The saying that “life is what happens when you’re busy making other plans” is commonly attributed to John Lennon—he used it in a lyric later in his career—although similar phrases by others many years earlier have been documented. As a federal employee, you’re probably busy making plans for your retirement.
From early in their careers, many employees know—at least to the year, sometimes to the day—when they will be eligible to retire under the standard age and service combinations. As they get farther into their careers many also focus on when they would be eligible under one of the early retirement combinations, if offered.
You might well end your federal working career before you hit that standard age/years of service combination which has been dangling in front of you since federal job day 1. However, the reason more likely will be some unforeseen—and probably unwanted—event than an early-out offer.
A new study by the Center for Retirement Research underscores that in recent years, more and more people have been thinking they’ll work longer and longer. It cited surveys showing that 48 percent of workers in a 2018 survey expected to work past age 65, compared with just 16 percent in a 1991 survey.
That trend is being seen in the federal government, where the average age at retirement has been creeping up for years, even taking into account the ever-growing percentage of the federal workforce in law enforcement type jobs that have mandatory retirement, generally at age 57.
However, the report also found that nationwide, 37 percent of workers retire earlier than they had planned. Based on a sample tracked over years, it found that to be increasingly the case the later a person expects to retire. For example, 38 percent of those who had expected to retire at 63-64 actually retired earlier than that, 42 percent of those who had expected to retire at 65, and 55 percent of those who had planned to retire at 66 or later. That was somewhat offset by those who had planned to retire at earlier ages actually working longer.
In the federal government, mention the words early and retirement in the same sentence, and out comes the term “early retirement.” That’s a twist in retirement policy in which agencies can offer retirement at earlier than the normal combinations, at any age with 25 years of service, or at age 55 (under CSRS) or 56 (under FERS; to be phased up to age 57 starting in two years) with 20 years of service.
But in reality, those offers don’t account for much of the earlier retiring that goes on in the government. For the last three fiscal years for which there are final data, 2015-2017, retirements outside the Postal Service averaged about 58,000 a year, early-outs accounted for just above 1,000 a year. Partial data for 2018, through the first three quarters, show the same pattern: only about 2 percent of federal retirements are early retirements with full benefits. (There was a spike around fiscal 2012-2014 when “sequestration” and other budget restrictions were a factor; early-outs averaged about 3,000 per year during that time, still under 5 percent.)
The report notes that early-out type offers exist in the private sector, as well, although there too the impact is minimal. So, what causes the early exists of the large majority of those who end their careers earlier than they had planned? The report has a one-word answer: “shocks.”
It divided shocks into four categories—health, employment, familial, and financial—each of which can come in several forms. For example, a health shock could consist of a worsening of a condition the person already had when planning a retirement date—and which became so severe that it affected ability to continue working. A second type would be a new condition with the same effect.
Similarly, familial shocks could involve a spouse’s health or employment status, divorce, or the need to care for an aging parent and/or having the parent move in. A financial shock was defined as a gain or loss in wealth of more than half compared with when a retirement date was set.
Of those, it found that job loss without getting a new job had the greatest impact in a decision to retire earlier, followed by a parent moving in. A spouse’s retirement was the next largest factor, followed by changes in existing health conditions and the onset of a new condition.
However, the health factors are far more common than the others, making health the leading cause of earlier retirement.
“The combined effect of health – both poor initial health and changes in health – is the biggest driver of early retirement,” it says, “both because people in bad initial health overestimate how long they can work and because health often worsens before the age at which they planned to retire.”
“Job loss is also important, although the effect is mitigated by the fact that some people are able to find a new job and those people are more likely to make it to their planned age. Still, for those who fail to find a new job, the effect seems to be discouragement and ultimately an early retirement. With respect to family transitions, having a parent move in seems to be a large burden on people who experience it, but it is not a frequent enough occurrence to drive early retirement in the population. Finally, even though financial shocks appear somewhat common, they tend to have a small and not statistically significant effect on driving early retirement.”
The implications for retirement planning are clear. Watch out for your own personal health—monitor existing conditions and be watchful for new ones developing. Remain valuable at your job and keep your skills current just in case you still would need to find another one. Work through the implications of a parent’s declining health and potential for having to provide care, including by having the parent live with you. Get your finances in shape if they aren’t, and if they are, keep them that way.
And maybe most important: Understand what your federal retirement and health benefits would provide you if you end up needing to rely on them sooner than you hope to—because there’s a real chance that you will need to.