If the past is prologue—and it usually is—the current economic crisis could have an effect in the federal workforce long after whatever future date it is pronounced over.
The situation, economically at least, is commonly compared to the 2008 crisis that was largely brought on speculation in the housing and financial markets. Two immediate effects in both cases were severe plunges in the stock markets and severe increases in unemployment.
Now, as then, the unemployment issue is not so much of a concern to federal employees: if there is any entity truly too big to fail, it is the federal government. There was no appreciable direct loss of federal jobs then, and no one is talking about it now—if anything, it’s the opposite.
Investment losses are another thing. Federal employees feel that as much as all investors, especially in the TSP where the average account size—across the entire workforce, and including those just starting out—was about $150,000 as of the end of February.
One way to compare the present crisis with the prior one, at least in financial terms, is by the behavior of TSP investors. Over late 2008-2009 as markets similarly were plunging, TSP investors overall engaged in a “flight to safety” by moving money into the absolutely safe government securities G fund from the market-based funds. The same already has happened this time (although in both cases only a minority of investors moved money).
To Delay or not to Delay
What will be less clear for some time is the impact on another decision now facing many federal employees: whether to delay retirement.
By choosing to delay—and there is no mandatory retirement in the large majority of occupations—one can continue earning a salary which by definition is higher than any annuity; can build up the value of the annuity by accumulating more time of service; and can rebuild a depleted TSP account with additional investments that are not allowed after retirement.
The potential numbers are familiar yet worth summarizing—and yes, they tell a story of generations. When the topic is federal employees retiring, at this point in time that means Baby Boomers, those born in the roughly 20-year period—exact definitions vary—following World War II. Almost none of the Greatest Generation remain in the federal workforce and only the oldest of Generation X behind the boomers are just now reaching eligibility.
Even the youngest of the boomers is now at or past the earliest standard immediate retirement eligibility point (56 under FERS, 55 under CSRS). Fifteen percent of the federal workforce already is eligible and with about 30 percent total age 55 and up, a similar percentage is just a few years away from becoming eligible, as well.
Again, looking to the past is instructive.
In 2007—when roughly the first half of the boomers were in the same retirement eligibility position as the second have are now—some 51,000 executive branch employees went out on standard voluntary retirement (note: numbers are exclusive of the Postal Service and of other forms of retirement, such as early-out and disability).
In 2008 as that crisis hit, that number dropped to 49,000 and in 2009 when the downturn and market losses had been full felt, to 40,000. In 2010 it rose to 47,200. It wasn’t until the following year—three years after the crisis hit—that the number returned to the pre-downturn level, at 54,900. After that it rose to about 60,000 where it has stayed, with some minor fluctuation, each year since.
Meanwhile, federal employees—again, really meaning boomers—already have been showing a greater propensity to work until more advanced ages and accumulate more years of service.
It will be some time until it’s clear whether this crisis will cause another downturn in retirements. But if it does, history suggests that the downturn will last several years.
Meantime for the rest of you, brace yourself to once again hear those tales of ‘70s rock concerts and the federal workplace during the Reagan administration.