FERS employees: What if I wait until age 70 to retire?

I can already hear my audience of readers groaning out loud as soon as they read the title of this article.

But it is true, most articles are geared toward early retirement; those speaking on the topic of working a longer career are relatively rare.

I get the feeling that too many folks simply rely upon the calendar a tad too much when deciding upon just when they’ll retire — as soon as there is a green light to go or shortly thereafter, they just depart. And in their decisions concerning investment planning, that they don’t always adequately consider the insidious effects of future inflation and the potentially devastating impact it could have on them down the road.

If inflation averages 3 percent, you won’t even make it to the 25-year mark before you’ve seen the cost of living already doubling.


Retiring early — especially extra early — always looked risky to me, and all the more so the longer you may live. Why? Because you would have stopped saving earlier, but started spending out of what you have accumulated early as well.  And especially sobering is that I’ve already seen some close relatives living to nearly 100 years of age. If they would have retired at age 55, they would have spent nearly 45 years in retirement. And 45 years is a very long time to ever expect your retirement savings to last.

Retiring later has an opposing effect: The money you already have deployed in funding your retirement will all remain in place and continue to be working on your behalf; the money you will be continuing to contribute in the future will not only be adding to that intactness, but continuing to grow as well.  Retiring and claiming your Social Security at age 62 results in smaller monthly payments versus what you would receive later; you may have to dip dangerously deep into your Thrift savings Plan account to offset that difference and thus unwittingly increase the degree of risk concerning the TSP falling short of your needs later in your life.   And although it may be somewhat sad to think about, retiring later inevitably means there will be fewer years to have to fund before you pass on, thus increasing your chances of remaining financially independent during your retirement.

So a successful retirement plan ultimately depends on what your finances say, not what the calendar says. So you absolutely need to think about it long and hard before you decide to go, and pencil out the future as best you can project ahead to reduce the risk — as much as possible — of getting a bad surprise later on.

With average life spans getting ever longer, I’ve also heard it said that working until age 70 these days equates more closely to generating the same ratio of working years to retirement years and it is thus more comparable to the past when people generally lived shorter lives.

If you look at the full retirement age (FRA) for Social Security retirement purposes, you’ll see that particular administration itself appears to be moving in that very direction; people born later now have to wait longer to reach their FRA.

The FERS Formula

It is simply the average of your highest three years of salary multiplied by your years of service and then taking this figure times 1 percent.  At age 62, the 1 percent figure increases to 1.1 percent.  This may not sound like much, but it is 10 percent more over 10 years.

For ease in comparing this both ways, I’m using the same example of 30 years of service and a high-three salary average of $100,000 times the 1 percent figure, which yields $30,000.

But at 1.1 percent, it becomes $33,000.

Of course, the increasing number of years of service would also be acting to increase the final dollar figure.

As far as the high three  salary goes, if you are still getting grade and step increases or getting a promotion, of course you stand to benefit here as well.

There is potential danger lurking in the FERS basic annuity: This source of retirement income is not fully indexed to inflation, and you could see your purchasing power being slowly eroded over time; your bills for things like health care costs will probably continue to climb and thus take an ever-bigger bite from your retirement pie. As time marches on, one of those days it will likely dawn on you that the money coming from the Basic Annuity just plain doesn’t serve you as well as it used to. That potential day of reckoning could arrive even sooner should there be a prolonged period of higher rates of inflation.

Social Security retirement:  While the monthly benefit doesn’t quite double between age 62 and age 70, it also doesn’t fall all that far short of doing so.  For example, in my own case:  I would get $1,637 at age 62; $2,329 at my full retirement age; and $2,975 at age 70.  (Age 70 is when it will max out, so there is no point to waiting past then to collect.)

I think there are a lot of folks who are under the impression that, if they retire and begin drawing their social security benefits at age 62, it automatically increases once they do hit the FRA. But this is simply not the case.

So these vastly different pay-outs make it something to mull over carefully before you act to start collecting it, because your social security retirement benefit is an especially valuable source of income when you bear in mind it is guaranteed to last your entire lifetime, and that it will also be increased in response to inflation.

Maybe a wise way to think of it would be considering the time between age 62 and age 70 as an investment period, especially in today’s low rate environment. Left alone, it is guaranteed to gain at a pace that you would be highly unlikely to find anywhere else in the market today.  So realistically, the question ought to be whether it makes any sense to take your social security retirement benefit at point any earlier than age 70.

Another consideration is that late in your working years, you are often at your peak earning years. The Social Security Administration uses your highest 35 years of lifetime annual earnings to calculate your retirement benefits.  Although indexed to inflation, you will see those early years drop out of the equation (when you were very young and probably working for much lower wages, and only part time at that.)  Over time, the late years of high earnings will gradually begin replacing them.

