How Is the Rule of 85 Applied to Retirement?

Some public pension systems use the rule of 85 to decide when an employee qualifies for full retirement benefits. It applies when the sum of a worker’s age and years of service equals 85 or more. This rule typically benefits long-term employees who began working at a younger age, allowing them to retire earlier than standard age-based criteria would permit. The rule of 85 is most commonly found in state and municipal retirement plans.

Figuring out when to retire and how much you’ll need can be challenging. A financial advisor can help you sort through all the variables so you have a clear picture of your prospects.

What Is the Rule of 85?

The rule of 85 is a pension calculation method used by certain public retirement systems, particularly for state and local government employees. It allows an employee to qualify for full retirement benefits when their age plus years of credited service equal 85. For example, a 57-year-old with 28 years of service meets the rule because 57 + 28 = 85.

This rule is designed to recognize the length of service in addition to age, making it possible for long-term employees to retire before traditional retirement ages like 65. It does not accelerate vesting or change the formula for calculating benefits — it simply affects when full, unreduced benefits are available. Meeting the rule of 85 often lets employees avoid early retirement penalties that lower pension payouts.

Calculating the Rule of 85

The rule itself follows a fairly simple calculation. You just need two numbers to do the math:

Your age
Number of years of service

Years of service matter if you plan to retire early. Specifically, the sooner you plan to retire, the more years of service you’ll need to satisfy the rule of 85. So if you’re 55, for example, and you’d like to retire, then you’d need to have at least 30 years of service to qualify for full pension benefits under this rule.

This is the rule of 85 in a nutshell. But it’s important to understand how your employer applies it if you have access to a pension plan at work.

Rule of 85 Limitations

Employers offering defined benefit plans don’t have to follow the rule of 85. So if your company doesn’t, the rule won’t be of benefit to you should you decide you’d like to retire a few years ahead of schedule. And even if your company does use the rule of 85, there may be a minimum age you need to meet before it can be applied.

For example, you may need to be at least 60 or 62 before pension benefits can be calculated using the rule of 85. Or your employer may use an entirely different number to determine when you’re eligible to receive full retirement benefits. For example, your age and years of service may need to add up to 90 instead of 85.

If your employer doesn’t use the rule of 85, full pension eligibility may depend only on your years of service. So you may need to fulfill 30 years or more of service to retire early without taking a pay cut in your benefits, regardless of your age.

What to Consider If You’re Subject to the Rule of 85

If your employer offers pension benefits based on the rule of 85, several factors can influence how and when you choose to retire. Understanding how the rule fits into your overall retirement plan can help you make more informed decisions about timing, income, and taxes.

Confirm Whether the Rule Applies

The easiest way to find out what requirements or restrictions your employer places on pension benefits is to ask. Your plan administrator should be able to tell you if the rule of 85 applies to your pension and if so, whether there are any additional requirements or guidelines you need to meet.

Adjusting Your Retirement Timeline

If your employer does follow this rule for pension benefits, it’s important to consider what that means for your retirement strategy. For instance, it’s possible that you may decide to retire a few years earlier if you know you can still collect a full benefit. But it’s also possible that working until full retirement age could result in a larger pension benefit amount overall.

Estimating Pension Payouts

Again, employers can base pension benefits on the years of service. So there may be a difference in the payout you’d receive if you have 23 years of service versus 25 or 27. Playing around with the numbers using an online pension benefits calculator can help you estimate what your benefits may be based on different retirement ages.

Planning Other Sources of Income

It’s also important to think about where pension benefits might fit into your overall retirement income strategy. If you’re planning to take Social Security benefits, for example, you might be wondering whether it makes sense to take them at age 62 if you plan to retire early, wait until full retirement age or delay them even longer. The amount of income you’re receiving from pension benefits could dictate when it’s the best time to take Social Security benefits.

If you’re married, your spouse may have a retirement plan of their own to factor in, such as a 401(k) or an individual retirement account (IRA). Coordinating pension income, account withdrawals and Social Security can affect your tax situation. Depending on the type of 401(k) or IRA, i.e. traditional or Roth, taking withdrawals and receiving pension or Social Security benefits could increase your tax liability.

Weighing a Holistic Retirement Strategy

Talking to a financial advisor about these kinds of issues can help you decide whether to implement the rule of 85 if you have a defined pension plan and if so, when to do it. A financial advisor can assess your retirement strategy and help you manage income and taxes.

Bottom Line

Understanding the kind of pension you have – and how much flexibility it affords you in terms of when to retire – is one of the most important considerations of retirement planning. The rule of 85 is something you may only need to take stock of if you have a defined benefit plan at work. If you have a pension, check whether the rule applies and how it might shape your retirement strategy.

Tips for Investing

Consider talking to a financial advisor about whether early retirement is a realistic goal for you financially and what steps you may need to take to achieve it. If you don’t have a financial advisor yet, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Wondering if you have enough to retire? Our free, easy-to-use retirement calculator can give you a good estimate of your annual, post-tax income upon retirement.