are my options with that leave? You might be able to burn up the leave just like you described. Use the leave over the course of weeks or months.
You might also have the opportunity to roll out that leave, cash it out and roll it into… I don’t think we’ve had anybody come in and talk about VEBA. It’s a program that allows you to roll over your sick leave — the cash equivalent — into an account that you can then use for medical expenses in retirement. And so not all employers participate in that. It’s an employer by employer situation. But that’s something instead of using the leave, maybe it makes sense to have it saved up.
And then similarly I think we’ve had some people talk about this. But if you have vacation leave and you’re going to be able to cash it out. You can actually instead of taking it as cash, you can roll it over into your Deferred Comp, your DCP, or your 457 or an investment account. And the advantage of doing that is that you’re not hit with the taxes of it all being paid out to you at one time. You might be able to then spread it out over the course of a number of years.
So that’s something that sometimes people will consider doing with leave as well. And then yeah, whatever day they end, employment is still their separation day.
Jenny
Yeah. That’s great. I’m glad that you mentioned the VEBA program. And again that’s V-E-B-A. And that one and a lot of other points that you mentioned are referenced on the DRS retirement checklist, which you can also find on the website.
Seth
That’s a really good call out to the checklist, the number of different things that you’re probably only going to do once in your life. And so, thinking about what are those things that I want to make sure I’m going to have to make a decision on. They’re not necessarily DRS specific things. I think that oftentimes gets people a little bit flustered about all the different choices they have to make.
And sometimes your neighbor or your brother-in-law or whoever might have different choices because they work at a different employer or they’re in a different retirement plan. So, you have to figure out which choices apply to you. But the choice of when you’re going to separate employment and when the choice of the day you’re going to actually start collecting your retirement. So, your retirement date, your separation date are two choices that pretty much everybody has to make.
Jenny
Yeah, yeah. So definitely double-check that retirement checklist and we’ll put a little link in the description for this podcast episode to make sure you’re taking all of those things into consideration.
Seth
Yeah. So, if you if you know somebody who’s thinking about retiring, asking them when they’re planning on separating, when they’re planning on retire and helping people understand that those are two separate dates can be really helpful when you start to navigate the retirement process. You mentioned the checklist. I think we also have some videos on the website that help describe this as well. The different steps in the process.
Jenny
Yes.
Seth
And then I think one other thing we just wanted to remind listeners is that we are certainly open to suggestions or questions they have for other episodes or things that they would like us to talk about and make sure they understand. And you can reach out to us at drs.podcasts@drs.wa.gov. If you have any other questions about the way the process works as far as preparing for retirement or if you’re years away from retirement.
Jenny
Absolutely. We’d love to hear from you.
Seth
All right. Thanks, Jenny.
Jenny
Thank you.
[music outro]
Disclaimer
Thanks for listening. And now we’d love to hear from you. What topics would you like to hear about? What questions do you have for us? Send an email to drs.podcasts@drs.wa.gov that’s drs.podcasts@drs.wa.gov. The Department of Retirement Systems provides this podcast as a public service, but it’s neither a legal interpretation nor a statement of DRS policy.
References to any specific product or entity do not constitute an endorsement or recommendation. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Views and opinions expressed by DRS employees are those of the employees and do not necessarily reflect the view of DRS or any of its officials.
