What does DROP stand for in retirement planning?

The term DROP stands for Deferred Retirement Option Program. This program allows employees, usually in public sector jobs, to “freeze” their retirement benefits while continuing to work for a specified period. During this time, the employee continues to earn a salary, and their retirement benefits are held in an account, accumulating interest. At the end of the defined period, the employee can then retire and receive both their accumulated retirement benefits and a lump-sum payout from the DROP account.

Many public sector employees benefit from this option as it gives them flexibility in planning their retirement and allows them to enhance their retirement benefits during the additional working period. It effectively serves as both a financial incentive for continued service and a planning mechanism for the transition into retirement.

Understanding the mechanisms and implications of the DROP program is essential for effective retirement planning, particularly in professions that offer this unique option to their employees.