6 Tax Planning Strategies for Your Accumulation and Decumulation Phases

Key Takeaways PERSI provides guaranteed lifetime income, with most retirees recovering their entire contribution within 3.5 years of retirement. PERSI by itself usually isn't enough. The most secure retirement comes from combining your pension with Social Security, IRAs, and your own savings. Your distribution option choice is permanent and irrevocable — choosing the right survivor benefit can protect your spouse or maximize your monthly payment. If you’re a teacher, first responder, or public employee in Idaho, you’ve heard about PERSI, the Public Employee Retirement System of Idaho. You contribute to it with every paycheck, often before you even notice the money is gone. But do you actually understand how it works and what it means for your retirement? You're not alone if the answer is "not really." Most public employees know they have PERSI, but they're fuzzy on the details. How much will you actually get? When can you retire? What's this "Rule of 90" everyone mentions? And most importantly, how does your PERSI pension fit together with your 401(k), IRA, and Social Security? Let's break it down so you can make informed decisions about your retirement future. What is PERSI? PERSI is Idaho's defined benefit pension plan for public employees. If you work 20 hours or more per week for a qualifying public employer — school districts, fire departments, state agencies, and more — you're automatically enrolled in the PERSI Base Plan. What makes it different from your 401(k) or IRA is that it is a defined benefit plan (pension), not just a retirement savings account. This difference is important. With a 401(k) or IRA, you contribute money, it grows (or doesn't, depending on the market), and eventually you withdraw it. You bear all the investment risk, and you're responsible for making your money last through retirement. With PERSI, you're earning a guaranteed monthly payment for life once you retire. The state invests your contributions and your employer's contributions, manages the investment risk, and promises you a specific benefit based on a formula tied to your salary and years of service. You can think of it as a mix between the old pension plans your grandparents may have had and today’s 401(k) system. You contribute, unlike traditional pensions, where only the employer paid in, but you also get guaranteed lifetime income, unlike 401(k)s, where you might outlive your savings. PERSI Contribution Rates With every paycheck, a portion of your gross salary automatically goes to your PERSI Base Plan. You don't get a choice about this. It’s required if you qualify for PERSI. Your employer also adds a percentage of your salary. The current contribution rates are: Public Safety School Employee General Member Employee rate 10.83% 8.08% 7.18% Employer rate 14.65% 13.48% 11.96% Let's say you earn $60,000 a year as a teacher. You're contributing $4,848 annually to PERSI, and your district is adding another $8,088. That's $12,936 going into the system on your behalf every single year. Unlike a 401(k), where you choose your investments, PERSI puts these contributions into a professionally managed fund. You do not pick stocks or bonds. Investment professionals handle that to make sure the fund can meet its future promises to retirees. Using the PERSI Retirement Calculator The PERSI retirement calculator, available at persi.idaho.gov , lets you model different retirement scenarios based on your age, salary, and years of service. The calculator shows what your monthly benefit would be if you retire at different ages. It's worth spending 15 minutes playing with the numbers. You might be surprised at how much your monthly payment changes based on when you retire. Many public employees in their 50s are surprised when they use the calculator and see their pension might be smaller than expected, or sometimes better than they feared. Either way, it is better to find out now than just a few years before you want to retire. The Retirement Age Rules You Need to Know About PERSI has very specific rules on retirement age. You must understand these rules because they determine when you can retire. Option 1: Age 65 (Age 60 for Public Safety) You can retire with full PERSI benefits at age 65 (or age 60 for public safety employees), regardless of how long you've worked. Even if you have only 5 years of credited service, you're eligible at 65. Option 2: The Rule of 90/80 This is the rule most public employees bank on for early retirement. To qualify, you need to meet all three of these requirements: You're at least 55 years old (50 for public safety employees) You have at least 60 months (5 years) of credited service Your age plus years of service equals 90 or more (80 for public safety employees) If you retire before meeting the service age requirement or the Rule of 90/80, your retirement benefit will be reduced. Here are some examples: Jennifer is a teacher and is 58 years old. She has 32 years of service. 