Episode 46 FERS Retirement Date

Today we're going to talk about what age to retire if you're a FERS federal employee. There are several key ages to consider. The first is when will you reach your minimum retirement age (MRA). Depending on when you were born your MRA is from 55 to 57 years old. If you have at least 30 years of service, you can retire at your FRA and start receiving your pension immediately. If you have more than 20 years but less than 30, you are eligible for a full pension, but you won’t begin get your first pension payments until you are 60 years. If you have 10 to 29 years federal service, you are eligible for a retirement at your full retirement age, but your pension payments will be permanently reduced. This means you’ll have a gap where you won’t have your federal salary or a pension for a few years. Or you could retire early and start a pension immediately, but you payments will be permanently lower.

The next key age is what we call the “magic 62”. You'd be eligible to begin receiving your Social Security at age 62. I don't usually recommend you do that. But it's an option, it gives you flexibility if you need it added income right away. In general, your Social Security full retirement age is between age 65 and 67, depending on when you were born. That’s about 10 years after your FERS minimum retirement age. Retire before you Social Security full retirement age and you will get a permanently reduced benefit. On the other hand, if wait until you are 70 to start Social Security you will get 8% more in your paycheck for each year past full retirement age.

Another reason to wait until at least magic 62 to start your FERS retirement is a boost to your FERS pension. If you're a FERS employee with more than 20, but less than 30 years of service, you get an extra bonus by waiting to 62. Your yearly pension is calculated by multiplying your average high-three yearly salary, times 1%, times your years of service. But if you wait until you're at least age 62, with 20 years or more of service, you use 1.1% in the formula instead of the 1%. Y

Another great benefit of waiting to age 62 is that's that’s the age when your regular FERS retiree Cost of Living Allowances (COLA) begin. COLA is a yearly automatic increase in your retirement pension based on inflation. If you retire before age 62, you miss out on those COLAs. The buying power of your pension will go down because of inflation until age 62. You never get a catchup for those years.So again, getting that COLA boost every year right from the start is another plus for waiting till you're age 62.

All right. Now there also are general benefits of retiring later. The longer you work, the better off you are financially, because you're saving longer, earning a higher FERS and Social Security pension, and putting off spending your retirement savings until you're older. It helps you build a cushion.

And, of course, there's the Thrift Savings Plan. You FERS employees are getting that 1% contribtion from Uncle Sam no matter what. And then if you're contributing to TSP you get up to a 5% salary match. If you're contributing the max $26,000 a year when you’re 50 or older, with your match, that's an extra $31,000 a year in TSP for every extra year you work, and that can add up fast as well.

So in deciding when to retire, are you enjoying your work, how’s your health, and how much do you need for a pension to have the retirement that you want. You can run the numbers and find the best plan for you. Look at your possible income sources like your federal pensions, Social Security, and Thrift Savings Plan and the costs and benefits of tapping each one at different ages. Everybody's situation is unique. But it’s good to remember and consider the benefits of that waiting until your are 62 or later to start retirement.