Working longer, retiring slightly later, can have a big time payoff. And it’s particularly true for federal workers. Most are under the Federal Employees Retirement System, which offers them benefits based on a civil service annuity (for life and partially indexed to inflation), Social Security (fully indexed to inflation) and whatever they have in their Thrift Savings Plan. Although they are likely to have more in retirement than a private sector employee earning the same salary, chances are their total income will be reduced in retirement. So financially, the longer you work the more you have to spend in retirement. And if you never retire, well, do the math.
In the real world, however, most people are anxious to retire. Especially if they’ve worked a long time or have other things they want to do that don’t fit in with getting up and going to work five days a week.
So how do you compromise to have the best of both the work and retirement worlds? Make sure that your golden years are 24 carat, as opposed to a future of penny-pinching as inflation eats into your FERS benefit.
For the answer, we went to benefits expert Tammy Flanagan. She’ll be my guest on Your Turn today at 10 a.m. ET streaming here or on the radio in the D.C. metro area at 1500 AM. Among other things today, she will explain how to dramatically increase the amount of money you have to spend in retirement. Some are obvious when you think about it. Others less so. But all incredibly valuable. We’ll talk about that and other aspects of retirement planning. If you have questions, please send them to me before showtime at email@example.com.
Here’s how she explains that with proper timing and by working a little bit longer, you can dramatically increase your income for life after retirement:
Employee at high-three year average salary of $80,000.
19 x $80,000 x 1% = $15,200 x .90 = $13,680 (10% reduction under the MRA + 10 retirement because the employee didn’t have 20 years of service at age 60 to qualify for an unreduced retirement)
Length of Service at age 61: 20 years
20 x $80,000 x 1% = $16,000 + $12,000 = $28,000 (The extra $12,000 represents a FERS Supplement of $1,000/month payable to age 62 when retiree could file for SSA and get an even larger SSA benefit based on their lifetime of FICA taxed wages)
Length of Service at age 62: 21 years
21 x $80,000 x 1.1% = $18,400 + $24,000 = $42,480 (The $24,000 represents the SSA benefit payable at age 62 of $2,000/month from their lifetime of FICA taxed wages).
The difference between this person leaving at 60 vs 62 is almost $30,000/year more income for only two more years on the job. Of course, at age 62, the person who left at age 60 could claim their SSA benefit, but the gap would still be close to $5,000/year or $600/month in their FERS basic retirement benefit for life! In addition, they would have benefited from two more years at their presumably highest earning years added to their SSA record and two more years of contributions and growth to their TSP account.
Of course, they could delay SSA and withdraw $24,000/year from their TSP account so that they could receive $43,000/year by delaying claiming SSA to age 70 and then take much smaller payments from the TSP so that they will satisfy the RMD requirements at age 72.
Worth it? Check out today’s show for this and other tips. If you miss it live, it will be archived so you can listen later and pass it on to a friend or coworker!