Author Topic: Any FERS + TSP FIRE folks out there?  (Read 41008 times)

Mathew675

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Re: Any FERS + TSP FIRE folks out there?
« Reply #200 on: May 08, 2019, 01:49:53 PM »
A few years of really high inflation in the interim could render the pension not so helpful.

Even at normal inflation rates, the lack of inflation protection on a federal pension absolutely eviscerates the early retiree.  I retired at 41 and am expecting roughly 20 years of inflation erosion on my pension.  That eats almost half of it, even if inflation stays at 2%.

Thanks Sol, that is essentially what I am looking to avoid but I don't think there is any way around it. I should be ready to retire in a few years savings wise and wanted to know if my pension would be an extra layer of safety on top of my plan. From the retirement formula with close to 20 years of inflation I was trying to see if I should even include it or cash out my FERS. Will need to run some extra numbers on this.

sol

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Re: Any FERS + TSP FIRE folks out there?
« Reply #201 on: May 08, 2019, 06:33:30 PM »
I was trying to see if I should even include it or cash out my FERS.

When were you hired?

If you're under the old 0.8% FERS pension contributions (aka prior to 2012), you should definitely keep it because you only get back your contributions, not the total contributions made by you and the government.  Most of the value of your pension is government contributions you can not get back out in any way, except by one drawing a pension.

If you were hired in 2013 or later then you're paying 4.4% of your (after tax!) salary into the pension, and then suddenly the idea of withdrawing your contributions as a lump sum payment starts to look a whole lot more attractive to an early retiree.  If you take that lump sum today and put it in the stock market for 20 years, its' virtually guaranteed to be worth more than your pension after 20 years of inflation losses.

Mathew675

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Re: Any FERS + TSP FIRE folks out there?
« Reply #202 on: May 09, 2019, 10:30:22 AM »
I was trying to see if I should even include it or cash out my FERS.

When were you hired?

If you're under the old 0.8% FERS pension contributions (aka prior to 2012), you should definitely keep it because you only get back your contributions, not the total contributions made by you and the government.  Most of the value of your pension is government contributions you can not get back out in any way, except by one drawing a pension.

If you were hired in 2013 or later then you're paying 4.4% of your (after tax!) salary into the pension, and then suddenly the idea of withdrawing your contributions as a lump sum payment starts to look a whole lot more attractive to an early retiree.  If you take that lump sum today and put it in the stock market for 20 years, its' virtually guaranteed to be worth more than your pension after 20 years of inflation losses.

I was hired under the new system in 2018. I was planning on buying back a little over 6 years of previous military time and working for another 6 or 7 years. Fairly well paid in my current position with locality area boost of almost 30%. Would have 16-17 years until 62 though when I leave. The biggest reason I wanted to do this was for the ability of my wife to have a steady paycheck should I check out.

However, from what I am reading now, it looks like I will take a 10% hit when I start collecting and then my wife only gets 50% if I die. So the real safety net I am looking at is taking a hit due to the following:
-17 years or so of inflation (make it worth only about 60% in today's dollars)
-10% hit for signing up for spousal benefits
-then the 50% cut on top of that when I pass. Doesn't sound very appealing now.


sol

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Re: Any FERS + TSP FIRE folks out there?
« Reply #203 on: May 09, 2019, 10:51:40 AM »
If it helps push you over the edge, you should also know that your family gets significantly reduced death benefits if you die after leaving federal service.  From some old notes of mine:

Quote
You need to work 10 years for your spouse to have the option of taking an annuity from your federal pension.  If you work 9.9 years they get a lump sum payout instead.

Survivor benefits are complicated.  If you die after separation but before starting your retirement annuity, your surviving spouse should still get the basic death benefit of 50% of final salary plus 15k, as a one time payment.

