South Dakota · SDRS · Early retirement

The SDRS Rule of 85, and what retiring early costs

Foundation members can start a reduced benefit at 55 and an unreduced one under the Rule of 85. Generational members can start at 57, cut 5% for each year before 67.

Not sure which you are? See Foundation or Generational.

Foundation members: the Rule of 85

Your age plus your credited service must reach 85, and you must be at least 55. Service stops growing once you leave, so the date you'd meet the rule is set by your service when you stop. Foundation Handbook (July 2024), p. 12, Special Early Retirement Benefits (Rule of 85), Requirements to Meet the Rule of 85; SDCL 3-12C-1110(1)

Early retirement (South Dakota SDRS)
Age55565758596061626364
Years30292827262524232221
Foundation Handbook (July 2024), p. 12, Special Early Retirement Benefits (Rule of 85), Requirements to Meet the Rule of 85; SDCL 3-12C-1110(1)

The Foundation early cut

Retire from 55 before you meet the Rule of 85 or turn 65, and your benefit is cut 0.25% for each full month early (3% a year), for life. SDCL 3-12C-1111 (1/4 of 1% for each full month to the earlier of normal retirement age or reduction age); SDRS Actuarial Valuation (June 30, 2024), p. 56; Foundation Handbook (July 2024), p. 12 (3% a year, prorated for partial years, before age 65)

The handbook's example: 18 years, a $30,000 final average compensation, retiring at 62 on July 1, 2025. That's $8,415 a year less a 9% cut = $7,657.65. Our calculator: $7,657.65. With 18 years this member can't meet the Rule of 85 before 65, so both readings agree. Foundation Handbook (July 2024), p. 12, Early Retirement Benefit Example

The sources disagree: 65, or the Rule of 85 date? Check with SDRS

The Foundation handbook says an early benefit is cut 3% a year before 65. State law (SDCL 3-12C-1111) and SDRS's actuary measure the cut, 0.25% a month, only up to the earlier of 65 or your Rule of 85 date. Retiring at 58 with 25 years: 6% under the law, 21% by the handbook's wording. The handbook says the law wins, so we use 6% and show both.

Example: retiring at 58 on July 1, 2026 with 25 years and a $50,000 final average compensation. With service frozen at 25 years, this member would meet the Rule of 85 on July 1, 2028, at 60.

The Foundation early cut (South Dakota SDRS)
ReadingCutYearly
State law (we use this)to the Rule of 85 date6%$18,706
Handbook wording3% a year to 6521%$15,721
Foundation Handbook (July 2024), pp. 5, 12; SDCL 3-12C-1110(1), 3-12C-1111; SDRS Actuarial Valuation (June 30, 2024), p. 56
Which cut SDRS applies Check with SDRS

The Foundation handbook describes the early retirement cut as 3% a year before age 65. State law and SDRS's actuary stop the cut at the date you would meet the Rule of 85, if that comes first. For members a few years short of the Rule of 85 the law gives a much smaller cut. We show the law's figure and the handbook's figure side by side.

What would settle it: An SDRS benefit estimate for a Foundation member who retires a few years before meeting the Rule of 85 (for example age 58 with 25 years).

The cut by age and service, both ways

For a benefit starting on an SDRS birthday. The handbook's figure depends only on age; the law's figure also depends on how close your service gets you to the Rule of 85.

The cut by age and service, both ways (South Dakota SDRS)
Start at15 yrs20 yrs23 yrs25 yrs27 yrsHandbook
5530%30%21%15%9%30%
5627%27%18%12%6%27%
5724%24%15%9%3%24%
5821%21%12%6%none21%
5918%18%9%3%none18%
6015%15%6%nonenone15%
6112%12%3%nonenone12%
629%9%nonenonenone9%
636%6%nonenonenone6%
643%3%nonenonenone3%
SDCL 3-12C-1111 (1/4 of 1% for each full month to the earlier of normal retirement age or reduction age); SDRS Actuarial Valuation (June 30, 2024), p. 56; Foundation Handbook (July 2024), p. 12 (3% a year, prorated for partial years, before age 65)

Foundation members starting before 62 can also choose the level income option. Foundation Handbook (July 2024), pp. 12-13, Level Income Payment Option; SDCL 3-12C-1112

Generational members

No Rule of 85: your benefit is unreduced only at 67. You can start a reduced benefit from 57, cut 5% for each year before 67, prorated by full month. Generational Handbook (July 2024), p. 11, Early Retirement Benefits (5% a year, prorated for partial years, before 67); SDCL 3-12C-1207 (5% per full year, prorated for each additional full month); SDRS Actuarial Valuation (June 30, 2024), p. 56 (5/12 of 1% per full month) Generational Handbook (July 2024), p. 10 (unreduced only at normal retirement age); SDRS Actuarial Valuation (June 30, 2024), p. 56 (no special early retirement for Generational members)

Generational members (South Dakota SDRS)
Start atCutYou keep
5750%50%
5845%55%
5940%60%
6035%65%
6130%70%
6225%75%
6320%80%
6415%85%
6510%90%
665%95%
Generational Handbook (July 2024), p. 11, Early Retirement Benefits (5% a year, prorated for partial years, before 67); SDCL 3-12C-1207 (5% per full year, prorated for each additional full month); SDRS Actuarial Valuation (June 30, 2024), p. 56 (5/12 of 1% per full month)

The handbook's example: 30 years and a $30,000 final average compensation at 62 is $16,200 less 25% = $12,150 a year. Our calculator: $12,150. Generational Handbook (July 2024), p. 11, Early Retirement Benefit Example

See the cut at every age for your own numbers in the calculator. Related: what one more year adds, and the SDRS formula the cut is taken from.

Questions

What is the Rule of 85?

A Foundation member whose age plus credited service adds up to at least 85, at 55 or older, gets an unreduced benefit before 65. Generational members have no Rule of 85.

How much is the early retirement cut?

Foundation: 0.25% for each full month early (3% a year). Generational: 5% a year before 67, prorated by full month. The cut is permanent.

Is the Foundation cut measured to 65 or to the Rule of 85?

State law says to the earlier of 65 and the date you would meet the Rule of 85. The handbook words it as a cut before 65. For a member retiring at 58 with 25 years that's 6% by law and 21% by the handbook's wording. We use the law and show both.

Source: SDRS Class A Handbooks (Foundation and Generational members), July 2024, Foundation pp. 5, 10, 12-13; Generational pp. 10-11. Also: SDRS Actuarial Valuation (June 30, 2024) p. 56; SDCL §§ 3-12C-702, 3-12C-1105, 3-12C-1110, 3-12C-1111, 3-12C-1112, 3-12C-1203, 3-12C-1207. Last reviewed .