January retirement tidal wave: Beginning of the end — or end of the beginning?

Somewhere out there, the person or persons who, in the late 1990s, predicted Uncle Sam was facing a massive wave of retirements may be happy at last. Or not!

Same for folks who predicted that President Donald Trump’s election would be the high mark that dedicated, knowledgeable, long-time career government employees would flee their jobs out of fear and/or disgust for what was surely coming.

December, and especially January, are nearly always the most popular times for federal workers to retire. The new January numbers show that 17,134 people actually filed for retirement. That is up from 13,264 who bailed in the same month last year, 14,590 in 2018, 16,317 in 2017 and 15,423 new retirement application claims in 2016. More to be sure.

But signs of a retirement tsunami? Maybe yes, maybe no.

Meantime the backlog in processing retirement claims, an important statistic to the new retirees, is looking better this year. But not quite as high as the number of claims cleared in 2018.

As a former OPM official said, “keep in mind that a stopped watch is right twice a day. Almost anybody with Washington experience can take numbers and massage them to ‘prove’ whatever he, or she, wants to be proven.”

He thinks the tsunami warning issued in the 1990s was genuine and driven by statistics. Federal workers are getting older. And hiring of new, younger people is down in many, if not most, federal agencies. An aging workforce vs. a restricted infusion of new blood would equal a retirement tsunami — in theory.

But some long-time observers say people who put a political spin on everything are missing a key point: That there may be more practical but less visible things that are keeping more feds working longer. For one thing, the Great Recession still haunts many people who were just starting out or were mid-career in 2008-2009. They had non-federal friends, neighbors and family members who lost their jobs, saw their retirement plans disappear or were forced to take pay cuts, ranging from 2% to as much as 25%, to keep their private sector operation afloat. The fact that the recovery, and the record long bull market (now in its 11th year) is both cause for joy and trepidation! Investors are delighted that their hasn’t been a stock market correction of 20% or more since 2009. But at the same time, they know/fear that the “big one” is coming. The more business news TV you watch, the more nervous you probably are.

One key factor, overlooked by political analysts, is that the federal retirement system has changed—dramatically since the late 1990s. The Civil Service Retirement System, with its more generous pension-for-life-indexed-to-inflation was replaced in the late 80s by the Federal Employees Retirement System. Which was a very big deal. FERS workers get smaller civil service benefits but also qualify (and pay into) Social Security. They get a tax-deferrred government match to their 401k plan, the TSP. But their basic civil service benefit under FERS is much smaller than it would have been under the CSRS program. And their annuities are not fully protected from inflation when it goes over 2 percent in any year.

In the 1980s and mid 1990s, most working feds were under the Civil Service Retirement System (CSRS). But as of Fiscal Year 2018 the number under the Federal Employees Retirement System (FERS) jumped to 96% of current workers. Meaning now only a tiny minority of feds that are still working are under CSRS, which encouraged, or at least permitted, earlier retirement on a decent annuity.

The majority of federal/postal workers were once encouraged to retire earlier because of the CSRS benefit. But FERS, with its smaller federal annuity/pension, discourages earlier retirement. And many also hang on to grow their TSP accounts because it will supply so much — one third or more — of their total income in retirement.

So there are more factors in any retirement tsunami than just an aging-workforce or fear of the Trump administration.

Monday’s column will focus on a the civil servant still working who says that age 62 is a magic time for workers under the FERS program. Check it out.

Nearly Useless Factoid

By Alazar Moges

Vincent van Gogh is one of the most famous artists of all time. But much of his fame came after his death. When he was alive, he struggled greatly to make a livelihood on his craft, having only sold one single painting, The Red Vineyard, before his death at age 37.

Source: The Van Gogh Gallery

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Oct 26, 2021 Close Change YTD*
L Income 23.3406 0.0147 3.52%
L 2025 12.1388 0.013 6.40%
L 2030 43.1053 0.0599 7.92%
L 2035 12.9750 0.0195 8.58%
L 2040 49.2122 0.0794 9.26%
L 2045 13.5082 0.0229 9.83%
L 2050 29.6522 0.0527 10.41%
L 2055 14.6732 0.0292 12.65%
L 2060 14.6731 0.0292 12.65%
L 2065 14.6730 0.0293 12.65%
G Fund 16.6901 0.0006 0.99%
F Fund 20.8361 0.0344 -1.40%
C Fund 68.8686 0.1251 15.90%
S Fund 87.5019 -0.4814 11.66%
I Fund 39.5427 0.2149 8.56%
Closing price updated at approx 6pm ET each business day. More at tsp.gov
* YTD data is updated on the last day of the month.