The monthly survivor benefit is available (if 10 years of creditable service) if you are still an employee when you die, but if you are already separated when you die before reaching retirement age?  The rules suggest the surviving spouse still gets a survivor benefit lump sum described above (if 10 years of creditable service) but children do not, and it only begins on the date the dead spouse would have been eligible for an unreduced annuity or on the day after death at a reduced rate.  That's age 60 if 20 years of service, and age 62 if not, with 10 years of service already done before death.  If employee dies while still employed, the full annuity begins immediately.  Additional benefits are available due to children, up to age 22 if in school or age 18 if not, only if you were were employed at the time of death.  No child benefits are paid if you die after separation.

This was all part of the cost calculation when I early retired.  I had to accept that my pension would become worth roughly half as much as it is today due to the lack of inflation protection (though military pensions DO get inflation protection), and I had to accept the loss of life insurance coverage forever and the federal death benefits described above until I reach age 62.  All of that was ultimately small potatoes, though, compared to the loss of future years of income flowing into my retirement accounts. 

As soon as you retire you start drawing down your nest egg, instead of building it up.  So if you make $100k per year and spend $50k per year, each additional year that you work means $150,000 of differential between your hypothetical net worth in the retire vs don't-retire scenarios.  This is why so many people spend year and years slowly slogging towards their early retirement financial goals, and then suddenly seem to slingshot past them in a hurry.

Peachtea

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Re: Any FERS + TSP FIRE folks out there?
« Reply #204 on: May 12, 2019, 11:50:26 AM »
Iím on FERS FRAE and imo itís a horrible deal, especially for those who are either planning on retiring early or donít end up spending their entire career with the gov. If Iíve done my math right, my 4.4% contribution would be better invested rather than put in the pension in every scenario except staying until MRA at 57. If we were able to opt out or even better opt out for an extra TSP match, I would do it in a heartbeat. I plan on withdrawing my contributions when I leave and rolling them over into my TSP.

15 years of service, full deferred annuity at 62 is $20,887/year not accounting for 23 years of inflation then eating away at it. My 4.4% contribution if invested instead would be $647,709 or 4% yearly draw of $25,908 - and this takes inflation into account.

20 years of service, full deferred annuity at 60 is $29,139/year not accounting for 16 years of inflation. My 4.4% contribution if invested: $679,444 or $27,177/year - accounts for inflation.

25 years of service, full deferred annuity at 60 is $37,714/year not accounting for 8 years of inflation. I believe 8 years of 3% inflation would make it valued at $29,562/year. My 4.4% contribution if invested: $766,216 or $30,648/year - accounts for inflation.

33 years of service, immediate annuity at 57 is $49,782 - no inflation gap since immediate annuity with COLA. My 4.4% contribution if invested: $698,721 or $27,948/year - accounts for inflation. If instead of a pension with me contributing 4.4% and gov 9.6%, I got to keep and invest 4.4% and gov added another 5% TSP match, then additional 5% match would be $794,001. 5% additional match plus my 4.4% invested = $1,492,7722 or $59,708/year.

sol

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Re: Any FERS + TSP FIRE folks out there?
« Reply #205 on: May 12, 2019, 12:47:13 PM »
It's even worse than you've calculated, peachtea, because the FERS pensions actually pay out at closer to 6% due to being an aggregated annuity, not an individual plan.  The also "invest" it in the G fund for you.  I agree that the all new hires who are putting in 4.4% towards their pension are universally getting screwed, unless they work until normal retirement age. 

Then lets not forget all those years of zero pay increases over the past decade.  I don't see why anyone would want to work for the federal government anymore.  You can make much more money, and have more freedom, at equivalent private sector jobs.  Unfortunately, I think federal employment only appeals to the laziest of applicants these days, people who want to get on and then do fuck all for 30 years until they can collect that pension.  If you're talented and motivated, you're virtually guaranteed to do better for yourself at virtually any alternative employer.

desert_phoenix

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Re: Any FERS + TSP FIRE folks out there?
« Reply #206 on: May 12, 2019, 04:03:46 PM »
It's even worse than you've calculated, peachtea, because the FERS pensions actually pay out at closer to 6% due to being an aggregated annuity, not an individual plan.  The also "invest" it in the G fund for you.  I agree that the all new hires who are putting in 4.4% towards their pension are universally getting screwed, unless they work until normal retirement age. 

