Today, fewer and fewer people have defined-benefit-type retirement-pension plans. However, for the minority who do, the plan might include a provision often termed (something like) the “Rule of 85.”

(Sometimes there are similar “rules” using other numbers such as 75, 80, 90, and so on. Your plan may differ. Check with your plan administrator.)

When it is in place, this rule is a formula that enables an employee to see if he or she qualifies for an “early” retirement.

Usually, the relevant calculation is performed by adding the employees age to his or her number of years of service. If the resultant sum equals (or exceeds) 85, then the employee is often able to elect an early retirement, without any loss to pension benefits.

Age + Service = 85?

In this video, I describe the rule and explain some of its applications.

Bear in mind that there may be other pension-election requirements (such as minimum ages) in play.

Additionally, early electors may miss out on bonuses or other incentives for working longer.

Finally, the decision to retire is a major life choice. Many other factors (such as the amount of accumulated personal assets, accessibility of other retirement funds, marital situation and spousal income, Social-Security-benefit expectations, cost-of-living estimates, current and future expense projections, and much else beside) beyond the Rule of 85 will need to be considered.

Disclaimer: I am not a financial adviser. This presentation is intended for general informational or entertainment purposes only. Nothing herein is to be construed as employee-benefit, financial, insurance, investment, legal, retirement, savings, tax, or any other sort of advice. If you need personalized recommendations, consult a licensed professional in your area.

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Rule of 85 for Defined-Benefit Pension Retirement Plans: What Is It?

As individuals near retirement age, financial planning becomes a critical aspect of securing a comfortable future. One popular mechanism for retirement planning is a defined-benefit pension plan. This type of plan promises a specific, predetermined amount of income to employees upon retirement. Nevertheless, understanding the nuances and eligibility criteria attached to such plans is essential. One such criterion is the Rule of 85.

The Rule of 85, also known as the “80 and out” or “Rule of 80,” is a provision that determines when an individual can retire and receive the full benefits promised under a defined-benefit pension plan. Specifically, the rule combines an employee’s age and years of service to determine eligibility for unreduced retirement benefits.

Under the Rule of 85, if the sum of an employee’s age and years of service equals or exceeds 85, they are allowed to retire with full benefits. For example, if an employee is 60 years old and has served the company for 25 years, their age (60) plus years of service (25) equals 85, making them eligible for full retirement benefits.

It is important to note that the Rule of 85 may vary depending on the pension plan. Some plans might have an 80 instead of an 85 rule, while others may use a different age and service combination. Therefore, it is crucial to understand the specific guidelines outlined by your pension plan.

Furthermore, it is essential to understand how the Rule of 85 affects your retirement benefits. By meeting the eligibility criteria, individuals qualify for unreduced benefits, meaning they will receive the full pension amount as promised. Conversely, if one fails to meet the requirement, their benefits might be reduced, affecting the overall income received after retirement.

It is also worth mentioning that while the Rule of 85 determines eligibility for full benefits, it does not necessarily mandate retirement. Individuals can choose to retire earlier, even if they do not fully meet the rule’s requirements. However, it is crucial to understand that opting for early retirement may result in reduced benefits.

To better understand the Rule of 85 and its implications, individuals should carefully review the details of their pension plan, paying attention to specific clauses related to eligibility, benefits, and any penalties for early retirement. Consulting with a financial advisor or a representative from the pension plan provider can also provide valuable insights into retirement planning.

Ultimately, the Rule of 85 serves as an important guideline for individuals participating in defined-benefit pension plans. By understanding its criteria and implications, individuals can make informed decisions about their retirement, ensuring financial security in their golden years. Remember, planning ahead and staying informed are key steps towards achieving a comfortable and worry-free retirement.