58 + 32 = 90 → full retirement Martin is a firefighter with 30 years of service. He is 50 years old. 50 + 30 = 80 → full retirement Both Jennifer and Martin are eligible for full retirement based on the Rule of 90/80. If you meet the Rule of 90/80, you may be able to retire earlier than age 65 or 60. This can have a big impact on: Your lifetime benefit Your bridge strategy to Social Security How much you need to draw from other accounts How Your PERSI Benefit Is Calculated Your monthly PERSI payment isn't a guess. It's based on a specific formula: Average Monthly Salary × 2% (2.3% for public safety) × Months of Credited Service Let's break down each piece: Average Monthly Salary: PERSI looks at your highest consecutive 42 months of salary (that's 3.5 years). This is usually your final years of work when you're earning the most. If your highest 42 months averaged $5,000 per month, that's the number used in the formula. The 2% (or 2.3%) Multiplier: This is fixed. For each month of service, you earn 2% (or 2.3%) of your average monthly salary. Months of Credited Service: Every month you work and contribute to PERSI counts. Thirty years equals 360 months. If you took a few years off and came back to public service, only the months you actually contributed count. Now let’s look at a real example: Let's say you're a teacher whose highest 42 months averaged $6,250 per month, and you have 30 years (360 months) of service: $6,250 × 0.02 × 360 = $45,000 per year, or $3,750 per month That's your guaranteed monthly payment for life, starting when you retire. It will also receive cost-of-living adjustments (COLAs) over time to help keep pace with inflation. Here's an interesting fact: based on historical data, most retirees make back every dollar they personally contributed to PERSI within approximately 3.5 years of receiving benefits. After that, all payments come from the investment returns on contributions and your employer's contributions. If you retire at 60 and live to 90, you will get 30 years of monthly payments. Even if you only contributed for 25 years, you would still receive benefits for more than 30 years. This shows the value of a defined benefit pension. PERSI Distribution Options: A Critical Decision When you retire, you'll need to choose how to receive your PERSI benefit. This decision is permanent and irrevocable, so you need to understand your options: Regular Retirement (Full Benefit) You receive the full monthly benefit under the formula discussed above, and payments continue for your lifetime. When you die, payments stop. Nothing goes to a spouse or beneficiary. This option gives you the highest monthly payment, but it offers no protection for your spouse if you die first. Option 1: 100% Survivor Benefit You receive a reduced monthly benefit, but when you die, your contingent annuitant (usually your spouse) continues receiving 100% of that same reduced benefit for the rest of their life. This option typically reduces your benefit by about 10-15% from the full amount, but provides maximum protection for your spouse. Example : Instead of $4,000 per month under Regular Retirement, you might receive $3,400 per month. If you die, your spouse continues receiving $3,400 per month for life. Option 2: 50% Survivor Benefit You receive a smaller reduction to your monthly benefit, and when you die, your contingent annuitant receives 50% of your reduced benefit for their lifetime. This is a middle option. It reduces your payment less than Option 1, but also gives your spouse less protection. Example : Instead of $4,000 per month, you might receive $3,640 per month. If you die, your spouse receives $1,832 per month for life. Lump Sum Distribution You can take all of your employee contributions plus interest as a lump sum and forgo the monthly pension entirely. This is almost always a bad idea. You would lose the employer contributions, which are usually 60% or more of the total, and the guaranteed lifetime income. Most financial advisors would tell you to avoid this option unless you have a very unusual situation. Which Option Is Right for You? This depends heavily on your personal situation: Are you married? If so, you should seriously consider Option 1 or Option 2 to protect your spouse. If you're single with no dependents, Regular Retirement makes sense. What's your spouse's financial situation? If they have their own substantial pension or retirement savings, they may not need 100% of your benefit. If they'll depend on your pension as their primary income source, Option 1 is crucial. What's your health status? If you have serious health issues and don't expect to live long in retirement, that changes the calculation. But be careful about betting against yourself living longer than expected. Do you have life insurance? Some retirees take the full benefit (Regular Retirement) and use a portion of it to pay for life insurance that would provide a death benefit to their spouse. This can work, but requires careful analysis. This decision is complex enough that it's worth sitting down with a financial advisor who understands pension planning. The right choice could mean tens or even hundreds of thousands of dollars difference over your combined lifetimes. How PERSI Fits Into Your Complete Retirement Picture PERSI alone probably won't fund the retirement you're dreaming about. According to retirement research , the average retiree's income comes from multiple sources: Social Security, pension income, and personal savings (401(k)s, IRAs, and other investments). Very few people retire comfortably on a single income source. Your Retirement Income Streams Think of retirement income as a three- or four-legged stool: Leg 1: PERSI Pension – Your guaranteed monthly payment for life based on your years of service and salary. Leg 2: Social Security – Another guaranteed monthly payment based on your lifetime earnings. Most teachers and public employees also earn Social Security credits unless they're in a position that doesn't pay into Social Security. Leg 3: Personal Savings – Your PERSI Choice 401(k), traditional IRA, Roth IRA, or other retirement accounts you've funded over the years. Leg 4: Other Assets – Rental properties, taxable brokerage accounts, a business you might sell, or other investments. The best retirement plans have at least three of these sources, and ideally all four. PERSI gives you a strong base, but it shouldn't be your only plan. Why You Still Need to Save Outside of PERSI Let's