Then lets not forget all those years of zero pay increases over the past decade.  I don't see why anyone would want to work for the federal government anymore. You can make much more money, and have more freedom, at equivalent private sector jobs.  Unfortunately, I think federal employment only appeals to the laziest of applicants these days, people who want to get on and then do fuck all for 30 years until they can collect that pension.  If you're talented and motivated, you're virtually guaranteed to do better for yourself at virtually any alternative employer.

In what way do you mean more freedom?  Just in terms of bureaucracy and more freedom to innovate and figure out the best ways to solve issues?  Or something else?

I am very lucky that I am under the original FERS by virtue of my AmeriCorps service ending just a few days after the cut-off to get grandfathered in.  I definitely don't look that gift horse in the mouth.  But I do agree with your final sentence and think that the stability of my federal job and the high savings rate it allows in some ways diminishes my drive to go make real impact somewhere.  This is due, in large part, to my memories of the Great Recession.  Things have gone well the past decade, but you never know when the bottom will fall out.
« Last Edit: May 13, 2019, 03:01:17 AM by desert_phoenix »

Sugaree

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Re: Any FERS + TSP FIRE folks out there?
« Reply #207 on: May 13, 2019, 07:31:41 AM »
It's even worse than you've calculated, peachtea, because the FERS pensions actually pay out at closer to 6% due to being an aggregated annuity, not an individual plan.  The also "invest" it in the G fund for you.  I agree that the all new hires who are putting in 4.4% towards their pension are universally getting screwed, unless they work until normal retirement age. 

Then lets not forget all those years of zero pay increases over the past decade.  I don't see why anyone would want to work for the federal government anymore.  You can make much more money, and have more freedom, at equivalent private sector jobs.  Unfortunately, I think federal employment only appeals to the laziest of applicants these days, people who want to get on and then do fuck all for 30 years until they can collect that pension.  If you're talented and motivated, you're virtually guaranteed to do better for yourself at virtually any alternative employer.

For some of us, it's a calculated trade-off.  I'm here because I took advantage of the co-op program (now called Pathways) to get my second college degree paid for.  I still owe the DoD 4 more years under a continuing service agreement.  It's also the best paying job in my field in my immediate area and my living situation is such that I'd have to make 30% more than I do now just to break even on housing costs (my house is a paid-off family property so I pay property taxes and insurance, but can't sell it and buy somewhere else).  My husband is also a part-time caregiver for his parents, who live two houses down, so that's something that we have to think about too.  It's a frustrating work environment sometimes for sure, and I think that if I were under anything other than the original FERS, the math would be different and we might make different choices. 

sol

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Re: Any FERS + TSP FIRE folks out there?
« Reply #208 on: May 13, 2019, 08:14:26 AM »
In what way do you mean more freedom?  Just in terms of bureaucracy and more freedom to innovate and figure out the best ways to solve issues?

That's certainly part of it.  I found the entire environment a bit stifling at times.  They were very big on "staying in your lane" and not speaking uncomfortable truths.  Problems were sometimes covered up to protect powerful people.  And yes, the bureaucracy was momentous.

But I also meant freedom to retire early.  The FERS pension is a decent deal if you work until traditional retirement age and were hired before 2012.  But if you want to retire early, like virtually everyone here, it sucks.  It's golden handcuffs of the worst sort, where they yank out one of the legs of that three-legged stool if you dare to contravene the accepted career timeline.  Stay forever and you're taken care of.  Do anything else and you're fucked.  It's a prison.