Thrift Savings Plan: This is a great retirement savings vehicle with a solid lineup of index funds which benefits from economies of scale when it comes to keeping expense ratios low. And beyond the usual maximum annual contribution limit, upon your reaching your 50th birthday, you are allowed to contribute even more money via a provision allowing for a second limit of additional “catch-up” savings.

Unless you are under the Roth TSP option, Uncle Sugar is going to be waiting to skim off his cut of the action via federal taxes imposed on the withdrawals.  After all, he allowed you to defer taxes all these years, so now he wants you to pony up and start to empty out your TSP pockets. And in fact, he will eventually force you into it by requiring you to take Required Minimum Distributions at some point.

In my case, if I were to work until age 70, it would make yet another retirement decision easy for me. At that age I would be so near to the point of my having to take my RMDs anyway that the choice of going with the Uniform Life Expectancy Table method of receiving TSP payments would an almost-automatic one that I would then sign myself up for.

Individual retirement accounts

I have run into folks who don’t realize you can contribute to your TSP — and have an IRA to boot. And like the TSP, an IRA also comes in both traditional and Roth choices of flavor. Although the annual contribution limit of an IRA is of a much smaller scale, you still may find that you are just not able to fully fund it up to the upper annual limit, given what you are already putting into the TSP. My advice would be to just put in whatever you can, anything at all is always better than just nothing.

I’ve always used the IRA route to acquire what the TSP did not offer and thus to further diversify my portfolio. With the TSP’s International (“I”) Fund now transitioning to a new index that includes foreign medium and small capitalization companies as well as emerging markets stocks, probably the only major asset class still lacking (but ironically, also the world’s largest) within the TSP is an international bond index fund.

And just like the TSP, the IRA provides for catch-up contributions to be added once you’ve hit the half century mark in age, although again of much smaller magnitude.

Sick leave: Since unused leave is now tacked on to your years of service when you retire, you stand to benefit from that increase as well.

Annual leave: No matter when you do retire, carrying over the maximum amount could be a godsend; I’ve heard many retirees mention the early road of retirement was very lean money-wise until all the benefits finally began coming in smoothly like clockwork. If you are at the point where you are earning eight hours of annual leave per pay period, you can carry over 240 hours of annual leave into the last year you plan to work, and then also possibly save up the 208-hour maximum amount of annual leave you’ve earned in the final year of your employment. These hours translate into about 5.5 pay periods worth of pay, a tidy sum to tide you over until your other income sources are all finally chugging away without missing any beats. And, as I understand it, if you retire on Dec. 31 of a particular calendar year, the payout will happen sometime after Jan. 1 of the calendar year immediately following. This means it will not be added atop the earnings made during the calendar year proceeding but including actual retirement. Were this not the case, it could potentially push you into a higher tax bracket. But since it will instead be paid out to you shortly after the beginning of your first calendar year of retirement, you’ll most likely enjoy the benefit of being taxed more gingerly.

To wrap things up

Retirement is somewhat scary—it’s a huge leap into the unknown. It’s akin to jumping out of an airplane:  you’ve committed now, you might not find another job that pays nearly as well should you change your mind after retirement and decide to re-enter the workforce. About all you can do is try to ensure your parachute is large enough for a gentle landing; the smaller it is the harder you’ll hit the ground.

I have not touched upon topics such as whether working longer may have positive benefits for preserving your cognitive abilities for a longer period of time or just plain because it’s good for your overall physical and mental well-being.

I likewise did not address subjects like Medicare, life insurance and other related considerations such as potential tax ramifications or future changes in public policy; I hope that especially-well-informed readers also contemplating late retirement will fill in these blanks with the facts by posting comments in the section below so that we may all be able to start a discourse and learn from one another.

If I do stay on the job for a whole lot longer, I know that I do indeed run an increased mortality risk by waiting.  But even if that does happen, I won’t be all that glum:  I was born into the greatest country on earth and got to spend a career doing the very things that I so love to do.  It is a far richer life, both literally and figuratively, than that experienced by so many people in so many parts of the world.  When I look at it through this lens, even if I were to die shortly after retiring, I have a hard time picturing myself as feeling all that cheated.

In the final analysis, retirement basically boils down to what you logically need to do versus emotionally what you want to do. And this, in turn, requires a good strong dose of self-discipline.

Dan Magneson has worked summer/seasonal/temp jobs with the U.S. Forest Service and U.S. Army Corps of Engineers in the early 1980s. His first career-conditional job came in 1985 in the National Marine Fisheries Service’s former Tuna/Porpoise Program, followed by one-and-a-half years with the U.S. Army Corps of Engineers in Norfolk, Virginia. Magneson came to the U.S. Fish and Wildlife Service in June 1989 and has worked for this particular agency ever since, mostly within the National Fish Hatchery System. He has 30 years of service as of February 2015.

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