Timing is everything when it comes to retirement. It is easy to be anxious and unsure about the right moment to wrap up your career, wanting to know that you can be financially comfortable to enjoy the rest of your life. It is a widely held consensus amongst experts to delay your planned retirement by a year, maybe even two years if possible. Unless you are monetarily safe and sound, hold on even longer to reap more rewards for retirement.
This is especially true for current federal workers who are under the Federal Employees Retirement System (FERS) program. FERS is many moving parts all at once, including things such as a 401k plan with a 5% government match, reduced federal annuity, and of course, Social Security. Through intelligent planning, the majority of FERS retirees can set it up so that their total income in retirement will nearly match or ever surpass their working salary. Most importantly, FERS retirees that plan to retire optimally will not have to dip into their TSP accounts unless they absolutely have to.
To maximize the opportunities discussed above, try and work two more years (from age 60-to-62) before retiring. An example demonstrating the fruits of such labor is that an $80,000 per year employee can boost their starting annuity by almost $30,000. This can be done while simultaneously making a full salary, qualifying for pay raises and increasing their high-3 average salary. Pretty solid numbers reflecting how delaying retirement can considerably benefit you. Listed below are some adaptations of the $80K employee example, in order to help gauge a wider variety of potential careers.
- Length of Service at age 60: 19 years
- 19 x $80,000 x 1% = $15,200 x .90 = $13,680 (10% reduction under the MRA + 10 retirement because employee didn’t have 20 years of service at age 60 to qualify for an unreduced retirement)
- Length of Service at age 61: 20 years
- 20 x $80,000 x 1% = $16,000 + $12,000 = $28,000 (The extra $12,000 represents a FERS supplement of $1,000 a month payable to age 62 when retiree could file for SSA and get an even larger SSA benefit based on their lifetime of FICA taxed wages)
- Length of Service at age 62: 21 years
- 21 x $80,000 x 1.1% = $18,400 + $24,000 = $42,480 (The $24,000 represents the SSA benefit payable at age 62 of $2,000 a month from their lifetime of FICA taxed wages)
Again, the difference between a federal employee retiring at 60 vs. 62 is almost $30,000 a year more income for only two more years on the job. Technically at age 62, the person who left at age 60 could claim their SSA benefit, yet the amount would still be close to $5,000 a year or $600 a month in their FERS basic retirement benefit from there on out. Also, they would have benefited from two more years at probably the highest earning years added to their SSA record, and two more years of contributions and growth to their TSP account.
Remember, they could delay SSA and withdraw $24,000 a year from their TSP account so that they could receive $43,000 a year by delaying claiming SSA to age 70, and then take much smaller payments from the TSP so that they will satisfy the RMD requirements at age 72.
This is a friendly reminder to all FERS folks out there. If you would like to learn more about your TSP and have financial professionals recommend your allocations, check out our TSP Market Watch here.