Fed job and Pension

[azanon]

If you had a Federal Job (like me) that paid a pension (30% of original salary) at normal retirement age (30 yrs tenure) or a pension as early as 50 (if you get offered an early out) + SS suppliment that covered another 15% at full retirement (that paid essentially what SS would pay you until you hit 62), would you still try to retire early?

Those are the two things that make it really tough on me to consider going excessive on savings and trying to retire before 58.  If i bailed out before i qualified for those, i'd lose about 45% of what i made in salary of essentially free money in the form of pensions and SS suppliment.

 

[farmerEd]

Are you saying that if you make $50K per year, after 30 years with the govt you get a pension of $15K per year?

 

[azanon]

yes that's right, plus another 15% or so (it varies) of 50K for SS suppliment until you hit 62.

I'm a GS-12/3 atm, at 62.5/year, so $18768 paid monthly plus $10620/year for SS suppliment (that amount is estimated by our online retirement benefit charts) for a grand total of $29388/year when i hit 58.  Guess that comes out to 46.9% of what i make.

That's a lot of money to give up for ER dreams; unless i get offered an early out as early as 50, but those are never guaranteed.

(edit) granted, i'll get regular SS when i hit 62, but still i'd lose the 30% of gross pension forever if i leave before i qualify.

 

[recursive]

That's a lot more years of working...

I think it comes down to which you want more, early retirement (which probably means needing to save more than you are saving), or getting the benefit from this plan you've already paid some into.

Just to add another factor to things: what are the risks in this investment? What could cause the feds to not pay/pay less, even if you did your full 30 years? Could congress decide "we need more money for blahblah, so we're reducing government pensions"?

 

[azanon]

It would take something catistrophic for sure. We're talking the FERS federal system here and something like that would effect God knows how many people.

 

[recursive]

It would take something catistrophic for sure. We're talking the FERS federal system here and something like that would effect God knows how many people.

Yeah, I was just trying to think of worst-case possiblities.

 

[haha]

Just to add another factor to things: what are the risks in this investment?  What could cause the feds to not pay/pay less, even if you did your full 30 years?  Could congress decide "we need more money for blahblah, so we're reducing government pensions"?

Low probability of this! Before this happens, they slap a wealth tax on all the rest of us.

I agree that the main question is what lifestyle appeals. This board is a very skewed population. To many (most) people other than ER types, having money means having money to spend, not just to look at in spreadsheets.

ERs say, "I want to retire while I have good health." Understandable maybe, but all periods in our lives are unique. The years between college graduation and maybe early thirties can be a unique time of fun and social freedom. If saving money is one's number one priority, a lot of that freedom is wasted. Unless you really are the type that doesn't like concerts, ski weekends, eating out frequently with friends, going to bars and clubs.

When I go to an entertainment district on a summer night, and see all the young people flirting and having fun, I am really glad that is how I spent my young years. I'm not talking about see how cool we can be by drinking only Ketel 1. But face it, a night out with friends, even if you have no date, is hard to keep below $20-$25. That sure eats into saving one half or one third of pretax income.

Azanon is obviously conflicted. I think he is single, but I don't remember. What if he falls for a woman who doesn't much like chicken wings and shopping at Costco?

I'd say if you know you want to spend a few years wandering around, that argues for piling up money. Or if you really hate any job that you think you have reasonable chance of getting and/or training for, ditto.

But if you don't mind working, and have a good job, to me it is better to save some, but not ruin your life over it. As I have written here before, ER tends to be a one way gate.

Mikey

 

[retire@40]

If you had a Federal Job (like me) that paid a pension (30% of original salary) at normal retirement age (30 yrs tenure) or a pension as early as 50 (if you get offered an early out) + SS suppliment that covered another 15% at full retirement (that paid essentially what SS would pay you until you hit 62), would you still try to retire early?

YES. If I worked at my job for 30 years I would have more saved than you would have in pensions. I figure a pension of $30K a year is comparable to having $750K in investments. If I could accumulate $750K and be able to live on $30K or less, it would match your pension. So, if you could accumulate that amount in 10 to 15 years instead of 30, which is doable, then it makes sense to ER.

