You'll likely need to plan for many retirement years since CalSTRS members tend to live longer than the average U.S. population. In retirement, you may spend less on expenses such as gas, food or clothing. You may also own your home or may no longer pay education expenses for your children. These cost savings will help you make the most of your retirement income and protect against inflation.
Your CalSTRS retirement benefit has some built-in protection against inflation, but it’s important to leverage your assets and income to ensure your quality of living is as high in the future as it is today.
Annual benefit adjustment
Under California state law, you’ll receive an automatic benefit increase equal to 2% of your initial benefit beginning September 1 after the first anniversary of your retirement. Your retirement date must be before September 1 to receive the annual benefit adjustment on September 1 of the next year.
The amount of your adjustment will appear in your October 1 payment. Adjustments are not compounded or tied to changes in the cost of living.
Under the CalSTRS Funding Plan, the Legislature cannot reduce the 2% annual benefit adjustment for members who retire on or after January 1, 2014. The annual benefit adjustment for members who retired before January 1, 2014, is not contractually guaranteed—it can be reduced or eliminated by the Legislature if economic conditions dictate. However, the Legislature has yet to reduce the annual benefit adjustment since first providing this adjustment in 1972.
Purchasing power protection
Your retirement benefit has additional purchasing power protection. Purchasing power is a measurement of how your retirement benefit keeps pace with inflation. For example, if your benefit stays the same but prices double, your purchasing power is only 50% of its original value.
In addition to the annual benefit adjustment, supplemental benefit payments, paid in quarterly installments, support your retirement benefit's purchasing power. CalSTRS makes these payments to retired members and beneficiaries whose benefits have fallen below a certain level of purchasing power, subject to the availability of funds. The purchasing power protection level is currently set at 85% of your initial benefit (base allowance).