What Is the Rule of 85 with Retirement?

The rule of 85 might qualify you to receive your pension earlier than usual.

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As retirement creeps closer, knowing when you're eligible to retire becomes more important. While most plans have a set date at which you can take full retirement, you might be able to retire earlier if you satisfy the "rule of 85." Some pension plans use the rule of 85 to allow earlier retirement for people who have worked for the same company for a long time.

Not Required of All Plans

The rule of 85 is an optional features that some, but not all, plans choose to offer. It's not mandated by the Internal Revenue Service or any other laws. The only way to find out for sure is to either consult your pension plan documents or ask your plan administrator. If your plan doesn't use it, you're stuck waiting until your full retirement age or taking a reduced pension benefit regardless of how long you've worked for the employer.

Rule of 85 Eligibility

The rule of 85 allows you to take an unreduced retirement benefit starting in the year that your age plus the number of years you've worked for the company total 85, rather than the standard retirement age. For example, say the normal age for an unreduced retirement benefit for your pension is 65. If you're 60 and have worked for the employer for 25 years, you can retire without having a reduced benefit amount.

Age Requirement

While some pensions allow you to retire without a reduced benefit as soon as your age plus your years of service total 85, others institute additional minimum age requirements. For example, a plan might have a normal retirement age of 65 and a minimum age of 58 to take advantage of the rule of 85. Alternatively, a plan might have a regular retirement age of 65 and allow you to use the rule of 85 when you're between 60 and 65, and offer a reduced pension if you retire before 60.

Pension Amount

While simply satisfying the rule of 85 might mean your pension benefit won't be reduced because you're retiring early, it doesn't mean that you can't boost your pension plan benefit by continuing to work. For example, some pensions calculate your benefit amount by multiplying the average of several of your highest earning years by the number of years you've worked. so, if you would earn a higher salary by continuing to work, that could increase your pension amount.

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About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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