A new survey conducted during the summer of 2022 revealed 25% of pre-retirees have decided to delay their retirement a few more years. With record-high inflation driving up the prices of everything, and the fear of an economic recession, they’re beginning to panic that they’ll outlive their retirement savings.
Overall, FERS participants are better-positioned for financial security in retirement because you have three sources of income: your annuity, Social Security retirement benefits and your Thrift Savings Plan (TSP). However, you’re not immune to the higher cost of living due to inflation. The question is: should you delay your retirement to ride out the current economic uncertainty?
FERS Retirement With An Immediate Annuity
As a FERS participant, if you have enough years of creditable service, you can retire relatively young with an immediate, unreduced annuity. With 30 years of service you can retire from age 55 to 57 depending on your birth year. Or, you can retire at age 60 with a minimum 20 years of creditable service under FERS. Now, let’s look at the advantages of delaying your retirement until age 62.
The FERS 10% Bonus At Age 62
If you retire at age 62 (or older), with at least 20 years of creditable service, your FERS pension gets a nice 10% bump because your annuity is calculated using the 1.1% formula instead of the standard 1% formula. Though the difference between 1% and 1.1% may not seem that much at first glance, it works out to a 10% increase in your FERS annuity for the rest of your life.
Cost Of Living Adjustments (COLA) At Age 62
There’s another reason to wait until 62 — that’s when most FERS retirees become eligible for a Cost Of Living Adjustment (COLA). A FERS participant who retires at age of 57 will not be eligible to receive a COLA increase for the next five years of their retirement. Considering how high the recent COLAs have been due to inflation, missing out means lost retirement income.
Additional Advantages At Age 62
Working until age 62 can increase your High-3 salary calculation for an even larger annuity. And those extra years give you more time to make TSP contributions and Catch-Up Contributions. Keep in mind, working longer means you can continue accruing annual leave for a higher lump sum at separation.
Touch base with an FRC® trained advisor who understands your benefits to find out if retiring at age 62 is right for you during these uncertain economic times.
