Retire at 45? Crazy or Just Maybe Possible?

[KimInWis]

Hey all! Martyb sent me and said I would get some great advice here. I hope so, because I really need it!
I am a Federal FERS employee who works for the VA.
I just found about about 4 days ago that I'm being offered Voluntary Early Retirement Authority (VERA), (25 years at any age). If I want to do this, I have to have my paperwork in by 16 Jan 07 and off the roles by 31 Jan 07. Why such a short time frame, especially during the holiday season is beyond me!
I have submitted my request for an Estimate of Retirement Benefits under this Early Out to HR, but have a feeling they will be a little "slow" in getting it back to me in enough time to make a smart decision before the deadline. I'm trying to find out all the info I can I my own in the mean time.
I know each situation is unique and personal, but would like opinions if I'm nuts to even be considering this option. Here's a bit about my situation.

1. 45 years old with 25 years service
2. Federal FERS employee (always) and work at the VA.
3. Average high 3 would be appx $68,000.
4. TSP = $125K
5. No kids, I own my own house and property outright, no car payments, no loans or other outrageous bills. I have a small bank account with good credit and and I hate to shop!
6. My Minimum Retirement Age is 57 (under normal retirement situation)

A few things I found on the web:

FERS Annuity under VERA
"There is no annuity reduction in FERS for employees who retire on an early voluntary retirement under age 55".

Health Benefits
Same cost as now except the premiums WILL be taxable

I can keep my TSP in TSP until I'm 70.

I would not get SS Supplement until I'm 57 thru till age 62 (not sure
about this...)

If I take into account Federa/State/Property Tax, Health/Dental/Vision Premiums, Car/House/Property insurance, food, gas, fun, etc.. I could live very nicely off off of $35,000/year.

With the above conditions, do you think I will come close to getting this $35K without touching my TSP? I can't seem to find any on-line calculators which don't confuse me or really don't pertain to me.

Thanks for any advice!

 

[Bimmerbill]

I found this calculator to be pretty comprehensive:

http://hr.er.usgs.gov/calculators/tsp/index.html

I saw your post on fedsoup too. You are in the IT field? How are salaries for private companies where you are located? Is you skill set current and in demand?

You could always accept the offer of early retirement from the Feds, and pick up some contracting jobs (since your benefits are covered under FERS retirement) or even work for 5 years to sock away more in a retirement account.

Any hope of moving up in the GS scale? I read on fedsoup that you are step 10 (maxed out on salary).

Do you want to retire, or keep working?

 

[KimInWis]

BimmerBill, thanks for the reply. I left a GS-12 step 10 Supervisor job 6 years ago because I hated the supervisor part. I'm content to just be a little fish in the pond and have no desire to move up the ladder again.
Yes, I'm IT. I used to be a Unix admin, I know/run and can admin Linux.I currently manage the hospital imaging servers ( stores xrays, mri, cat, audio, eye, etc...pictures in the electronic health record) in a windows clustered environement interfacing with VMS. The IT field around here would only pay about 1/2 of what I'm making now, and are more into java apps and such which I know nothing about. I don't hate my job, but I hate the commute (1.5 hours each way, but no traffic). I would much rather work from home (don't we all!). Do I really want to retire? Yes, if I can manage it. I don't need to live fancy.. I live in the country with a trout stream, in my yard, that's fancy enou h for me!) What would I do with the extra time? I have no clue! Probably bumm around for a few months then maybe look for a part time job doing anything BUT IT work! All this came on rather suddenly, but I always said.. if I ever had the chance to retire early.. I would.. now it's time to shutup or put up! Man my head hurts, I've been pounding this decision all weekend! Thanks for responding!

 

[Ed_The_Gypsy]

Kim,

I am guessing that while you would have your retirement elligibility locked in, you could not collect until age 57. Yes? No?

Do you have the option of staying on? What are your choices?

Could you take the package and come back as a contractor or go to work for another fed agency?

Me, I would take the offer and start a new adventure, but that's just me. 25 years only with the Feds might have made you timid towards venturing out into the cold world outside. At 45, you could have problems getting another staff job (age discrimination is real), although contracting should be wide open if you could stand to stay in IT. Consider that you might have to move or at least travel.

I am a contractor with a home base in a really nice place. I work--if I travel (which I do). It can be done. Contracting is relatively isolated from office politics, too.

Good luck.

Ed

 

[Ed_The_Gypsy]

Kim,

Would you like to work in Canada? You ought to qualify under NAFTA. Lots of IT work in Calgary.

Ed

 

[KimInWis]

I can start collecting right away,, for what it's worth! 1% for every year?
I'd have to work for 50 years to get 35K (half of my current salary)?
I can stay on if I want, but that early out sounds soooo good!
If I go out now it looks like I MIGHT get 17K/year, if I wait until I'm 57
it would be 25K.. STILL below poverty level! What good what it do to retire and still have to go back to work to make ends meet? sheeshh.. now I'm depressed...

