Fed Employee (FERS): retire at 57 or 62?

[Weathering]

I’m a Federal Govt employee (DoD Civilian) like several others I’ve seen post. My question is whether it is better to retire at age 57 or 62?

Im currently 52 years old.
Age 57 is my minimum retirement age (I’ll have 36 years of service 3 months after my 57th birthday).
I’ll get about $2k/month in a supplement until I reach the age of 62.
My annuity (pension) will be 1% x 36 years x (average of 3 highest yearly pay)

If keep working until age 62, then I won’t get the $2k/month supplement. However, my annuity (pension) will be calculated as 1.1% x 41 years x (average of 3 highest yearly pay)

Are others facing this decision and if so, is there something about either choice that makes it extra compelling?

[Weathering]

I should mention that COLA increases will not start until I’m 62 no matter when I retire.

[Chris Pascale]

I plan to leave sooner.

At 48, I'll have 20 years. Can't draw the pension until age 60, but we have 2 VA pensions coming in, and I think I'll move to teaching full-time until I'm 60, at which point I may leave to draw my state teachers and fed pensions.

Also, my wife is a fed employee with only a few years, so may keep working so I'll have that as a cushion, too.

Blurb from OPM page: If you retire at the MRA with at least 10, but less than 30 years of service, your benefit will be reduced by 5 percent a year for each year you are under 62, unless you have 20 years of service and your benefit starts when you reach age 60 or later.

Web address: https://www.opm.gov/retirement-services/fers-information/eligibility/

[afox]

Big time difference between 57 and 62, those are 5 years when retirees are probably the most active. Guess it depends how much you like your job and how much you like money.

I havent done the math but the FERS supplement sure seems like a good "return on investment". Sure you can get more money by working but it is rare in life to be in a situation in which you can get paid to do nothing. The ability to keep FEHB at 57  makes the decision (57) easy for me.

Of course, if u do work later than 57 try to keep it mellow and allow lots of time for hobbies that you will continue in retirement.

[mcneally]

Will you have saved...anything during your 36 year career? Even if all you saved was 5% + 5% match for 36 years, you'd likely be good to go at 57. These may not all apply to you but in retirement you pay less tax (no FICA), you don't need to save a portion of your income for retirement, you may  have a paid off house, you may have raised kids that are now grown that you no longer need to support. If you want the money and don't mind the job, then stay longer. It seems to me though that anyone who starts as a fed in their 20s should be able to retire at 57.

[Weathering]

Thank you for all your replies. My whole career I planned to retire at 57. Only recently did I start to do the math between retiring at 57 vs. 62. I’m doing this because I’ve started to consider working a year or two past age 57 (age 57 is only 4 years and 10 months from now). But if I work past 57, then it seems like I should try to get to 62. I wish the change between 1.0% and 1.1% used in the pension calculation was graduated instead of a cliff. Working til 59/60 and then getting nearly the same benefit as retiring at 57 (compared to age 62) is a tough pill to swallow.

I have the saved money so that won’t be an issue (although my youngest child will start college when I’m 56 - but I have that covered financially). Healthcare insurance will stay the same no matter what, so that is a non-issue.

I think that I’ll just play it by ear when I hit 57.

[Fomerly known as something]

I’m a SCE so have different rules.  But I plan to retire no later than the end of the pay period when I am eligible.  I don’t care how much more I could have if I stayed for another year or 10.  I have enough at my MRA so I will retire. 

[DeniseNJ]

Leave as soon as you can.  If you need the money then get another job.  If you don't then go enjoy your retirement.  I think what you're losing every month not getting the supplement may make a dent in the tiny amount more you would get staying that late.  Don't do it for the money, esp since you already have enough money.  Just go asap and don't look back.  The money won't make a difference.

[RainyDay]

Well, it's "better" to retire at 62 than 57 because your pension will be worth more.  But would you rather have the time or the wealth?  It sounds like you have plenty.  I don't know anyone who wishes they spent more time at the office (unless you truly love your job), but I know plenty of people who wish for more time.

I'm with @Chris Pascale.  I'll be 50 when I hit 20 years of service and the only reason I'll stay longer is if the market keeps tanking.  At 57, you'll have health insurance, so in my mind you're set. 