If you were able to save about $300 a month in an index fund for the past 30 years, you would probably have $750K right now. It would have taken closer to $1800 a month to have saved the same in 15 years. Or, you could have also purchased a couple of houses 10 years ago and done the same (at least in the northeast).

 

[JWR1945]

You need to include the Thrift Savings Plan in your calculations. It includes a 5% match if you contribute 5% from your pre-tax income. This is free money and it is important.

The Thrift Savings Plan (TSP), the 401k equivalent, is meant to provide at least one-third of your retirement income. The pension plus social security makes up the rest.

The TSP is portable so that you will have something that you can count on even if you leave the Government early. It includes an outstanding selection of index funds. [Good tracking errors with expenses lower than those from Vanguard.]

Have fun.

John R.

 

[daystar]

I'm in the same situation as you. I only have 1.5 years in government, but I realize I might be hoping for an early retirement to help my financial situation at 50.

One thing with the early out, you can still get your FERS Annuity Supplement but you have to wait until your minimum retirement age (age 55-57). That supplement will only be payable until age 62.

One BIG BIG BIG consideration is how you are going to afford health insurance when you retire. If you retire and receive an immediate annuity (such as an early-out, MRA+30, MRA+10, 60+20, 62+5, disability retirement) you can keep your health insurance in retirement. The only requirement is that you be covered under the FEHB program for the 5 years prior to your retirement.

If you leave government before you are eligible to retire, you will have to take a deferred annuity, which can start anywhere between your MRA and age 62. Your salary that is used for the annuity calculation will be the salary you held during your highest three years of pay in the government (but not adjusted for 10+ years of inflation).

Last thought: Build up your TSP. Contribute 15% on the next Open Season starting October 15. You won't see the Open Season change on your leave and earnings statement until December 31st or later (if you enroll at the end of open season).

I'm a GS-9 and I'm contributing the full 14%. You can too.

 

[azanon]

Yeah i forgot about the health insurance. That's another thing that encourages you to not try for ER as a Fed employee. The government pays about 75% of it, and if you retire when you're eligible, they'll continue to do so indefinitely. If you retire before you're ineligible, you're on your own as far as health insurance goes.

I'm probably going to hope for an early out by 50. Concidentally, they're offering them now with the 25K added incentive to leave, but of course i'm just a youngin' atm so that does me no good.

 

[ats5g]

from federalnewsradio.com:

Buyouts and Lifetime Health Insurance

- Alec

 

[Hyperborea]

I'm probably going to hope for an early out by 50.  Concidentally, they're offering them now with the 25K added incentive to leave, but of course i'm just a youngin' atm so that does me no good.

I don't want to throw water on the sparks of your FIRE dreams but in 20 years with most of the boomers retired is the government (or any employer) going to be offering early out packages to their employees? Don't the demographics predict a labour shortage?

And for those of us not in government service, what the heck is a "GS-12/3 atm"?

 

[azanon]

And for those of us not in government service, what the heck is a "GS-12/3 atm"?

That's just my general service pay grade.  The part after the forward slash is the step when relates to tenure and goes from 1-10 with increasing pay as tenure goes up.  I mentioned the salary above which is 62,500.   Its roughly equilivant in pay and authority to a major in the Army.   (11 = cpt, 13 - LTC, 14/15 - CoL, 1-5 star gen =SES 1-5 and so forth)

 

[Hyperborea]

That's just my general service pay grade.  The part after the forward slash is the step when relates to tenure and goes from 1-10 with increasing pay as tenure goes up.  I mentioned the salary above which is 62,500.   Its roughly equilivant in pay and authority to a major in the Army.   (11 = cpt, 13 - LTC, 14/15 - CoL, 1-5 star gen =SES 1-5 and so forth)

Ok, so that's like being a first line manager (major) in charge of professional technical people (lieutenants and captains)?

What's "atm"?

 

[azanon]

atm = at the moment, not sure if that's official internet linguo, but i use it.

Umm, the job description can very widely, naturally. I'm actually not in a managerial position, though there are certainly gs-12s that are managers.

I'll say its a pretty good grade to have at just 32 years old .

 

[daystar]

Yes, there are ways of getting around the five year requirement to continue FEHB coverage in retirement.