 

[ats5g]

Kim,

I'm a little confused. You need $35K/year in income, will get roughly $17K from a FERS pension, but don't want to touch your TSP. That leaves $18K/year to come from somewhere else, right?

Do you have other sources of income, or other savings to draw from? Otherwise, you'd need another job to generate the other $18K.

- Alec

 

[Helen]

With the above conditions, do you think I will come close to getting this $35K without touching my TSP? I can't seem to find any on-line calculators which don't confuse me or really don't pertain to me.

Hi Kim,

I'm hoping they offer an early out in 6.5 years when I am eligible, but I'm not counting on it. I'm in IT too.

There is an online calculator, but I can't find it. I have a link to it at work, if I remember I'll post it on Wed.

Here's the formula they use to compute your penson:

# years of service * ave high three * .01

25 * 68,000 * .01 = $17,000

So, you're about $18k short. With a portion your health bennies paid for, you could opt for part time work. Otherwise, you are probably looking at another 9 - 13 years of Federal service (age 56 with a 5% deduction per year of your pension) unless they offer another early out. Each year you work your pension will increase by $680 per year.

Another option is to start saving money in a non tax deferred account to live on from age 56 - 60. You would then begin collecting your pension at age 60. The problem is you would have to fund your health benefits for the four years until you begin to collect your pension. The benefit of doing this is that you would not take a 30% lifetime deduction in your pension. Your pension would be $21,080 per year if you retired at 56 and deferred it till age 60.

Or, another option is to work till you are 60 and begin an immediate retirement with a pension of $25,840 and supplement this with your TSP funds.

Best of luck in your decision,

-helen

 

[Helen]

Do you have other sources of income, or other savings to draw from? Otherwise, you'd need another job to generate the other $18K.

- Alec

Kim,

With your Unix skills you should be able to generate $18k per year with no benefits with very little work. Maybe should should talk to a temp agency ? If you'd be willing to travel you might be able to work five years in the private sector and bring down $100k or more a year. Maybe you should contact a national consulting firm. Don't underestimate your earning potential, just because the Government doesn't pay you well doesn't mean you can't get more elsewhere.

With your house paid for and health insurance taken care of you have a lot of options. Like you said, too bad they don't give you more time to think it through.

-helen

 

[RAE]

Kim - As you know, FERS is designed to provide retirement income from 3 sources - your FERS pension, whatever you can draw off of your TSP account annually, and Soc. Security. You say that your FERS pension will be about $17k yearly, and that's a start. With a TSP balance of $125K, you could draw off about $5/year at a very safe withdrawal rate of 4%. Soc. Security will not kick in for quite a few years yet for you, though, so that won't help in the short term. So, with $17K in pension plus about $5K from TSP, you'd have about $22K/year. That falls short of your required $35K, so you'd need another source of income to generate the extra $13K.

I'm a fed. employee also (CSRS), age 51. Our agency used to offer some VERA's, and I was hoping to get such an offer around my current age, but it doesn't look like that's going to happen now. So, it looks like I'll have to work another 4 years and leave at the normal retirement age (for CSRS) of 55, with 31 years of service.

Best of luck to you, whatever you decide to do.

RAE

 

[Billy]

Hey, Kim,

Obviously, the decision to retire is entirely up to you, and I agree, too bad you don't have much time to think it through, that being said:

Ed the Gypsy

At 45, you could have problems getting another staff job (age discrimination is real), although contracting should be wide open if you could stand to stay in IT. Consider that you might have to move or at least travel.

You might want to check out our Preferred Links Page: http://retireearlylifestyle.com/favorite_er_links.htm and under the RELOCATION, RETIREMENT JOBS, COMMUNITY INVOLVEMENT section you will find some links that could be useful to you. My BIL found his last job on Craigslist, of all places... and it's a 10 minute walk from his house, and he gets a higher wage than at the job he left.. you never know.. check out those links we provide.

KimInWis

If I go out now it looks like I MIGHT get 17K/year, if I wait until I'm 57
it would be 25K.. STILL below poverty level! What good what it do to retire and still have to go back to work to make ends meet? sheeshh.. now I'm depressed...

You might also want to consider making changes in the 3 biggest categories of expenditure (if possible) and that is housing, transportation and taxes.

Our articles below may prove useful to you to get you thinking:
Cost of Working: http://www.retireearlylifestyle.com/cost_of_working.htm

Retire to Simplicity: http://www.retireearlylifestyle.com/retire_to_simplicity.htm

Priceless Retirement: http://www.retireearlylifestyle.com/motley_fool_article_6.htm

Hope this helps, Kim. Take it easy, and the best to you in your decision making!

