While Mike Causey is away, please enjoy this column which originally published March 22, 2022.
Thanks to the New Normal — a hot and highly visible European war and record inflation — lots of long-time feds have gotta be saying what-am-I-doing here? Especially those people who, after two years working from home, are now being ordered back to the office. Many are likely reading the headlines and crunching numbers: It is better to be retired from the government than to keep working for it?
More than 70% of the federal workforce is age 40. In the private sector only 54% are that age or older. With so many retirement-eligible, many are likely crunching the numbers to decide if it is better to be retired from government than working for it. Both financially and emotionally. Tens of thousands of federal and postal workers could retire tomorrow on full benefits! Working longer always means more money earned in salary. At a larger starting annuity when they do retire. But is it worth it? Especially at a time like this when inflation is at a 40 year high. And cost of living adjustments for federal retirees are double those of pay raises for workers. In January of this year CSRS retirees got a 5.9% COLA. FERS retirees got 4.9%. The 2022 pay raise for white collar civil servants at Defense, HHS, IRS and other agencies was 2.7%. It is almost certain that the 2023 COLA, for those who are retired or retire in time, will be larger. Probably much larger than the 2023 pay pay raise. Maybe twice as big!
All of the above are food for thought both for the growing number of retirement eligible feds and tens of thousands of younger employees who are stuck on the promotion ladder. If there is a surge in retirements — especially at places like Defense, the IRS, FAA, Homeland Security and the Social Security Administration — that could create tens of thousands of higher paid vacancies. Social Security has already begun rehiring retired employees to help with its pandemic-induced backlog. The same for the IRS.
Self-appointed experts have been predicting a tidal wave of government retirements, a “tsunami,” since the late 1990s. While the numbers were on their side, the mass exodus didn’t happen. Still hasn’t. On the plus side the government is an excellent employer in many regards. Federal workers got pay raises of 2.5% and 2.9% during the downturn, while non-feds were being fired or taking salary cuts (of 5-25%) or lost employer-matches to their 401k plan to keep their companies afloat. And their reduced paychecks coming.
Given all that’s happening (and may be ahead), retirement has become a serious consideration. Each year, lots of retirement eligible workers look at the value of the coming pay raise vs. the retiree COLA and look for ways to get both. For many the plan is to retire at the end of the year and get both the full COLA on their starting annuity PLUS payment of their unused annual leave at the new higher January pay rate. Great in theory but not in action. Last week we ran a chart that shows the breakdown. What happens if feds retire early, mid-year or wait until November? What does that do to their first, January COLA?
Those who retired on or before December 2020 would have gotten the full January 2022 COLA of 5.9% or 4.9%. But if they waited until March 2021 their COLA would drop to 4.4% (CSRS) or 3.7% (FERS). Each month they delayed retirement would reduce their 2022 COLA. Those retiring as late as November got only 0.5% and 0.4% last January.