How to Keep Uncle Sam’s Hands Out of Your Pocket, and Away From Your DROP Retirement Money

If you’re a state employee in Ocala, Belleview, or Marion County nearing retirement, you’ve worked hard to earn your DROP (Deferred Retirement Option Program) benefits. But without the right plan, Uncle Sam could take a hefty cut of your well-earned money—and recent stock market events could put your retirement at risk.

At Preferred Insurance, we specialize in helping local state employees just like you protect their DROP benefits, minimize taxes, and secure guaranteed income for life.

1. The Problem: Taxes and Market Losses Can Eat Your DROP Money

Your DROP benefits are paid as a lump sum, and this creates two big risks:

1. Taxes:
   
   • The IRS treats your DROP payout as taxable income, which WILL push you into a higher tax bracket.
   • You WILL lose tens of thousands of dollars to federal taxes alone.
   • Medicare Part B premiums could also increase based on your income.
2. Market Losses:
   
3. Rolling your DROP payout into a Traditional IRA defers taxes but exposes your savings to stock market volatility.
4. If you’re nearing retirement, the last thing you want is to lose part of your DROP money in a market downturn.

2. Real-Life Example: The Cost of Taking DROP as Cash

Here’s what could happen if you take your DROP payout as a lump sum:

• Let’s say a state employee in Marion County earns $100,000 annually and takes their $150,000 DROP payout in cash.
• Their total taxable income jumps to $250,000.
• Under the 2024 IRS tax brackets:
  • Single Filers: This pushes them into the 35% tax bracket.
  • Married Filing Jointly: They land in the 32% tax bracket.
• They could owe nearly $50,000 in federal taxes on their DROP payout.

Instead of keeping their full $150,000, they’re left with about $100,000 after taxes.

3. The Solution: Roll Over Your DROP Payout Into a Fixed Annuity

At Preferred Insurance, we often recommend a Fixed INDEX Annuity to protect DROP payouts. Why?

• Guaranteed Lifetime Income: A Fixed Index Annuity provides a steady, monthly paycheck for life.
• No Market Losses: Your principal is protected—you won’t lose money due to market downturns.
• Tax Deferral: You defer taxes until you start withdrawals, keeping you in a lower tax bracket.

Example: Rolling that same $150,000 DROP payout into a Fixed Annuity could provide a guaranteed monthly income of $2,500 to $3,000 for life, depending on your age and terms.

This approach allows you to:
✅ Avoid immediate taxes.
✅ Remove market risk.
✅ Enjoy predictable income throughout retirement.

4. How to Check Your Social Security Earnings and Plan Ahead

If you’re concerned about your Social Security earnings, take these steps:

1. Visit ssa.gov to access your records.
2. Log into your my Social Security account.
3. Check for missing years where earnings show $0.
4. Estimate your retirement benefits using the Social Security Calculator.

Taking control of your Social Security now can help you make smarter retirement decisions.

5. Your DROP Retirement Checklist

Here’s how to protect your DROP payout:

1. Avoid lump-sum taxes: Don’t let your payout push you into a higher tax bracket.
2. Protect your savings: Roll it into a Fixed Index Annuity for guaranteed lifetime income or for Long Term Care .
3. Defer taxes: Spread withdrawals over time to stay in a lower tax bracket.
4. Avoid market risk: Keep your retirement funds safe and secure.
5. Work with local experts: At Preferred Insurance, we help Marion County state employees make confident retirement decisions.

Schedule Your Free DROP Retirement Consultation

Don’t let Uncle Sam take more than his fair share of your DROP payout. Take action today to protect your retirement income and secure a lifetime of predictable income.

Schedule your free 20- minute DROP Retirement Strategy Consultation with Justin Wells at Preferred Insurance: https://tidycal.com/preferredinsurance/drop