Try to do the math and see if all your income sources (pension, social security, TSP, FERS supplement, rental income, etc.) are enough for you. Image: SmartPhotoLab/Shutterstock.com
Retirement as a federal employee is no easy topic. There are two essential questions to understand if you’re going to know if you’re ready to retire:
#1 – Are you eligible for the type of retirement that you want?
#2 – Once you’re eligible, can you afford to retire?
First, lets go over the different retirements that you may be eligible for:
Full Retirement
A full retirement is the best retirement in terms of benefits a federal employee is eligible to receive. To get a full retirement, a federal employee must have at least the following:
● Age 57 with at least 30 years of service
● Age 60 with at least 20 years of service
● Age 62 with at least 5 years of service
With a full retirement, a federal employee is eligible for a full pension benefit, health insurance (FEHB), life insurance (FEGLI), and a possible FERS supplement (if you retire before age 62).
MRA + 10 Retirement
If you were born before 1948, your MRA is 55
If you were born in 1948, it’s 55 and 2 months
1949, 55 and 4 months
1950, 55 and 6 months
1951, 55 and 8 months
1952, 55 and 10 months
In 1953 through 1964, your MRA is 56
1965, 56 and 2 months
1966, 56 and 4 months
1967, 56 and 6 months
1968, 56 and 8 months
1969, 56 and 10 months
And, in 1970 and later it’s 57
Your MRA (Minimum Retirement Age) is based on your birthday and can be found in the list above.
MRA stands for minimum retirement age and the 10 means at least 10 years of service. Unlike the full retirement, an MRA + 10 retirement has fewer benefits, but you are probably able to retire earlier.
With an MRA + 10 retirement, you do not get the full pension benefit. For each year you retire before age 62, you get a 5% reduction to your pension. This is the case unless you decide to have a postponed retirement…
Postponed Retirement
A postponed retirement is also an MRA + 10 retirement but you decide to “postpone” your pension benefit until the age of 60 (if you have at least 20 years of service) or 62 (if you have less than 20 years of service) to get the full pension benefit.
In other words, you retire with an MRA + 10 retirement but you postpone your pension to avoid the 5%/year penalty that normally applies.
Deferred Retirement
To qualify for a deferred retirement, you need at least 5 years of service. However, you will not be able to receive health insurance (FEHB) or life insurance (FEGLI) through the government. You will be able to receive your pension at a deferred time. And deferred pension benefits are often very small because these people tend to not have many years of service.
Early Retirement (VERA)
This is a very unique retirement. It can only happen if your agency offers a VERA and if you meet the following criteria:
● Be at least 50 years old with at least 20 years of service
● Or, have at least 25 years of service at any age
With a VERA, you can start receiving your pension immediately. You will also be able to receive health insurance (FEHB) and life insurance (FEGLI).
Are you Financially Ready for Retirement?
Now that you know what type of retirement you are eligible for, let’s consider the following questions to see if you’re ready financially and emotionally.
You might be able to qualify for one of the previous retirements that we discussed, but it doesn’t necessarily mean that you will be financially ready for retirement. Retirement can last a long time and it’s important to know if you have enough continuous income.
Try to do the math and see if all your income sources (pension, social security, TSP, FERS supplement, rental income, etc.) are enough for you.
Make sure you consider all taxes and deductions from these income sources.
How Much is Your TSP Worth?
A great way to see how much your TSP (Thrift Savings Plan) can give you over the course of your retirement is to use the 4% rule.
For example: if you have $1,000,000 in your TSP and multiply it by 4% you get $40,000. $40,000/year is the amount that you can safely withdraw from the TSP without it losing money over time. Let’s say all your TSP money is in the traditional TSP. When you take out $40,000 annually, you will probably spend around 20% on taxes. So, you’re left with $32,000. Making the $32,000 a monthly number, it comes out to be about $2,667.
Counting your pension, social security and other benefits, is a net number of $2,667 a month from your TSP enough for you?
Are you Emotionally Ready for Retirement?
This might be a weird question for some people. But, many federal employees find purpose in their careers. When they retire, they decide to go back to work because they become bored or want to stay busy. It’s important that you have purpose in retirement. What are your plans? What is your focus going to be?
Many retirees find purpose in families, traveling, goals, etc.
Conclusion
Hopefully this article helped you visualize what your retirement could look like for you. We hope you find happiness during and after your career.
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