Government retirement decision

[John1954]

Hi, I have been lurking here a while soaking up all the great information. I am 54.5 and am eligible for retirement from the federal government. If I wait until my 55th birthday, there is no penalty, but the penalty at this point is only about 0.5 percent.

My pension would pay about $105,00 a year (with a survivor benefit), which is about $10,000 less than our current annual expenses. Every year I work my annual pension would go up about $4,000. It seems that the present value of this increase would be about $80,000 to $95,000, depending on various assumptions.

As a result, if I retire it seems that I would be walking away from a significant amount of money. The difference between my annual take home salary and take home pension would probably be only about $20,000, but the potential increase in the pension does give me pause.

I like my job and it pays well but there have been some changes in the organization recently that are not positive. Even so, my job is quite desirable although it can be quite stressful occasionally.

We also have about $800,000 total in mutual funds, TSP, and money market funds, including a large reserve in the money market. In addition we own an amount of farmland of almost equal value that generates between $20,000 and $30,000 annually. We still have a mortgage that costs us about $26,000 annually including everything, and it runs for another 24 years or so. My daughter will graduate from the state university in 3 years.

We have the income to cover our current expenses but I have been stuck in the one more year syndrome for several years. I think this may have been good in that the value of my annual benefit has gone up by about 25 percent over the last four years to cover almost all of our expenses, but now I am wondering how much further to go.

In sum, I'm debating whether it make sense to leave a desirable job accruing significant additional benefits or waiting another year or two. In 4 years I would be forced out of the CSRS. Medical insurance would be continued in retirement by my employer. I don't think it is realistic that I would find an equally desirable job at this salary level ($167,000) at my age in this job market. I don't want to make a foolish mistake and walk away from a good job and significant accruals in a defined benefit pension, but I also would really like to have less stress and more free time for a lot of other interests. I am trying to figure out the optimal retirement date from an economic point of view, and then compare that to how much longer I really feel like working. Any thoughts on anything I may be missing would be appreciated. Thank you.

John1954

 

[beowulf]

Welcome to the Board - lots of good information here.

I retired from the government 6 years ago right at 55 with 33 years of service under CSRS/Military and have been working as a consultant back to the government since that time. From a financial standpoint, it was the right thing to do for me. If I did not have very saleable skills, I would just have stayed with DoD and worked until I was 62 and then retire with 40 years or so. I was not happy with the way things were going in my organization and it seemed a good time to take a buyout.

I don't understand the part about being forced out of CSRS in 4 years. Unless you are a LEO or similar, what would force you out at 59? If you can easily get another job and want to work, you will probably be better off financially retiring at 55 - assuming you will bank most of the extra money you earn above your current expenses. If you don't think you can get a job easily, then it's really an early retirement and it depends on whether you hate your job or are just not really happy. Sounds like you are a senior SES, so I can understand your stress levels.

Actually, each year you stay after 55, is 2% plus whatever the COLA is - last year it would have been about 6%, depending on where you live. At your salary level, it might be better just to put in another 4 or 5 years (if 5 is possible) and collect that 2% plus a new high 3. Retiring at 60 with a defined benefit plan and health insurance is still a good deal.

Good luck with your decision.

 

[martyb]

Good luck in your decision. As for me, I'm 51.5 yrs old, currently have 32 yrs service with DOD and am under CSRS too. I also currently have 32 yrs military time (4.5 yrs active duty & the rest reserves). I know without a doubt, that when I get to age 55, I'm punching out. I've got way too much living to do to have time for work! lol! 3 yrs, 6 months & 25 days...but who's counting?

 

[Khan]

I took an early retirement buyout at age 54 with ~25 years (CSRS & FERS) with a pension of ~$25K (raised a year later to $30K).

If you need the money, keep working.

 

[freebird5825]

My only questions are...
How is your health today?
How do you see your happiness level in relation to your health, now and for long term?

I w*rked fed also for 18+ years. I chose to do the MRA+10 deferred FERS path because of stress.

If I had a dollar for every person I saw w*rk beyond their "time to go" and had stress related health issues...look around your own place and see what you see.
The answer to stay or go is yours, bottom line. Good luck with deciding.

 

[Moemg]

Welcome , only you will know when you are truly ready to retire . Congratulations on a very nice pension .

 

[John1954]

Retirement decision continued and thanks

Thanks for the feedback. Restonham, I am in a part of the government that switches employees to FERS after 32 years. Our CSRS pension accruals are also a bit different. I'll check on the COLA on the accrual.

My health is very good right now and I would like to keep it that way. Part of me would like to have more free time, but as I am accruing at least $4000 each year I work added to my eventual pension benefit the financial cost of retiring would appear to be fairly significant. It is a good benefit but walking away would involve some opportunity costs. I am trying to think about whether there is a financial tipping point whereby my benefits can be maximized; maybe I am getting pretty close it it now.

