What Is the Rule of 85 With Retirement?

Though retirement is a long way off, it's never too early to start thinking about it -- if only to console yourself that all the years you spend working for your employer will bring benefits even after you quit working. If your employer still offers a defined benefit pension plan, rather than a defined contribution plan like a 401(k) or 403(b), the "rule of 85" might entitle you to retire early without having to take a reduced pension payout. However, check with your employer to see if the rule applies to your pension.

Typically, if you retire early, even if you can start receiving your pension before turning 65, you're in for a pay cut. For example, if you start receiving your pension at age 62, you might have your monthly benefit cut by 10 percent. However, the rule of 85 makes a special exception: If your age plus your number of years of service add up to 85, you can retire without your monthly pension taking a hit.

Even pensions that allow the rule of 85 exception often still impose some mandatory minimum retirement age. For example, if you were 53 and had been working since you were 21, you would technically meet the requirements given your age and 32 years of service. However, your pension might require that you be at least 55, 62 or some other age before you're eligible for retirement benefits.

Simply because you satisfy the rule of 85 doesn't mean you're automatically going to receive the same benefit if you retire early that you would have received if you had worked until you reached age 65. Typically, pensions reward you for each additional year worked, so even though your benefits might not be reduced if you retire early, you might have earned additional benefits if you had kept working. For example, say when you're 62 you have 23 years of service, so you satisfy the rule of 85. Though your benefits wouldn't be reduced, if you worked two more years, you would then have 25 years of service, which would entitle you to a bigger pension.

As wonderful as the rule of 85 might sound if you plan to work for one employer your entire career, it doesn't apply to every pension. Each employer can choose whether or not to allow it and, if it chooses not to, you're out of luck. You must satisfy the requirements of your particular pension plan.