Be well,
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[KimInWis]

Thanks all for the great advice! But I think I'm going to take the chicken way out and stay for at least a few more years. We would really be cutting corners and nesteggs if I go out now, even though it sounds so good. We've decided to just take a few more vacations and long weekends to make the years go quicker. Who knows, maybe when I'm 50 they will offer this again and I'll be in a much better situation AND have a heck of a lot more knowledge, than what I do now. Thank you everyone, for helping me make this life changing decision on such short notice. I figured it would be out of reach, but I had to give it a shot. Best of luck to all of you, and a happy and lucrative retirement!

 

[martyb]

Kim, something tells me we haven't seen the last of you on this board! You have that early retirement fire burning, or at least smoldering deep in your heart now! You've dared to think seriously about it, and now you have a real target, a purpose like so many here! This forum is a big group of people who are thinking exactly like you, or have already accomplished their goal to retire earlier than the widely accepted norm. You don't have to give up on your dream just because you need to postpone it for a little while. If you stick around this board for awhile you can't help but pick up some great info that you can put to use as you work towards your ultimate destination of FIRE! Financial Independence/Retired Early! If you truly desire it, and are willing to take the steps to make it happen, it will come! Even for a couple of lowly feds like ourselves!

 

[jdw_fire]

Thanks all for the great advice! But I think I'm going to take the chicken way out and stay for at least a few more years. We would really be cutting corners and nesteggs if I go out now, even though it sounds so good. We've decided to just take a few more vacations and long weekends to make the years go quicker. Who knows, maybe when I'm 50 they will offer this again and I'll be in a much better situation AND have a heck of a lot more knowledge, than what I do now. Thank you everyone, for helping me make this life changing decision on such short notice. I figured it would be out of reach, but I had to give it a shot. Best of luck to all of you, and a happy and lucrative retirement!

Kim, don't be too quick to think you won't get close. Remember to use all parts of your Fed retirement plan. First it looks like you will get $17K from the FERS defined benefits plan portion. Next you will be getting SS and using your $68K yearly income figure that comes to ~$16.2K/year, which gives you $33.2K inflation adjusted Fed gov guaranteed per year. Two things about the SS 1) your actual amount will vary based on your actual earnings history; and 2) you won't start receiving this until you are 57 yo (based on info from your OP)

So a couple of questions emerge. Is $33.2K close enough to your stated amount of $35K and can you use the TSP money to provide the gap income from now to when you are 57 yo? Vanguard will sell you an annuity providing $13.2K / yr for 12 years for $125K. This would give you an income of $30.2K for the years from 45 yo to 57 yo. This amount will be fixed as the annuity is a fixed payment annuity and the COLAs on your FERS won't start until you are 62 yo. I am using buying an annuity in this analysis since I can easily compute the number and I don't know how much risk you can tolerate. You may be able to get a better return on your TSP money investing it elsewhere and you would need to check with the IRS to see if you would be liable for the 10% penalty if you used it this way.

This may not fit exactly but it is close & I don't know your complete situation. (Maybe your estimate of needing $35K is a guesstimate and with further analysis it could be lowered a little.) The point of my post is for you to not quickly say "it can't be done".

 

[Billy]

Best of luck, Kim! I love what marty and jdw just said, and welcome to the boards. You will get lots of community support here and lots of usefu info.

Be well,
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[donheff]

Kim:

You need to fully understand your benefits to make an informed decision. For example, you state that you will not get the Social Security supplement until you are age 57. I did not think that was correct so I looked at the OPM FERS Brochure. It states that you get the social security supplement at any age when you retire with 25 years of service under an early out. You could also choose to start withdrawing your TSP in equal supplements. Check with your HR office to verify.

Also, as I understand FERS, the SS supplement is an independent part of your retirement and will last until you are 62. In the meantime you can continue adding to "real" SS if you do other work. At 62 you can decide to take real SS or postpone until 70 or whatever -- the supplement will stop at that point.

Finally, concerning your question about why they are giving you such a short window - it is all about the budget. Every month you stay on the rolls they have to pay your salary and benefits out of fiscal year 2007 funds. The earlier they get you off the rolls the more they save.

 

[jdw_fire]

You need to fully understand your benefits to make an informed decision. For example, you state that you will not get the Social Security supplement until you are age 57. I did not think that was correct so I looked at the OPM FERS Brochure. It states that you get the social security supplement at any age when you retire with 25 years of service under an early out. You could also choose to start withdrawing your TSP in equal supplements. Check with your HR office to verify.

It is true that someone retiring early with "25 years and any age" will get the SS supplement but it won't start until said person reaches their MRA, which Kim implied was 57 in her case.

 

[donheff]

It is true that someone retiring early with "25 years and any age" will get the SS supplement but it won't start until said person reaches their MRA, which Kim implied was 57 in her case.

Yeah, I missed that sentence. Makes a big difference. Glad I was CSRS.