As many probably know, if you retire under the “MRA+10” status and take an immediate annuity, your FERS pension is reduced by 5% for every year until 62, and there is no inflation adjustment until 62. That is a pretty big haircut. But I recently learned that, if you have 20+ years of service, you can get an unreduced annuity if you postpone taking it until 60, since you would have been eligible for an unreduced annuity under the “60+20” status. As long as you can cover health insurance another way (spouse, COBRA, ACA), that can be a pretty good trade.
It is a big haircut but presumably the toughest years to weather will be the ones from retirement to just before SS kicks in. That is, even though the pension haircut is permanent for each year of retirement, the FERS Supplement can help. By the time SS starts being collected, feds could have more than they know what to do with so a reduced pension (as opposed to no pension due to delaying to avoid the reduction) could make sense in some situations.
For instance, if I stop working once I hit 30 years, here is what my access (I'm aware there are more ways to access, I mean access easily without any hoops to jump through) would look like:
Age 54 (retirement), Roth IRA contributions, taxable account
Age 55, Roth IRA contributions, taxable account
Age 56, Roth IRA contributions, taxable account
Age 57, pension, FERS supplement, Roth IRA contributions, taxable account
Age 58, pension, FERS supplement, Roth IRA contributions, taxable account
Age 59, pension, FERS supplement, TSP, Roth IRA (partial), taxable account
Age 60, pension, FERS supplement, TSP, Roth IRA, taxable account
Age 61, pension, FERS supplement, TSP, Roth IRA, taxable account
Age 62, pension, FERS supplement (partial), TSP, Roth IRA, taxable account
Age 63, pension, TSP, Roth IRA, taxable account
Age 64, pension, TSP, Roth IRA, taxable account
Age 65, pension, TSP, Roth IRA, taxable account, HSA
Age 66, pension, TSP, Roth IRA, taxable account, HSA
Age 67+, pension, TSP, Roth IRA, taxable account, HSA, SS
Honestly, I think my plan would look similar if I don't make it to MRA. I would just need even more from my Roth IRA contributions and taxable account to bridge the gap as well as more exposure to SORR. I'll run realistic numbers when I get closer to see when I would take my pension and start the FERS Supplement (if under 62).
The earlier years of retirement require the most planning as access to all retirement accounts isn't there yet. Thus I could envision scenarios where someone decides to take a pension ASAP even at a reduced amount as opposed to waiting.