Inflation and your retirement date

If you are planning on retiring soon (this year or next) have you thought of the lifetime impact of long-term inflation on your diet-COLA annuity?

If you are planning on retiring soon (this year or next) have you thought of the lifetime impact of long-term inflation on your diet-COLA annuity? That is, getting regular January cost of living adjustments that could be 1% less than the actual rate of inflation? As in, what it will cost you (working or retired) for food, shelter, medicine and gasoline to get there?

Retiring from the federal government is no longer the no-brainer decision it once was when your mother was a GS-13 with the Labor Department or Uncle Ned was the friendly neighborhood postal letter carrier! Prior to the mid-80s feds who worked long enough could retire on lifetime benefits, fully indexed to inflation, that equaled 40%, 50%, even up to 80% of their final salary. When inflation went up 9%, 14.3% or 11.2% percent (as it did in 1979, 80 and 81) so did the annuity. Gone are the days…

In the mid-1980s Congress changed the federal retirement program. It replaced the long-time CSRS program with a private-sector style program, the Federal Employee Retirement System. FERS gave workers a more generous 401k option, Social Security coverage and a less-generous (lower cost to them) annuity. The kicker was the provision that said when the inflation hit 3% or higher, FERS benefits would go up one percentage point less. The diet-COLA kicker. Not a bad deal in times of low inflation. But a horrible long-term option in times like now when inflation is at a 40 year high. If the January COLA turns out to be 7%, 8% or 9% for CSRS, military and Social Security retirees, folks under FERS would get 6%, 7% or 8%. Not a huge amount — if it happens infrequently. But it’s catastrophic reduction if inflation stays at current levels, or gets worse, for an extended period of time. So what, if any, are your options? Especially if you want to leave your federal job sooner rather than later?

Enter benefits expert Tammy Flanagan, who knows the FERS-CSRS programs inside out. And she is my guest today on our Your Turn radio show. That’s 10 a.m. ET, streaming on www.federalnewsnetworkcom or 1500 AM in the DC-Baltimore area. And consider a couple of new twists to retiring now:

  • Many people say that if they are forced to return to the office full-time they will quit or find another job. It is unclear how far Uncle Sam will/can go in the drive to get teleworkers back on the roads and into their offices. But if it picks up steam lots of people could vote with their feet.
  • We’ve been enjoying a long, long period of low inflation (2-3%). But it looks like that is gone. Maybe for a long, long time. So do you retire now, knowing that your annuity vs. inflation may shrink, for years? Or do something else?

It is possible to work for Uncle Sam long enough to get and qualify for benefits and an annuity, but still leave government earlier. Benefits expert Tammy Flanagan thinks that may be about to happen. That thousands, maybe more, current feds would like to leave their jobs before becoming eligible for traditional, immediate retirement benefits. She says there is a way many could leave now, or sometime in the future, take up another career, but then, years from now, qualify for a reduced (but lifetime) federal retirement benefit. And in some cases qualify for the Federal Employee Health Benefits program. With coverage for life for them and their spouse/partner. With the government paying up to 75% of the total premium.

The secret, she says, is understanding the MRA+10 (minimum retirement age) option. If you do it right, you can leave earlier than planned, for whatever reason, and still retire down the road from the government. This is something you should be aware of, even if you never need or use it. Because today’s show is prerecored we won’t be taking any live phone calls. But listen up. And tell a friend. This could be a major life-changer (or life raft) coming at a very good time.

Nearly Useless Factoid

By Daisy Thornton

Peter Benchley, the author of Jaws, later regretted the fear and misunderstanding of sharks that his novel and the movie based on it fostered among the public. He spent the rest of his life advocating for shark conservation, and was the first host of Discovery Channel’s Shark Week in 1994.

Source: Wikipedia

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