Simple, right? Well, not necessarily. Retiring as soon as you can may seem like a good idea now. But what about then, which always follows now? How will it impact you financially 10, 20 or 30 years into retirement when inflation has nibbled away at (or gobbled up) your FERS annuity? When your TSP balance shrinks either due to inflation or to a recession? That might not be the right way to approach it. In fact, benefits expert Tammy Flanagan says there are two other factors:
The future forecast: How you can (and should) set and control the actual NET value (after taxes and deductions) of your annuity. And mandatory or voluntary TSP withdrawals.
Also, the impact of retiring early, or waiting several years on both your FERS annuity and, just as important, your Social Security benefit.The difference between taking Social Security as soon as you can (age 62?) and waiting until age 70 is huge. Check out what that delayed financial gratification would be for you.
So how do you figure your retirement trifecta? Easy, listen to our Your Turn radio show today at 10 a.m. Benefits and retirement expert Tammy Flanagan will be my guest. She’ll talk about how you can figure your best retirement date, and why those factors can add tens of thousands of dollars, both in FERS benefit and Social Security, to your lifetime retirement nest egg. The show will stream live at 10 a.m. EDT on federalnewsnetwork.com or 1500 AM in the Washington-Baltimore area. It will also be archived on our home page so you can listen later, listen again or alert a friend or coworker. Meantime, here’s what Tammy says about the potential dangers of retiring as soon as you can. She writes:
Just because you’re eligible doesn’t mean you have to retire.
Current salary and Service: 20 years at age 57 with a salary at $100,000 and a high-three average of $95,000
Leave now: 20% of $95,000 = $19,000 payable at age 60 or $14,250/year payable at age 57 (REDUCED BY 5%/YEAR UNDER AGE 62). Eligible to keep insurance now or postpone retirement and insurance to age 60.
Stay to age 60: 23 years of service (using the same high-three to maintain example in today’s dollars): $95,000 X 23% = $21,850 + FERS Supplement payable to age 62 worth approximately 23/40 of the age 62 SSA retirement benefit. No age reduction and insurance may continue immediately.
Stay employed to age 62: 25 years of service (using the same high-three to maintain example in today’s dollars): $95,000 x 25 x 1.1% = $26,125 + Social Security retirement. The combination of 27.5% replacement from the FERS retirement and around 30% replacement from the Social Security benefit leaves the TSP to replace the remaining income needed to retire comfortably. If you will need to withdraw more than 4% of your TSP balance to make ends meet, then you may need to delay retirement a little longer.