say your PERSI benefit will be $4,000 per month, and your Social Security will add another $2,500. That's $6,500 per month, or $78,000 per year. Is that enough? Maybe. But: What if you want to travel extensively in your early retirement years? What about healthcare costs before Medicare kicks in at 65? What if you need long-term care later in life? What about leaving something to your children or grandchildren? What if inflation erodes your purchasing power more than the COLAs can keep up with? This is why financial advisors suggest having personal savings in addition to your pension. Even if your PERSI benefit is generous, having $500,000 or $1 million in a 401(k) or IRA gives you more flexibility and security than a pension alone. The PERSI Choice 401(k): Should You Contribute? In addition to the mandatory PERSI Base Plan, you have access to the PERSI Choice 401(k) — a voluntary defined contribution plan where you can contribute additional money for retirement. For 2026, you can contribute up to $24,500 annually ($32,500 if you're 50 or older with catch-up contributions). These contributions are tax-deferred, meaning they reduce your taxable income now and grow tax-free until withdrawal. Should You Use It? The PERSI Choice 401(k) can be valuable: Pros: Higher contribution limits than an IRA ($24,500 vs. $7,500 for 2026) Automatic payroll deduction makes saving easier Tax-deferred growth Loans may be available if you need emergency access Keeps your retirement savings in one place alongside your pension Cons: No employer match Limited investment options compared to an IRA Fees may be higher than low-cost IRA options Early withdrawal penalties before age 59½ Traditional IRA vs. Roth IRA: Which Is Better for PERSI Members? Beyond your PERSI plans, you should consider opening an IRA to supplement your retirement savings. The choice between traditional and Roth depends on your situation. Traditional IRA Contributions may be tax-deductible (depending on your income) Money grows tax-deferred Withdrawals in retirement are taxed as ordinary income 2026 contribution limit: $7,500 ($8,600 if 50+) Required Minimum Distributions (RMDs) start at age 73 Roth IRA Contributions are made with after-tax dollars (no deduction) Money grows tax-free Withdrawals in retirement are completely tax-free 2026 contribution limit: $7,500 ($8,600 if 50+) No RMDs during your lifetime Income limits apply (phase-out begins at $153,000 for single filers, $242,000 for married filing jointly in 2026) Which Makes Sense for You? Here's our thinking for PERSI members specifically: Consider a Roth IRA if: You're earlier in your career and currently in a lower tax bracket You expect your pension + Social Security to push you into a higher bracket in retirement You want tax-free income to supplement your taxable pension payments You want flexibility (Roth contributions can be withdrawn anytime without penalty) Consider a Traditional IRA if: You want the tax deduction now to reduce current taxes You expect to be in a lower tax bracket in retirement You're maxing out other retirement accounts and want additional tax-deferred space For many teachers and public employees, a Roth IRA is a smart choice because their PERSI pension already gives them a base of taxable income. Having tax-free money in a Roth IRA gives you more control over your taxes in retirement. Imagine being able to take $20,000 from your Roth IRA for a special trip without bumping yourself into a higher tax bracket or triggering taxation on more of your Social Security benefits. That's the power of tax diversification. How Five Pine Wealth Management Helps PERSI is a valuable benefit and is often one of the best parts of working in public service in Idaho. The guaranteed lifetime income it provides is becoming rare in today’s retirement world. But PERSI by itself is not a complete retirement plan. It is a critical foundation, but still just one part of the bigger picture. Understanding how PERSI works, when you can retire, how your benefit is calculated, and what distribution option makes sense for your family puts you in control of your retirement future. Combining your PERSI pension with smart use of Social Security, continued savings in IRAs and 401(k)s, and strategic planning around taxes and healthcare gives you the best chance of living the retirement you've earned. You've spent 20, 30, or more years serving your community as a teacher, first responder, or public employee. You've earned this retirement. Take the time now to understand your benefits, make informed decisions, and build a plan that works for you and your family. At Five Pine Wealth Management , we specialize in helping Idaho public employees navigate their retirement planning, including understanding how PERSI fits into your complete financial picture. You've put in the years. Now let's make sure your retirement plan reflects that. If you have questions about your PERSI options, want to run the numbers together, or just want a second set of eyes on your plan, we'd love to chat. Reach out at info@fivepinewealth.com or give us a call at 877.333.1015. Frequently Asked Questions (FAQs) Q: Can I rely on PERSI alone for retirement? A: PERSI provides a strong lifetime income, but most retirees still need other savings to cover taxes, inflation, and discretionary spending. Q: What’s the difference between the PERSI Base Plan and the PERSI Choice 401(k)? A: The Base Plan is a pension that pays income for life, while the Choice 401(k) is an optional account you control and invest yourself. Q: What happens to my PERSI if I change jobs within Idaho public service?  A: Nothing. Your service credit automatically carries over between PERSI employers as long as you don’t withdraw your funds.