In the Defense Department, if you are offered a VSIP, then you can continue FEHB if you have been enrolled continuously since Novermber 24, 2003. This Benefits Administration Letter just came across my desk today:
http://www.opm.gov/asd/htm/2004/04-208.asp

I retired six people today. One of them needed this pre-approved waiver. All it takes is for your local benefits specialist to fill out a one page form which approves you for continued health benefits coverage if you did not meet the five year rule.

 

[newellcr]

Azanon,

You asked 'would you still try to retire early if...' If the savings rate isn't painful, sure, why not? Would you be comfortable saving less for a retirement 25 years off? Lots of things can change in 25 years. If you leave before your retirement date, you still can collect the pension and supplement at the MRA or 60 (provided you hit 30/20 years of service). Just from calculations for my case, if you left 10 years before your MRA with 20 years or more, you loose about 43% of the pension and ss supplement value at age 60 compared to age 60 benefits if you retired at the MRA.

So, weigh the loss of 10 more years working to the permanent pension and ss (or supplement) loss at age 60, the fact that you loose 2 years of ss supplement because you can't collect it til age 60, and the opportunity costs of growing (and adding to) your TSP/IRA funds. If you can live happily on your savings until the pension kicks in and then still have enough with the lower pension and the left over savings, why not go early?

Another point of reference, if you leave 5 years before your MRA with 30 years, you loose about 17% of the pension and ss supplement value at age 60 compared to age 60 benefits if you retired at the MRA. And you can collect the ss supplement at the MRA rather than waiting until age 60. This is a much easier pill to swallow for 5 years of not working, IMO.

------------------

Daystar,

Thanks for the great info.


Cheers to all,

Chris

 

[JonnyM]

Still not quite following the calculation. Do I understand you to state that Fed Pensions don't use some kind of Acutary based sliding scale? You literally have to work 30 years straight? i.e. if you work 29 years, 28 years, you don't receive a relatively corresponding amount based on the fact that you'll live a year or two longer?

I'm trying to compare Fed to PERS or my own local County Goverment based pensions. Either I'm missing something or Fed Pensions really suck big time.

Help me understand with examples of retirement pension calculations based on 58, 57,56,55 etc. How much do you give up for each year you opt out of working?

Happy JonnyM fell into Local Government, I think...

 

[Lili]

Hi Newellcr,
Can you lead me to the page/pages where you got info re: MRA and ss supplement. Need to run calculations so I can determine when my husband can RE.
Thanks
Lili

 

[newellcr]

Lili,

Here is the link, http://www.opm.gov/fers_election/ri_90/f_bbp.htm.

------------------------

JohnnyM,

You might want to look at the link above. "Do I understand you to state that Fed Pensions don't use some kind of Acutary based sliding scale?" No, the FED pension is ok. It's more of an issue of when you can collect the benefits and if you will have to take a reduction. If you hit 30 or more years, there is no reduction to your pension, you can collect at the MRA and receive the SS supplement. With 29.9 years or less, you will have to take a reduced pension if you retire at the MRA (and then collect the SS supplement at age 60). With 29.9-20 years of service, you can wait until age 60 to retire and not have a reduced pension and collect the ss supplement at the same time.

If you leave service before age 60 (whether or not you retire) your pension is eroded by inflation. My 43% number was based on a reduction in the pension by inflation, taking the pension at the MRA with the reduction, a small reduction in the SS supplement from not adding SS credits which effects the SS supplement, and not adding years of service to the calculation. My 17% number was based on the effects of inflation to age 60, not adding years of service to the calculation, and a very slight reduction in the SS supplement. I took the numbers based on the benefits received at age 60 because this benefit age made the most sense to me.

Hopefully that helped.

Kind Regards to all,

Chris

 

[daystar]

Or you can wait until age 62, and if you have 20 years of service, you will get a higher calculation using 1.1% of your high-3 salary per year of service (rather than 1%). I'm not sure why anyone would do this however, because this forum is about EARLY RETIREMENT.

This link is to the CSRS/FERS Handbook which is the playbook that OPM wrote for the retirement system:
http://www.opm.gov/asd/htm/hod.htm

When I calculate a FERS annuity supplement, I just type in all of the yearly pay adjustments where the employee was covered under FERS or CSRS-Interim or CSRS-Offset. I let the computer handle the rest.