As a FERS participant, with 30 years of creditable service, you can retire with an immediate annuity upon reaching your minimum retirement age (MRA). Your MRA can range from age 55 to 57 depending on the year in which you were born. Or, you can retire at age 60 with a minimum of 20 years of creditable service under FERS. Though retiring relatively young is appealing, it’s important to consider the value of the benefits you’ll likely lose.
You Lose The 10% FERS Annuity Bonus
If you wait to retire until at least age 62, with at least 20 years of service, your High-3 salary is multiplied by the 1.1% formula instead of the 1% formula. The percentage bump may not seem that impressive until you do the math. In fact, it can work out to as much as a 10% raise in your monthly annuity for the rest of your life.
You Lose The Opportunity To Increase Your High-3
For most federal workers, their highest earning years tend to be toward the end of their careers. Working until 62 can increase your High-3 salary calculation for a larger annuity. And don’t forget that those few extra years can also boost your Social Security because your benefit is based on your highest 35 years of earnings.
You Lose Out On Cost-Of-Living Adjustments (COLAs) Though it doesn’t seem fair, FERS retirees are not eligible for a COLA until they reach age 62 unless they’re special category employees. When you think about it, losing out on COLAs for three to five years can add up to a significant loss of purchasing power especially when inflation drives up the cost of essentials.
You Lose The Chance To Grow Your Thrift Savings Plan (TSP)
Working just a few more years means you can continue contributing to your TSP nest egg while getting your 5% agency match plus earnings. It also gives you an opportunity to make additional catch-up contributions while contributing more to your Roth TSP for tax-free distributions in retirement.
You May Outlive Your TSP Nest Egg
Longevity is another consideration. According to the Social Security Administration, one in four people turning age 65 today will live to age 90. Unfortunately, surveys indicate that the vast majority of pre-retirees underestimate how long they’ll live. If a federal worker retires at age 57 and lives to 90, they’ll need to cover their living expenses for well over 30 years.
Before you decide, connect with an FRC® trained advisor who can help you calculate how much income you’ll lose if you retire before age 62.