[shunkman]

I had 35 years of service when I retired at age 56 a few years ago. I was burned out by the re-organizations, realignments, and "right-sizing" that happened every two years or so during the latter half of my career. It was absolutely the right decision for me. I funded my TSP well enough and using a SWR of 3-4% I now have more income than when I was working.

[TomTX]

Well, it's "better" to retire at 62 than 57 because your pension will be worth more.

And it's worse to retire at 62 rather than 57 because you very likely sacrificed the 5 healthiest years of your retirement.

[db_cooper]

Well, it's "better" to retire at 62 than 57 because your pension will be worth more.

And it's worse to retire at 62 rather than 57 because you very likely sacrificed the 5 healthiest years of your retirement.

Wife is coming up on 56 and 8 months with 34 years,  no discussion of waiting until 62.   We're both active and these are likely the best years we have left to hike, climb, ski, bike, kayak, etc.   I'll have 21 years in a state job, so will be quitting and postpone drawing pension for 6 years until age 65. 

For the OP, it all depends on if they have "enough" for their lifestyle.  For us, even the current inflationary stuff isn't enough to derail our plans.  If it gets bad enough to do that, then a lot of spendy pants people are going to have it a lot worse than us. 

[simonsez]

Thank you for all your replies. My whole career I planned to retire at 57. Only recently did I start to do the math between retiring at 57 vs. 62. I’m doing this because I’ve started to consider working a year or two past age 57 (age 57 is only 4 years and 10 months from now). But if I work past 57, then it seems like I should try to get to 62. I wish the change between 1.0% and 1.1% used in the pension calculation was graduated instead of a cliff. Working til 59/60 and then getting nearly the same benefit as retiring at 57 (compared to age 62) is a tough pill to swallow.

I have the saved money so that won’t be an issue (although my youngest child will start college when I’m 56 - but I have that covered financially). Healthcare insurance will stay the same no matter what, so that is a non-issue.

I think that I’ll just play it by ear when I hit 57.

Since you have 30 years and will be at the MRA, does your math include the FERS Retiree Annuity Supplement?

Others have mentioned it but your posts don't seem to indicate if you have or not.  If you retire right at 57, you would receive 5 years of the supplement.  If you retire at 62, your retirement is five years shorter and you get 0 from the supplement not to mention it would likely take a LONG time for the extra pension amount to pass what you would have received from 5 years worth of supplement. 

Are you FI at 57?  If so, what does a slightly larger pot of money and slightly larger pension and slightly higher SS payout do for you? 

A dense read on the supplement:
https://www.opm.gov/retirement-services/publications-forms/csrsfers-handbook/c051.pdf

Simplistic calculation of what your annuity supplement would be per month:
(years worked / 40) * what your estimated monthly SS payout would be at age 62 (even if you don't take it until later in reality, this is the number used)

Just plugging in a round number of $1600 for you estimated monthly SS payout at age 62 * 36/40 = $1440 per month.  That means you'd receive $86,400 in annuity supplement from age 57 to 62.  You would need to calculate your actual numbers to get more accurate results but that's the gist.  Keep in mind if you retired at say, age 58, you'd get 4 years (48 months) of the supplement but the estimated payout of SS at age 62 would be slightly higher and your fraction in the formula would be 37/40 instead of 36/40.  Using $1650 * 37/40 (again, these are just estimates for illustrative purposes) you'd get $1526.25 per month or $73,260 over the four years.

Anyway, the point is, the supplement is not necessarily a pittance for long-term feds and should be in the conversation when a FERS fed decides to retire.  Good luck OP!

[afox]

I wonder what percentage of feds actually take the supplement. I can see how people living paycheck to paycheck or who haven't planned for retirement would be stuck working from 57 to 62 at what amounts to a PAY CUT if they need more than they could get from fers, fers supplement, and savings. Essentially if you're working from mra to 62 you are making your salary minus the fers supplement since you're not getting the supplement money ever. And with the income test the whole system encourages thrift and frugal ism in a lot of ways, it almost seems like a polar opposite of wanton capitalism.

[shunkman]

I wonder what percentage of feds actually take the supplement. I can see how people living paycheck to paycheck or who haven't planned for retirement would be stuck working from 57 to 62 at what amounts to a PAY CUT if they need more than they could get from fers, fers supplement, and savings. Essentially if you're working from mra to 62 you are making your salary minus the fers supplement since you're not getting the supplement money ever. And with the income test the whole system encourages thrift and frugal ism in a lot of ways, it almost seems like a polar opposite of wanton capitalism.

