Sometimes, working just a few more months can add thousands of dollars to your annual pension income.
By: Dallen Haws, Haws Financial PlanningYou have worked a good honest career but you start feeling that it might be time to retire. You might ask, “What things should I consider when trying to choose a retirement date?” Great question. Let’s dig into it.
The first aspect to consider is if you really want to stop working. I have known many federal employees that have retired, spent a year RVing around the country, got bored, and came back to work. They missed the social and engagement and challenges. Hey, you might not miss your job at all but it is important to think about how you will want to spend your time in retirement.
The second thing to think about is if you are eligible to retire under the FERS. To be eligible, you must be one of the following
-age 62 with 5 years of service
-60 with 20 years of service
-or at your minimum retirement age (MRA) with 30 years of service (MRAs range between 55 and 57, depending on your year of birth.)
Note: FERS employees can also retire under the MRA+10 provision, but with a 5 percent per year reduction for every year (5/12ths of 1 percent per month) they are under age 60.
Now that you know if you are eligible to retire, the next question is should you retire?
Or, in other words, can you afford to retire? Which retirement option you qualify for and how many years of service you have can have a huge impact on what your retirement benefits will be.
Sometimes, working just a few more months can add thousands of dollars to your annual pension income. In this article, I am not going to dig into the specifics of how your retirement benefits are affected by the different retirement options. Make sure to educate yourself on the retirement option that you are interested in and make sure your benefits will be adequate for retirement.
Now that you know that retirement is the right choice for you and you can afford to do so, there are a couple of strategies to maximize benefits in the year you retire.
If you’d like your pension to start paying out the month after you retire, you have to retire no later than the last day of a month. For example, you’d need to leave by July 31 if you wanted your pension to begin in August. If you retire on August 2nd, your pension wouldn’t start until September.
Another strategy that many FERS use, is to retire near the beginning of the year. This is done because when you retire, you’ll receive a lump-sum payment for any unused annual leave that you have accrued. And because employees can carry no more than 240 hours of annual leave from one leave year to the next, they choose to retire right before the end of the leave calendar which is generally a few days after the turn of the year. (For example, the first day of the 2020 leave year was January 5th 2020.)
Retirement can be an incredible time especially if you go into it with your eyes wide open. Just a little planning before you retire can save a lot of confusion and worry after you retire. Make sure to educate yourself to max out your federal benefits and live the best life you can.
Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.
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