Maximizing Your Pension Payouts: Essential Tips for South Carolina Teachers

While this article is written specifically for South Carolina teachers and public employees who participate in the South Carolina Retirement System (SCRS), these suggestions may apply to public employees in other states as well. To maximize pension payouts, it’s essential to understand the options available and make informed choices along the way. Whether you’re at the beginning of your career or nearing retirement, these tips can help you secure the best possible benefits.

1. Understand South Carolina Retirement System (SCRS) Basics
The SCRS is a defined benefit pension plan, meaning retirement benefits are based on a set formula rather than contributions made. For SCRS participants, this formula is:

Average Final Compensation (AFC) x Years of Service x 1.82%

Your “Average Final Compensation” (AFC) is calculated based on your highest 12 or 20 (depending on whether you are a Class Two or Class Three SCRS member) consecutive quarters of pay, often the last years of your career. Understanding this calculation can help you make decisions, such as choosing to work extra years or holding onto certain high-paying roles closer to retirement.

2. Increase Your Years of Service

One of the most effective ways to increase your pension payout is by increasing your years of service. In the SCRS, every additional year of service directly raises your pension benefit by 1.82%.

• Work Beyond Minimum Years: For full retirement benefits, SCRS members must meet specific age and/or service requirements. If you can work a few extra years beyond these minimum requirements, your benefit can significantly increase.

• Consider Purchase of Service Credit: SCRS allows you to buy service credit under certain conditions. If you left employment for a period or want to retire early, purchasing service credit can add years to your service calculation and enhance your pension.

3. Maximize Your Final (or Highest) Salary Years

Since the AFC calculation is based on your three or five highest consecutive years of earnings, increasing your salary during this period can have a substantial impact.
• Seek Higher-Paying Roles: Consider applying for higher-paying positions, extra duty pay, or stipends (such as coaching or club sponsorship) in your final years.
• Avoid Early Retirement Reductions: Retiring before meeting full retirement requirements often results in reduced benefits. Waiting until you reach full retirement eligibility will ensure that you avoid these reductions.

4. Consider Retiring and Returning to Work (if you are eligible)
Teachers in critical needs (subject or geographical) areas can retire and return to work without being subject to the earnings limitation (see section 2.2). For example, a SCRS Class 2 teacher can retire after 28 years of teaching, complete a 30-day separation from employment, then be rehired and receive a full teaching salary and a full pension. A list of critical needs areas can be found at
ed.sc.gov/educators/recruitment-and-recognition/critical-need-areas/. This list is produced annually for the SC Teacher loan program, but the same list is used to determine eligibility for exemption from the earnings limitation for working retirees. It is subject to change from year to year, but currently, nearly all teaching subject areas are considered critical needs.

The advantage of retiring and returning to work is that the teacher receives a full salary in addition to a full pension check. For a teacher with 28 years of experience who chooses option A, this represents an increase in income of 50.96% (1.82% x 28). One disadvantage of this strategy is that the teacher will still pay 9% of their salary into SCRS, but their service credit no longer accumulates. In other words, once you start receiving the pension, the calculation of your final benefit is set for the entirety of your retirement, with only COLA increases.

5. Consider Your Retirement Options
SCRS offers several retirement payment options for different needs, including “Option A,” “Option B,” and “Option C,” each with different benefits for spouses and beneficiaries.

• Option A (Maximum Benefit): This option provides the highest monthly payment for your lifetime but does not offer ongoing payments to beneficiaries.

• Option B and C: If you have dependents or a spouse who may outlive you, consider one of these options, which offer reduced monthly payments to provide financial security for your beneficiaries.

Evaluate your life circumstances to select the best option for your situation.

6. Manage Taxes and Other Retirement Income Sources
South Carolina does not tax Social Security benefits, and it offers a tax deduction on retirement income for residents 65 and older, which can be beneficial for retirees.

• Plan for Tax-Efficient Withdrawals: If you have other retirement accounts (like a 401(k) or IRA), consult a financial advisor to create a tax-efficient withdrawal plan. Coordinating withdrawals from different income sources can help reduce your tax burden.

7. Seek Financial Advice Early
Consulting with a financial planner who understands teacher pensions can help you make strategic decisions early in your career. They can provide guidance on:
• Timing your retirement and Social Security benefits, especially if you have multiple retirement income sources.
• Investment options if you have voluntary retirement savings like a 403(b) or 457 plan.

Conclusion

By understanding and taking advantage of the provisions of SCRS, South Carolina teachers and public employees can secure a better retirement. From increasing your years of service to carefully choosing a retirement date and payment options, small decisions can make a significant difference. Starting early, planning with purpose, and seeking expert advice are the best ways to ensure a comfortable retirement that reflects the dedication you’ve shown throughout your teaching career.