I think you are missing a few details. A FERS employee retiring at age 62 is going to have a years-of-service multiplier of 1.1 versus 1.0 for those retiring before that age. And there is no COLA on the supplement. With high inflation, this makes a difference for those covered under FERS and retiring early.

[mcneally]

skunkman- that's something I hadn't considered. Say inflation is even 3% in your later years and feds get COLAs at that rate.

Say you have 30 years and a $100k high 3 at 57- your pension (not counting supplement) is $30k, which isn't COLA'd until 62.

If you work the extra 5 years to 62, you high 3 increased to 100k*1.03^5 = $116k  * 35 years * 1.1% = $44.6k.

You almost have to try in order to not be FI after a 30 year career that ends with a pension of 30% of your salary + health benefits + basically being able to get early SS at 57 (the supplement being almost as much as early SS at 62), but it's not a bad financial move to stay until 62.

[afox]

You almost have to try in order to not be FI after a 30 year career that ends with a pension of 30% of your salary + health benefits + basically being able to get early SS at 57 (the supplement being almost as much as early SS at 62), but it's not a bad financial move to stay until 62.

Yep! Although the math is a bit different for newly minted FERS-FRAE federal employees who have some real incentive to retire before their MRA and take the now relatively large FERS contributions and do something else with them.

[Sugaree]

Unless something drastically changes, the year I hit MRA, I'll turn 57 in February and have 30 years in August.  At that point, the longest I'll consider staying is until the end of the year. 

[sparkytheop]

I'm going at MRA.  I'll go even sooner if I can get a VERA.  Staying another five years is 0% worth it.

[simonsez]

I wonder what percentage of feds actually take the supplement. I can see how people living paycheck to paycheck or who haven't planned for retirement would be stuck working from 57 to 62 at what amounts to a PAY CUT if they need more than they could get from fers, fers supplement, and savings. Essentially if you're working from mra to 62 you are making your salary minus the fers supplement since you're not getting the supplement money ever. And with the income test the whole system encourages thrift and frugal ism in a lot of ways, it almost seems like a polar opposite of wanton capitalism.

I think you are missing a few details. A FERS employee retiring at age 62 is going to have a years-of-service multiplier of 1.1 versus 1.0 for those retiring before that age. And there is no COLA on the supplement. With high inflation, this makes a difference for those covered under FERS and retiring early.

While important to know the various rules of the FERS system, the biggest detail with regard to "when to retire" (like the point of this thread) is if someone is FI at 57/MRA or not.  If you are already FI and simply want to have a bigger pile of money, then why stop at 62?  At a certain point, you're working when you don't need to from a financial standpoint.  For many on this website including feds (especially the career feds like the OP who will have 36 years in at age 57), this point at which a person is very safely FI would happen fairly easily by age 57 if not much sooner (see Sol's or Nord's retirements or many of the other feds who have shared their ER stories).  Whether a FI person retires as soon as they're able to or keeps working is a different question and one that doesn't have that much to do with $$$.

I feel like there has been some incredible bad luck and/or a lack of planning if someone who is a career fed NEEDS to work beyond MRA but personal finance is about as personal as it gets so who knows.  If someone WANTS to work after they are FI because they're a workaholic, it's a big part of their identity, they love their job, the satisfaction they get can't be beat, etc. - that's a different story as it's optional and the extra dollars from working don't matter as the financial game has already been won.

[sparkytheop]

I feel like there has been some incredible bad luck and/or a lack of planning if someone who is a career fed NEEDS to work beyond MRA but personal finance is about as personal as it gets so who knows.  If someone WANTS to work after they are FI because they're a workaholic, it's a big part of their identity, they love their job, the satisfaction they get can't be beat, etc. - that's a different story as it's optional and the extra dollars from working don't matter as the financial game has already been won.

I work in a group of 16 people.  10 of us make $x/hr, 6 make $x+15/hr (base wage is six figures, we get paid well in a fairly LCOL area).  There are no steps, you make one wage or the other based on title/job duties.  We all work about the same amount of OT and holidays.

