DROP Calculator: How to Use It
DROP lets you keep working while your pension accumulates in a separate account. Whether that's a good deal depends entirely on your plan's interest rate and COLA treatment.
What this calculator does
The DROP Calculator shows your projected DROP account balance at the end of your participation period, the salary you earn during DROP, total compensation and the monthly pension you start after DROP.
It treats the pension as frozen at entry and credits one monthly pension payment to the account at the end of each month, compounding monthly at the rate you enter. It doesn't model COLAs, taxes, or the retire-now path; run those separately.
What each input means
Monthly pension at DROP entry
Your pension benefit as it stands when you enter DROP. This amount is typically frozen for the duration of DROP participation. Check your plan documents for whether COLAs continue to apply during DROP. Most plans freeze the benefit at entry; a few continue to apply annual adjustments.
Find this number from your pension plan's benefit estimate. Your HR department or the plan administrator can provide a formal benefit projection. Use the gross monthly amount before any survivor benefit or other elections.
DROP interest rate
The rate your plan credits to the DROP account balance each year. Rates vary by system and some have been changed by law. Check your Summary Plan Description or call your plan administrator. Don't guess at this number. It has a large impact on the comparison.
DROP participation period
How many years you intend to participate in DROP, up to your plan's maximum. Enter your actual planned duration. Shorter periods reduce the lump sum but reduce the cost of deferred payments. Longer periods build a larger balance but give up more monthly income.
Annual salary during DROP
Your salary while continuing to work in DROP. Some plans allow pension-eligible salary increases during DROP that don't change the frozen pension amount. Your salary affects any continued employee contributions and your financial picture during the period, but not the DROP account accumulation directly.
Reading the outputs
The main output is your projected DROP balance at exit. It's the sum of monthly pension credits (your frozen monthly benefit times the number of months) plus compounded interest earned on that accumulating balance.
Total compensation adds the salary you earn during DROP to the lump sum.
What the calculator doesn't model
Tax treatment of the DROP lump sum matters. Most DROP balances can be rolled to an IRA or other qualified plan. If you take the lump sum in cash, it's taxable income in the year received, potentially at a high rate. The calculator shows pre-tax figures. Also not modeled: any required employee contributions during DROP, health insurance continuation rules, and specific plan provisions that vary widely.
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Frequently asked questions
What is a DROP plan?
DROP lets eligible public employees officially retire while continuing to work. Monthly pension benefits are credited to a separate account during the DROP period. When you leave, you receive that accumulated balance plus your ongoing monthly pension.
How does DROP account interest work?
Your plan sets the rate, and some states have changed theirs by law, so check your plan's current DROP materials. Some plans credit a fixed rate and some credit fund returns. The rate compounds on your accumulating balance and has a large impact on whether DROP is worth it.
Is DROP always better than retiring immediately?
Not always. It depends on the interest rate, COLA treatment, your salary, and how long you live to collect the pension. This calculator shows the DROP side: the lump sum, salary earned and total compensation. Compare it with the pension you'd collect by retiring now.
What happens to my pension COLA during DROP?
Many plans freeze the pension at the DROP entry amount, and plans differ on whether COLAs apply during participation. Check your plan documents. A frozen benefit means you're giving up real purchasing power on each deferred payment.
How long can I participate in DROP?
Your plan sets the maximum, and some legislatures have changed it. DROP plans generally require you to leave employment by the end of the DROP period; check your plan for what happens if you don't.