There are other reasons to choose a career in federal service, of course.  The paychecks used to be more reliable than the private sector, until Congress started using furloughs as bargaining chips.  You can genuinely make a difference in your own country by directly making it better with the work of your own hands.  I found a certain level of professional respect came with the title, and sometimes you get to play with top secret stuff.  But I don't think any new hires should choose a federal career for the money, because the starting pay stinks and the raises are worse.  You definitely shouldn't choose a federal career if you're trying to RE.  If you really love government work, state government seems like a much better place to pursue that goal.

DebtFreeinPhilly

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Re: Any FERS + TSP FIRE folks out there?
« Reply #209 on: May 13, 2019, 11:06:49 AM »
Interesting discussion the last few weeks. I agree with @sol about wanting more freedom and not being in the bureaucratic meat grinder.

At my current age (38), I will have 15 years in, can collect a pension in 10 years at 48 with 25 yrs of service, and full blown retirement in 12 years (50). Yes I am LEO. The main reason for me to stick it out in my current position until 50 is access to my TSP without penalty. If I leave LEO status before 50, I lose the ability to access the TSP penalty free.

Noooowww...I am working on side hustles (REI, farming, woodcraft, etc.) that hopefully will produce an income equivalent to what I would withdraw from the TSP. This would make the "TSP Golden Handcuffs" issue moot and I would bounce at 48 with a 39% Pension + RSA.

the_fixer

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Re: Any FERS + TSP FIRE folks out there?
« Reply #210 on: May 13, 2019, 05:26:02 PM »
My wife made significantly more and had better benefits in the private sector but it is about the science for her and working in a national lab provides some pretty amazing opportunities although the pace VS what she is used to from industry is a bit of a challenge.

The pay cut compounds each year since she would normally get between 5 - 7% raise in industry compared to the ~2% she is likely to get working for the gov.

Seeing her live her bliss is worth it...

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DoNorth

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Re: Any FERS + TSP FIRE folks out there?
« Reply #211 on: May 14, 2019, 09:26:55 AM »
Agree with pretty much everything you mention.

As a military (medical) retiree receiving a pretty substantial pension, term federal employment overseas in short stints has been good.  Fixed duration, I live in cool places, LQA and post allowance is good and quality of life tends to be way better than in the US.

For my friends who left military service, bought back their time and went in to the reserves, its also a very good deal.  Every few years, they do a tour a duty and continue their step increases etc., while maximizing their benefits while being mobilized.

For others who do jobs that aren't available in the private sector and its a calling for them, I think it makes sense as well.  For many others, its golden handcuffs like you say.  Even now, I want to extend overseas 6 months so my kids can finish school and it looks like the only option I'm being given is a 2 year extension with a take or leave it mentality.

In what way do you mean more freedom?  Just in terms of bureaucracy and more freedom to innovate and figure out the best ways to solve issues?

That's certainly part of it.  I found the entire environment a bit stifling at times.  They were very big on "staying in your lane" and not speaking uncomfortable truths.  Problems were sometimes covered up to protect powerful people.  And yes, the bureaucracy was momentous.

But I also meant freedom to retire early.  The FERS pension is a decent deal if you work until traditional retirement age and were hired before 2012.  But if you want to retire early, like virtually everyone here, it sucks.  It's golden handcuffs of the worst sort, where they yank out one of the legs of that three-legged stool if you dare to contravene the accepted career timeline.  Stay forever and you're taken care of.  Do anything else and you're fucked.  It's a prison.

There are other reasons to choose a career in federal service, of course.  The paychecks used to be more reliable than the private sector, until Congress started using furloughs as bargaining chips.  You can genuinely make a difference in your own country by directly making it better with the work of your own hands.  I found a certain level of professional respect came with the title, and sometimes you get to play with top secret stuff.  But I don't think any new hires should choose a federal career for the money, because the starting pay stinks and the raises are worse.  You definitely shouldn't choose a federal career if you're trying to RE.  If you really love government work, state government seems like a much better place to pursue that goal.

