For Florida Retirement System (FRS) participants, the Deferred Retirement Option Program (DROP) offers a unique opportunity to enhance retirement savings while continuing to work. This program not only allows you to accumulate retirement benefits but also provides several financial advantages that can contribute to a more secure and flexible retirement. Understanding these benefits can help you make informed decisions about your retirement strategy. In this article, we’ll explore the key financial advantages of the DROP program and how they can support your long-term goals. 

What Is the DROP Program? 

The Deferred Retirement Option Program (DROP) allows eligible FRS Pension Plan members to effectively “retire” while continuing to work. During DROP participation, your monthly retirement benefits are calculated and deposited into a separate account, where they earn interest. Meanwhile, you continue to receive your regular salary. At the end of your DROP period, you receive a lump sum payout of the accumulated funds, which can be rolled over into a qualified retirement account, taken as a direct payout, or split between both options. 

This unique structure offers a range of financial advantages that may potentially contribute to your retirement savings. 

Key Financial Advantages of Participating in the DROP Program 

1. Dual Income Stream: Salary and Retirement Benefits

One of the most significant financial advantages of the DROP program is the ability to continue earning your full salary while your retirement benefits accumulate separately. This dual income stream provides financial flexibility, allowing you to: 

• Boost Savings: Continue contributing to personal savings or investment accounts. 

• Pay Down Debt: Use your salary to reduce outstanding debts while your retirement benefits grow. 

• Plan for Major Expenses: Consider allocating funds for large purchases or life events, while being mindful of your retirement savings. 

2. Interest Earnings on Accumulated Benefits

While you participate in DROP, your monthly retirement benefits are deposited into a separate account that earns a fixed interest rate (currently 4%). Over the course of your participation (up to 96 months), this interest accumulation can significantly increase the total value of your retirement funds. 

Benefits of Interest Earnings: 

• Compounded Growth: Interest is added to your account balance regularly, providing consistent growth. 

• Enhanced Retirement Savings: The combination of your pension benefits and interest earnings creates a substantial financial cushion for retirement. 

3. Lump Sum Payout Options for Flexibility

At the conclusion of your DROP participation, you’ll receive a lump sum payout of your accumulated benefits. This payout can be: 

• Rolled Over into a qualified retirement account, allowing for continued tax deferral and investment growth. 

• Taken as a Direct Payout to provide immediate access to funds for personal use or large expenses. 

• Split Between Both Options for a combination of flexibility and continued tax advantages. 

This flexibility allows you to tailor your retirement strategy to fit your individual financial goals and needs. 

4. Tax-Deferral Advantages

DROP participation offers valuable tax-deferral benefits. While your retirement benefits accumulate in the DROP account, you do not pay taxes on these funds until they are withdrawn. This structure provides several advantages: 

• Reduced Immediate Tax Liability: Defer taxes until you are ready to withdraw the funds, potentially when you are in a lower tax bracket. 

• Strategic Withdrawal Options: Manage how and when you take distributions to optimize tax efficiency in retirement. 

5. Opportunity for Strategic Financial and Estate Planning

Participating in the DROP program gives you the opportunity to strategically plan for your financial future. With a lump sum payout and continued salary, you can: 

• Diversify Investments: Explore a variety of investment options to grow your retirement savings. 

• Plan for Legacy and Estate Goals: Incorporate your DROP benefits into your broader estate planning to support your beneficiaries. 

• Coordinate with Other Income Sources: Align your DROP payout with Social Security, pensions, and other retirement income for a comprehensive financial strategy. 

How to Make the Most of the Financial Advantages of DROP 

To fully leverage the financial advantages of the DROP program, consider the following strategies: 

1. Consult with Financial Professionals: Work with a trusted BENCOR advisor to explore rollover options, tax strategies, and investment opportunities. 
2. Plan for the Long-Term: Consider how your DROP benefits fit into your broader retirement and estate planning goals. 
3. Stay Informed About Tax Implications: Understand the tax consequences of different payout options and plan accordingly. 

How BENCOR Can Help You Maximize the Financial Advantages of the DROP Program 

BENCOR specializes in helping FRS participants navigate the complexities of DROP participation and post-DROP retirement planning. Whether you’re considering enrollment, managing your benefits, or planning for your lump sum payout, BENCOR offers personalized guidance and resources to help you make informed decisions. 

Participating in the DROP program offers a range of financial advantages, from earning interest on accumulated benefits to flexible payout options and tax-deferral opportunities. By understanding how DROP works and how to strategically manage your benefits, you can enhance your retirement savings and create a retirement plan that supports your long-term goals. 

If you’re interested in learning more about the DROP program and how it could potentially contribute to your retirement strategy, BENCOR is here to provide personalized support. Please schedule a free consultation with our team at BENCOR DROP support at your convenience. We look forward to hearing from you!