Leaving just one day before your MRA could cost you over a million dollars in retirement benefits. Image: Lemau Studio/Shutterstock.com
By: By Sam Zelinka, Government Worker FiI want to challenge your ideas about retirement and ask whether you could possibly retire at age 50, or even 40.
Does that seem crazy to you?
If so, you’re probably used to the standard retirement content on federal employee news sites.
I can’t tell you how many articles I’ve read that split hairs about whether it is possible to retire at your minimum retirement age (MRA) or if you instead need to stick it out until age 62.
But what if all those articles on federal retirement details miss the point?
In the rest of this article, I’m going to help you zoom out and ask the important questions you should be asking yourself about retirement.
The FIRE movement
If you’ve been on the internet in the past 5 years, you’ve probably read numerous stories about “the FIRE movement”. No, it’s not about arsonists. Instead, FIRE is an acronym for financial independence and early retirement. People within the FIRE movement save a large portion of their incomes early in their career and then reach a “crossover point” where their savings can sustain them for the remainder of their lives.
And while there are many over-the-top sensationalized stories on internet news sites. I’ve actually met lots of people who have FIRE’d and they are normal, ordinary people just like you and me.
Your Money or Your Life
I fell in love with the FIRE movement a few years ago when Vicki Robin republished her book “Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence”.
The book starts with a dramatic scene. You meet a man with a gun in the street and he says, “Your money, or your life”. Obviously, if that happened to you, you’d give the man your wallet.
But in reality, every day we face the same question as we trade (part of) our lives for money. Not only does work take hours away from our loved ones and hobbies, but the modern workplace is the perfect incubator for cardiovascular disease and metabolic disorders.
Is a paycheck really worth destroying our health, happiness, and relationships?
Your Money or Your Life presents tools that help you calculate how much of your life energy you spent (or wasted) on items like your car, house, or latest iPhone. If you’re like me, once you start looking at possessions in terms of the amount of your life you traded for them, you might find you want less stuff.
Finally, the book helps you calculate your crossover point where your assets will cover your expenses.
Without going into too much detail, the crossover point is around 25x of your annual expenses. So, if you spend $50,000 per year, you’d be able to sustain yourself indefinitely on $1.25 million dollars.
Can Federal Employees Retire Early?
While the “shockingly simple” math behind early retirement is not specific for any job or income level, there are some wrinkles that make it hard for federal employees to retire before their MRA.
In fact, once I caught the early retirement itch, I started scouring the internet for resources for federal employees who wanted to retire early. And sadly, I didn’t find a lot of answers to important questions. So I was left to sift through incomprehensible OPM legalese and piece together what early retirement looks like for federal employees.
What I learned was that there is good news and bad news. The good news is federal early retirees are always better off than private sector early retirees because they can draw on their deferred retirement (sometime between ages 57-62 depending on your years of service). The bad news is that by leaving federal government early, they are leaving a lot of money on the table.
How much money, you might ask?
I estimate that if I leave just one day before my MRA, I’ll lose out on over a million dollars in retirement benefits.
The million dollar day of work
How could a day of work be worth a million dollars? Especially in a place like the federal government known for chronically underpaying highly skilled workers?
When I did the math, I found that making it to the point you’re eligible for a full, immediate retirement (30 years of service + MRA) gives you a plethora of retirement benefits. At that stage you can:
• Continue your FEHB, paying only the employee portion of your premium for life ($406,000 calculated value for my scenario)
• Receive your full FERS annuity ($440,000 more than my reduced annuity)
• Receive the FERS social security supplement from ages 57 to 62. ($202,000 for me)
Obviously if you could choose between retiring at age 56 and 364 days or working until age 57 for an extra million dollars, you’d work just one more day.
But in nearly every early retirement scenario you run, you’re going to find out that you’re leaving more than seven figures worth of benefits on the table by checking out a day, a year, or a decade before your MRA.
Who would leave a million dollars on the table?
This is the point where a normal FEDweek article would convince you to stick it out to your MRA to make sure you get that extra million in retirement benefits.
But I’m here to tell you that it’s okay to leave money on the table.
In some ways, we’re all answering the same question as the man being mugged. Each day we show up to work we’re choosing between our money and our lives… and we’re choosing our wallets over our health.
While it’s not pleasant to think about, we don’t live forever. This graph beautifully shows that we lose about half our fitness from ages 35-80 and all but the fittest people lose the ability to do fairly basic mobility tasks by that age.
If you’re 40 and dreaming about walking up the Spanish Steps in Rome on a retirement vacation once you have “enough to be truly safe” in retirement, you might find that you worked all of those extra years only to be too frail to walk up stairs.
Working an extra decade for extra millions in retirement is not without its costs. As humans, we are good at plugging dollar signs into compound interest calculators but bad at calculating how much of our lives we’re trading for that money.
What to do if you want to explore the FIRE movement
In this article I just wanted to give you a taste for what FIRE is and why federal employees should consider it (even at a potentially large opportunity cost).
Obviously, there are a lot of really important technical questions you need to work out about early retirement.
• Where will I get my health insurance?
• What’s the best way to know how much money I spend in a year?
• How will I know if my portfolio will run out in retirement?
• How large of a factor of safety should I put in my retirement plans? (etc)
Luckily, there are many great books, blogs, and podcasts that answer those questions and show you how to craft your own retirement plan. I’ve linked to a couple above, but if they don’t speak to you, there are enough voices of the FIRE movement that you can find one that works for you.
If you have fed-specific early retirement questions, I’ve tried to answer them all on my blog. And if there’s a fed-specific early retirement question I’ve missed, you can always shoot me an email.
Sam Zelinka started working for the government at age 18 and liked it so much that he never left. He created a blog to help federal employees navigate the unique workplace issues they find themselves in, especially when it comes to retirement and benefits. You can find him at https://www.governmentworkerfi.com or on YouTube at https://www.youtube.com/c/governmentworkerfi.
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