Retire or re-up? Do something!

Personally, things are going pretty well. Winter is almost over. I made it to work yesterday in 17 minutes. And then had my choice of subsidized parking spots. Our multi-choice office coffee maker works like a charm. And its free. So life is pretty good. That said there is, as always, a downside, including a furnace that doesn’t generate heat. But also…

Both my local supermarkets are running low on cat food. That’s important when shopping for your daughter who owns/is owned by a bottomless pit mouser. Princess Leaha, the cat, is a charmer. But she can also pack it away. And howl when hungry. On the economic front, my local gas station is getting $4.46 a gallon. And last but definitely not least I, like millions around the world, wish Russia’s long-time President would get a new hobby. Maybe pickleball. That could solve a lot of problems. But…

It’d unlikely that peace will come overnight. If ever. Or that the supply chain problems will be settled anytime soon. Or that COVID will go away. Also we currently have a 21^st century version of the Cuba missile crisis except this time our adversaries say we are in their backyard and threatening them.

Although not fun, it is hard not to follow the news. For those paying attention or maybe actually on the front line — like many feds — it’s a time to seriously take stock. For many workers, especially those with the federal government, it could have an impact on whether they will retire early to, maybe, get some relaxation. Or whether the world and economic situation convince them they should work longer than planned. Maybe to add to their TSP, boost their starting annuity and keep inflation — which may be with us for awhile — from eating into their retirement annuity.

So what can people do — either by working longer or delaying their Social Security — that will boost and maintain their standard of living when they do decide to retire?

And whether you decide to slog on, or to retire early, there are things you can do to dramatically boost your retirement annuity when you do retire, or to help inflation proof it by delaying taking Social Security until age 70. Each year you delay taking it increases its amount by 8%. That’s a good investment under any circumstances. And guaranteed by the government. Many FERS retirees tap their TSP until they start collecting Social Security (at the higher value) then leave it alone and spend their Social Security.

Or you can choose to work longer and dramatically boost your lifetime federal annuity.

In May, benefits expert Tammy Flanagan was my guest on Your Turn. She pointed out that by working two more years, from age 60-to-62, an $80,000 per year employee can boost their starting annuity by almost $30,000. All the while drawing full salary, qualifying for pay raises and boosting their high-three average salary. Interested? After we did the show Tammy came up with this example of how delaying retirement can benefit you. A lot. Of course there are many other factors to consider. But money, as in having enough in your Golden Years, is a very big reason. You can adapt this example, of an $80K employee, extending work longer to get more in retirement. Here’s her example:

• Length of Service at age 60: 19 years
  • 19 x $80,000 x 1% = $15,200 x .90 = $13,680 (10% reduction under the MRA + 10 retirement because employee didn’t have 20 years of service at age 60 to qualify for an unreduced retirement)
• Length of Service at age 61: 20 years
  • 20 x $80,000 x 1% = $16,000 + $12,000 = $28,000(The extra $12,000 represents a FERS supplement of $1,000 a month payable to age 62 when retiree could file for SSA and get an even larger SSA benefit based on their lifetime of FICA taxed wages)
• Length of Service at age 62: 21 years
  • 21 x $80,000 x 1.1% = $18,400 + $24,000 = $42,480(The $24,000 represents the SSA benefit payable at age 62 of $2,000 a month from their lifetime of FICA taxed wages)

The difference between this person leaving at 60 vs. 62 is almost $30,000 a year more income for only two more years on the job. Of course, at age 62, the person who left at age 60 could claim their SSA benefit, but the gap would still be close to $5,000 a year or $600 a month in their FERS basic retirement benefit for life! In addition, they would have benefited from two more years at their presumably highest earning years added to their SSA record, and two more years of contributions and growth to their TSP accounts. A win-win, if you can stand to work longer.

Of course, they could delay SSA and withdraw $24,000 a year from their TSP account so that they could receive $43,000 a year by delaying claiming SSA to age 70, and then take much smaller payments from the TSP so that they will satisfy the required minimum distribution requirements at age 72.

Both plans are definitely worthy of your retirement planning options.

Tammy is now “in retirement” (which in her case means working full-time as a retirement consultant). She can be reached at Tammy@retirefederal.com.

Nearly Useless Factoid

By David Thornton

Source: The Economist