Again, thanks to all for their comments.

John

 

[martyb]

I am in a part of the government that switches employees to FERS after 32 years. Our CSRS pension accruals are also a bit different. I'll check on the COLA on the accrual. John

Well, after being a fed, under CSRS, and feeling like I knew quite a bit about the federal retirement systems, I have to say I have never heard of anybody under CSRS being forcibly switched to FERS at any time, no matter how many years of service. If you wouldn't mind, could you please elaborate on this? This is the first surprise about fed retirement that I've read about in a good while! I worked as an Air Reserve Technician for many years before I switched agencies, and I know that some Guard folks have some weirdness in thier retirement rules, but at the income level you're at, unless you're the grand poobah of the guard or reserves, that wouldn't be you. However, I like to learn new stuff, so please humor me! Hope I'm not sounding sarcastic, I'm just very curious!

 

[John1954]

csrs and fers

We have a cap on the annual CSRS pension as a percentage of ending salary that translates into a limit on the total years of service under CSRS, as opposed to being a grand poobah of anything. Weirdness in the rules sums it up pretty well.

 

[ChrisC]

John1954,

Just curious, does your agency also have its own 401K with an employer match (in addition to TSP)? That would be another factor for me.

 

[militaryman]

Given all you have indicated I would probably stay "onboard" until

1. My daughter was graduated from University

OR

2. The job that is "quite stressful occasionally" becomes"quite stressful normally"

Nice job preparing for retirement!

I bet that you could lower your standard of living by 20% without much effort and be equally as secure as staying on job for another 3-4 years. That is a trade-off that only you can decide.

 

[beowulf]

I understand, John - the normal cap is 41 years 8 months of service for 80% of high 3 years of service plus accrued sick leave. However, certain Federal employees receive a higher percentage while they work (more than 2%) based on their occupation - LEO, Congressional, certain agencies, etc. Because the 80% cap remains the same, that translates into a lesser number of years before hitting the ceiling. I don't know how many years you have left before that happens, but, if it's not too many, it probably makes sense to keep earning those credits at your salary level until then. If it's a lot of years, then, it just comes down to your comfort level.

I know folks who look at that 80% as the holy grail of retirement and will stay no matter how unhappy they are. Others, like myself, decided there are other things to do in life, even if they involve work - just from a different perspective. Either way you decide, I'm sure it will be right for you.

 

[ChrisC]

I think John has described a different retirement benefit plan feature than the normal CSRS cap of 41 years, plus 8 months. The take-away he described for his CSRS pension after 32 years and his placement in FERS afterwards might mean he works for an employer that provides this feature like a Federal instrumentality that transitioned from a Federal agency to something else, a hybrid Federal agency-instrumentality like NAFIs (e.g., the Army-Airforce Exchange Services), or a Federal agency with a mixed-bag of benefit features like the Smithsonian (where a portion of the employees are so-called Trust Employees), Federal banking agencies or the SEC.

 

[jdw_fire]

...

My pension would pay about $105,00 a year (with a survivor benefit), which is about $10,000 less than our current annual expenses.

...


We also have about $800,000 total in mutual funds, TSP, and money market funds, including a large reserve in the money market. In addition we own an amount of farmland of almost equal value that generates between $20,000 and $30,000 annually.

...

We have the income to cover our current expenses but I have been stuck in the one more year syndrome for several years.

...

John1954

you definately appear to be in the 1 more year syndrome. based on what you have said above you have more than enough to retire right now.

and also based on what i can tell about your situation is sounds like you are close to working for free (meaning that your takehome now is close to equaling what your takehome would be if you retired) therefore to my way of thinking you need to really love what you do to be doing it for free.

 

[John1954]

ChrisC, we do not have a 401(k) in addtion to the TSP. The CSRS situation you and Restonham describe is similar to our rules.

Thanks to all for your comments and advice.

 

[ziggy29]

Just curious, does your agency also have its own 401K with an employer match (in addition to TSP)? That would be another factor for me.

Is there such a thing? For all intents and purposes, my understanding is that the TSP effectively *is* the federal employee's version of the 401K or 403B with largely identical tax laws governing them.

 

[grumpy]

John,

Do you have the possibility of a position as a contractor or consultant to your agency after you retire?

In my case I retired from NASA after 33 years under CSRS. A week later I was working 3 days a week for a NASA contractor doing essentially the same work and earning more for 3 days of work than I would have earned full-time with NASA. Luckily, I had a critical skill that NASA couldn't afford to do without.

I worked as a contractor for two years, banked all of that salary and have been happily and fully retired for five years.