We talk finances quite a bit.  There are definitely those who make better financial decisions, and those who make less great decisions.  It's kind of fascinating to see how widely we vary.  Most of us will have MRA + 30, with a few falling under 60 + 20.  I am the only one planning to go at MRA, and the only one who will put in for a VERA before reaching full retirement eligibility (if it is offered).  I'm one of two single parents, but the only solo parent.  Most coworkers are married with working spouses.

I've definitely lived and saved for different priorities than my coworkers.  I try not to hype VERA too much, because I don't want competition if we ever get it! (I'm the youngest on the crew, so almost the last to be eligible.)  In all cases so far, 99% of those who "can't retire" at MRA (or full retirement eligibility) can't do so due to failure to plan, and I'm having a hard time coming up with an example of the 1% that was due to bad luck (but leaving it there because there has to have been someone in over 20 years, right?)

[six-car-habit]

  My workplace is similar to sparkytheop's in the demographics and workforce compensation , although it's roughly 90K / 100K / 115 K  incomes, including shift or holiday pay, and we're in a MCOL.   A few may go at 62. Some are at 59ish - don't like the job, but haven't saved a lot + bad financial choices. One is going @ 65 - but is cautious in their spending, have a paid for house, but wants Medicare and layers of insurance.

   A couple of them pulled out 100K from their TSP during the Covid pandemic - [ there was a short term withdrawal option where regular taxes had to be paid within 3 years, but the withhdrawal didn't need to be paid back, and no 'penalty' taxes either ] and it's fair to say they fudged their TSP Covid withdrawal application because they didn't actually have any family members who lived with them + lost their job [ that was a condition for receiving the payout ].

  We went to a system called DPMAP for performance appraisals / reviews.  You can basically get a performance rating of 1-3-or 5  {5 is the best} .  As i understand it that system says those with a "current or recent #1 {bad} rating " get forced out first during a VERA. I think one really bad performance review is a fair trade to get towards the head of the line in a RIF reduction in force situation. 

  On the ** / 40 years ratio for the annuity supplement, there is a 'catch' in the math for anyone who had military time and 'bought it back' . Say you had served 4 yrs military, than joined fed service, and had paid the military service redeposit to add to your cumulative federal years time.  That 4 years would not get credited in the annuity supplement calculations.

 It's possible to be putting in the minimum 6% into TSP to get the match over 30 years, and still have $500K or less to show for it.  Some conservative allocations- say 40%/ 30% / 30%  between the G, F, and C funds and a few loans against a TSP balance throughout a career,  and suddenly the #'s don't look so great.

[frugalecon]

My situation is a little different from OP’s, b/c I didn’t start my Federal career until later. My only option at MRA was MRA + 10, and the haircut on the annuity was too big to stomach. My choice is either 60 + 20 or 62. But I am leaning to the 60 + 20. The main reason to wait is if inflation is too high for me to be comfortable giving up increases in my high three and getting closer to the age where I will get COLAs. It is important to recognize that, under current law, FERS doesn’t even get a very good COLA. Once inflation is greater than 3%, it is CPI - 1%. If I were to retire at 57, I would think about how inflation might impact my situation. But it sounds like 57 is 5 years away for OP, so we will have some idea of how this current episode turns out.

[Weathering]

Thank you for your thoughtful replies.
I just moved into a new job (lateral move because everyone doing my job is being forced to rotate- possibly to encourage us to come back into the office due to learning a new area). Will see how I feel in 4 years and decide then about retiring at 57 vs 62.

[CapLimited]

My situation is a little different from OP’s, b/c I didn’t start my Federal career until later. My only option at MRA was MRA + 10, and the haircut on the annuity was too big to stomach.

Me too -- I started late and have 19 years.  I hit MRI at the end of May 2022 and this Friday, June 17, is my last day.  As soon as I was able, I started maxing out my TSP and Roth IRA, so I have a nice big pile of investments.  I will postpone taking my pension until 62 or unless I need it sooner.  My husband is a retired Fed also, so I can go on his health insurance.  Not too worried about inflation -- I think a lot of the current inflation is based on fuel prices, and we don't own a car.  We have a tiny mortgage at a very low interest rate, and we buy a lot of our food from the local farmer's market, so they don't really have to add in big transportation costs to their prices.  We have a long trip to Europe planned, but with the strength of the dollar right now, we have already bought cheap Euros in our Wise account to use on our trip. 

Life is short.  Don't wait too long.