Peachtea

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Re: Any FERS + TSP FIRE folks out there?
« Reply #212 on: May 14, 2019, 07:17:14 PM »
It's even worse than you've calculated, peachtea, because the FERS pensions actually pay out at closer to 6% due to being an aggregated annuity, not an individual plan.  The also "invest" it in the G fund for you.  I agree that the all new hires who are putting in 4.4% towards their pension are universally getting screwed, unless they work until normal retirement age. 

Then lets not forget all those years of zero pay increases over the past decade.  I don't see why anyone would want to work for the federal government anymore.  You can make much more money, and have more freedom, at equivalent private sector jobs.  Unfortunately, I think federal employment only appeals to the laziest of applicants these days, people who want to get on and then do fuck all for 30 years until they can collect that pension.  If you're talented and motivated, you're virtually guaranteed to do better for yourself at virtually any alternative employer.

Yeah, I definitely think the pension is garbage and the health plans expensive. So I donít view the benefits as golden handcuffs and will happily skip away to FIRE instead, hopefully in 8 more years (at 13 years of service). Thatís not to say however that I donít have any golden handcuffs...I do and its name is PSLF. But thereís only 5.5 years left to that handcuff instead of 28 years to MRA. (I donít want to derail the thread with a PSLF convo, Iím dotting all my ďIĒs and have done the math a hundred ways to Sunday.)

I took my job because I wanted to do public interest work and make a difference. Of the public interest legal jobs, federal pays the most. I really thought I was going to have my cake and eat it too - do some good while making a decent salary. I was pretty happy the first few years although slowly grew disillusioned. I donít feel Iím making the difference I wanted to and that sucks, along with the bureaucracy and politics. But Iím doing no harm which I think is not nothing for an attorney. ;)

I could have made gobs more in the private sector and raced to FIRE but those jobs donít align with my values whereas my agencyís mission does. My private sector attorney friends, except one anomaly, all seem resigned to miserable, even those that very rarely work more than 50 hours/week. (Although maybe they say the same about me these days lol.) Even if I jump to a very high paying firm job now, it will only shave 3 years off my time to FIRE because of my 250k in SL Iíd then have to pay off. Iíll take 8 more years where Iím at rather than 5 years of being extra miserable at a higher paid job. But yes, if I had started in that kind of job 5 years ago and knew about FIRE then, I could have been in and out of employed work much more quickly.

Treeclimber65

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Re: Any FERS + TSP FIRE folks out there?
« Reply #213 on: May 21, 2019, 03:26:22 AM »
Interesting discussion the last few weeks. I agree with @sol about wanting more freedom and not being in the bureaucratic meat grinder.

At my current age (38), I will have 15 years in, can collect a pension in 10 years at 48 with 25 yrs of service, and full blown retirement in 12 years (50). Yes I am LEO. The main reason for me to stick it out in my current position until 50 is access to my TSP without penalty. If I leave LEO status before 50, I lose the ability to access the TSP penalty free.

Noooowww...I am working on side hustles (REI, farming, woodcraft, etc.) that hopefully will produce an income equivalent to what I would withdraw from the TSP. This would make the "TSP Golden Handcuffs" issue moot and I would bounce at 48 with a 39% Pension + RSA.

There is a way to retire prior to age 50 and access your TSP penalty free. It's called a 72t withdrawal.  However, it does have a lot of restrictions and might not work for somebody your age.  I recently did an early out at 53, and am using a 72t to access my TSP.  I'm not a LEO so I could not get penalty free withdrawals from my TSP till age 55, but I didn't want to wait till 55 to retire.  Anyway, you might look up the 72t process. 

Johnny Aloha

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Re: Any FERS + TSP FIRE folks out there?
« Reply #214 on: June 21, 2019, 01:14:30 PM »
It's even worse than you've calculated, peachtea, because the FERS pensions actually pay out at closer to 6% due to being an aggregated annuity, not an individual plan.  The also "invest" it in the G fund for you.  I agree that the all new hires who are putting in 4.4% towards their pension are universally getting screwed, unless they work until normal retirement age. 