Grumpy

 

[Brat]

I think the first step should be getting a handle on your annual expenses and drive them down. You didn't indicate whether or not you are married but if you are think long and hard about not providing a survivor annuity, particularly when your living expenses are so high. The key to a good exit strategy is a financial plan that is executed.

I too am a CSRS retiree who grabbed an early out, a very early out, so my annuity is a small fraction of yours. But, both kids graduated from college after I retired without school debt - priviate university in one case, out of state tuition the other. It can be done without decreasing your standard of living. Most folks think we make lots of money, nothing could be further from the truth. We think three times before spending a dollar.

 

[ChrisC]

Is there such a thing? For all intents and purposes, my understanding is that the TSP effectively *is* the federal employee's version of the 401K or 403B with largely identical tax laws governing them.

Yes. A number of specialized Federal agencies offer their employees added benefits to the standard employment or retirement benefits available government-wide. For example, the Office of the Comptroller of the Currency, which is an agency within the U.S. Department of the Treasury, has its own employer matching 401K plan in addition to the TSP offered to Federal employees government-wide. OCC explains its 401K here: OCC: Careers at the OCC - Benefits.

 

[ziggy29]

YFor example, the Office of the Comptroller of the Currency, which is an agency within the U.S. Department of the Treasury, has its own employer matching 401K plan in addition to the TSP offered to Federal employees government-wide. OCC explains its 401K here: OCC: Careers at the OCC - Benefits.

Ah. OK. But I suppose the key point in this link is here:

Since both the TSP and OCC 401(k) are defined contribution plans, aggregate employee contributions to both plans are subject to the IRS annual elective deferral contribution limit.

So yeah, you can legally participate in both TSP and a 401K, but you can't double-dip in that you're still limited to the $16,500/$22,000 *combined* limit.

 

[ChrisC]

Ah. OK. But I suppose the key point in this link is here:



So yeah, you can legally participate in both TSP and a 401K, but you can't double-dip in that you're still limited to the $16,500/$22,000 *combined* limit.

Not sure I understand what you mean by "double-dipping." Someone in OCC under the FERS retirement system gets the benefits of two matching plans, so to that extent there's a "double" match, subject to the annual limit for contributions to deferred plans of $16500/22000. In other words, the employee can contribute to both plans and receive matching contributions from the agency up to 5% for each plan, effectively getting a 10 percent employer match of salary, subject to the annual deferral limit. TSP does not contribute a match beyond 5%, so the added 401K plan might be attractive to many.

 

[beowulf]

I have to strongly disagree with the comment concerning thinking long and hard about not providing a survivor annuity. If John is married (and I am assuming he is as he has a daughter who is a freshman in college and he speaks as if he is part of a complete family unit), then not taking the federal survivor annuity would be a really, really bad idea - unless his wife has a defined benefit pension, has health insurance on her own, or is going to be inheriting a LOT of money from somewhere else.

If John passes away and does not provide a survivor benefit, his wife will no longer have federal health insurance for life. She may have other life insurance, but the federal survivors annuity is indexed annually to inflation (same as social security). He does not have to take a full survivor annuity for her to keep the health insurance, but it has to be enough to cover the monthly premium.

I have not seen anyone, except insurance salemen, ever advise a retiring fed to skip the survivor annuity. It's even more important for someone with a high pension. If his is $110K a year, she will get 55% of that, about $60.5K a year, indexed to inflation for life. He, in turn, will pay about $11K annually for that protection (an amount which is not taxed at any level).

I am aware of far too many retirees who opted to get the extra bucks now and then passed away a few years after retiring, leaving their wives with no health insurance and no survivors annuity. John may have high expenses, but he also has a high pension and good assets to draw on. This is not a place for him to start cutting.

Now, if you have a very small pension and the survivors benefit would be 55% of that small number, it would still be a bad idea, unless your spouse has her own health coverage.

 

[Brat]

Restonham, that is why I said "think long and hard"... unless there are circumstances not disclosed, not leaving a survivor annuity is foolish. A spouse must approve anything other than the standard survivor annuity. In this case, barring unusual circumstances, that would be grounds for divorce IMHO.

 

[John1954]

JDW fire, I'm not taking home much more than I would with my pension, but the $4000 extra in annual pension for every additional year worked has a present value that is over $70,000. That is the main financial reason I have for staying.

Grumpy, I can't come back after retirement as a contractor unfortunately, but could get another job once the labor market improves. Brat, the pension amount mentioned is after the survivor benefit adjustment. I agree that budgeting will be important.

Being able to retire does give me a much more positive attitude about work. There is less to worry about, since I know there is something else to fall back on if necessary.

 

[ziggy29]

Not sure I understand what you mean by "double-dipping."

What I mean is that you don't get two separate $16,500 limits.