Most federal-postal workers can retire as soon as they have enough age and service time. Some quit that day. Others remain on job — one presumes happily — for decades. Working longer can boost their starting annuity dramatically. For some it’s a good deal. For others time off is more important. And while most can retire anytime they are eligible many who cherry-pick their dates. December and January are the most popular months to retire. Because…
Some do it to carry over the maximum amount of annual leave. Others to save taxes in their first year of retirement.
Whether you are just starting out, are at mid-career or are retirement eligible you should have a plan, so know the best date(s) to get the most bang for your annuity buck. Many feds are now or will be retired longer than they worked. Thinking of your finances 20, 30 or even 40 years from now is a challenge. Especially for FERS workers who start out with smaller annuities and whose benefits lose ground thanks to the diet-COLA formula. While CSRS retirees get full cost of living adjustments each January, FERS retirees get 1% less when the inflation rate exceeds 2%. If the January COLA is 7-8% for CSRS retirees, it will be 6-7% respectively for FERS annuitants. Imagine what a decade of high inflation would do to the buying power of that annuity. So, to the rescue.
When it comes to retirement advice many workers turn to a colleague who has been there, done that and got the (best available) T-shirt. So we called in Abraham Grungold for some help during this unofficial open season. He had a long, successful federal career, was an early member of the TSP millionaires club, and is now pursuing a second career as a financial coach. We asked him for some open season (or anytime) tips for maximizing your golden years. This is what he said:
During a typical year, there will be approximately 40,000 to 60,000 FERS retirement applications. Some employees will choose the end of the fiscal year to retire and some will choose the end of the calendar year for their retirement date. Time will tell if the downward spiral of the financial markets and rising inflation will cause some employees to reconsider their decision to retire in 2022.
The two popular reasons that employees choose to retire in September (the end of the fiscal year) are:
Retire before the holidays.
Retire due to a Voluntary Early Retirement Authority. Some federal agencies offer a VERA early-out bonus which ranges anywhere from $25,000 to $40,000 depending on the agency offering the buyout.
The agency offers a VERA to reduce their staff so their total salaries do not exceed the salary levels of the previous year’s budget. Let’s say you elect to take the VERA and receive the $25,000 buyout and you have $18,000 remaining after paying out federal tax. If you would work October, November and December, you could earn $100,000 per year. That would mean you would have earned another $25,000 in salary for the remain three months. In addition to more salary, you would have accumulated more annual leave, sick leave, and received matching employer contributions in addition to your contributions to your TSP. You also would have another three months credited towards your annuity. All these benefits would be lost if you decided to retire Sept. 30.
During October through December, I found that many agencies would conduct their conferences, training and holiday parties. Many employees take use-or-lose annual leave for the holidays, so the office environment tends to be quieter during the latter part of the year. I always found the office to be less hectic during the first quarter of the new fiscal year.
In my opinion, the opportunity cost/benefit would be greater for the employee if he/she worked the remaining three months rather than accept the early out incentive bonus. Also, retiring on the last day of the year for federal employees is the end of a pay period which is the most advantageous time to retire. You are starting the new year in a lower tax bracket, because you will be living on your annuity, social security and TSP withdrawals.
I ended my 36-year federal career in February 2022. I did not have the opportunity of a VERA. And I did not want the holidays or year-end use-or-lose annual leave to play a role if someone was not available to process my FERS application before the end of the calendar year. In addition, I chose February because I had approximately 500 hours of annual leave that I wanted to receive at my new rate of pay as a result of the 2022 COLA. Since I was expecting a large payout from my annual leave, I doubled my contribution to the TSP at $2,000 per pay period during January and February. I considered tripling it to $3,000 but I was concerned about having a pay check with a negative net to pay amount. Regardless which day you choose to retire, consider your options, have a strategy and go for it.
The Seán O’Casey Bridge in Dublin allows foot traffic to cross the River Liffey. It was designed to swing open to allow boat traffic to pass. However, in 2010, the remote that opened the bridge was lost — likely in an office relocation — and the bridge was unable to be opened until 2014, when a new remote was programmed.