Then lets not forget all those years of zero pay increases over the past decade.  I don't see why anyone would want to work for the federal government anymore.  You can make much more money, and have more freedom, at equivalent private sector jobs.  Unfortunately, I think federal employment only appeals to the laziest of applicants these days, people who want to get on and then do fuck all for 30 years until they can collect that pension.  If you're talented and motivated, you're virtually guaranteed to do better for yourself at virtually any alternative employer.

Yeah, I definitely think the pension is garbage and the health plans expensive.

Grass is always greener.  To take an alternative view, check out this discussion (there are many others) on bogleheads: https://www.bogleheads.org/forum/viewtopic.php?t=280687

You can see there are people making $300k who would be happy to trade the salary for $100k plus the pension/healthcare.  Granted, bodlgeheads is a different crowd, but still.

sol

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Re: Any FERS + TSP FIRE folks out there?
« Reply #215 on: June 21, 2019, 01:51:43 PM »
You can see there are people making $300k who would be happy to trade the salary for $100k plus the pension/healthcare.  Granted, bodlgeheads is a different crowd, but still.

Those people are dumb.  If you make $100k/year then the pension is worth between 4k and 8k per year, depending on when you were hired, and the subsidized healthcare is worth between $10k and $20k/year depending on what plan you get.  A person making $300k/year is going to pay up to $80k in additional taxes in a worst case scenario, so by my math there is still at least a $92,000/year advantage to making 300k over making 100k with federal benefits.

I'd be interested to see who is willing to make that trade, but not interested enough to go read bogleheads.

Buffalo Chip

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Re: Any FERS + TSP FIRE folks out there?
« Reply #216 on: June 21, 2019, 03:14:14 PM »
You can see there are people making $300k who would be happy to trade the salary for $100k plus the pension/healthcare.  Granted, bodlgeheads is a different crowd, but still.

Those people are dumb.  If you make $100k/year then the pension is worth between 4k and 8k per year, depending on when you were hired, and the subsidized healthcare is worth between $10k and $20k/year depending on what plan you get.  A person making $300k/year is going to pay up to $80k in additional taxes in a worst case scenario, so by my math there is still at least a $92,000/year advantage to making 300k over making 100k with federal benefits.

I'd be interested to see who is willing to make that trade, but not interested enough to go read bogleheads.

That all assumes the 300K salary materializes and the higher paid employment remains stable for your relevant future. Speaking for myself, I would think that sort of earnings difference to be worth the risk.

Buffalo Chip

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Re: Any FERS + TSP FIRE folks out there?
« Reply #217 on: June 21, 2019, 04:58:02 PM »

Then lets not forget all those years of zero pay increases over the past decade.  I don't see why anyone would want to work for the federal government anymore.  You can make much more money, and have more freedom, at equivalent private sector jobs.  Unfortunately, I think federal employment only appeals to the laziest of applicants these days, people who want to get on and then do fuck all for 30 years until they can collect that pension.  If you're talented and motivated, you're virtually guaranteed to do better for yourself at virtually any alternative employer.

Good gracious Sol! Depends on where youíre at and what youíre doing. If youíre some DC cubicle rat, it sucks mightily. But in LCOL areas, and agencies with interesting missions, it can be an awesome job. There are great opportunities in the trades, too.

Iíll give opposite advice. Go work for Uncle. Military or civil service. At least long enough to get TSP access.


Johnny Aloha

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Re: Any FERS + TSP FIRE folks out there?
« Reply #218 on: June 24, 2019, 07:22:26 AM »
You can see there are people making $300k who would be happy to trade the salary for $100k plus the pension/healthcare.  Granted, bodlgeheads is a different crowd, but still.

Those people are dumb. 

I have a hard time believing people making $300k are dumb.  Yeah, I get the math and don't disagree ... but when you factor in the stress, hours, travel, and uncertainty of work at that level, that's why people are willing to make the tradeoff.  It's not because they are dumb.