Should I Stay or Should I Go?

By Tammy Flanagan

February 23, 2007

Every week, I talk to people at my seminars who are focused on retirement. Some are there because they're anxious to leave government soon.

But others aren't. In 2001, the Government Accountability Office reported (GAO-01-509) that federal employees have become less likely -- by roughly 50 percent -- to retire within their first year of eligibility. And data from the Bureau of Labor Statistics show that private sector workers are also remaining in the workforce longer. The percentage of private sector workers still working at age 65 or older increased from 10.8 percent in 1985 to 12.8 percent in 2000.

Let's look at some of the factors that go into the decision about whether to retire as soon as you can, or stick around for a while.

Let's Go!

Some employees are strongly inclined to leave government service as soon as they're eligible, for various reasons:

Staying Put

I also have the pleasure of meeting employees who have no burning desire to retire. Why?

What To Do

So what should you do? First of all, you should figure out what kind of effect staying in your job will have on your retirement. Let's look at a couple of examples.

Suppose Jules is covered by the Civil Service Retirement System and can retire on his 55th birthday on June 19, 2007. If he retires at the end of June, he will have 33 years and nine months of service. His high-three average salary will be computed from June 30, 2004, to June 30, 2007 (because we're assuming he was a GS 12-10 for that entire period), and will total $82,751. So his retirement benefit will be computed as:

.6375 x $82,751 = $52,753/year or $4,396/month
If Jules stays six months longer, his retirement will be computed on a high three of $84,381 and he will have about 34 years and three months of service. So his CSRS annuity will be:
.6475 x $84,381 = $54,636/year or $4,553/month
That's $157 per month more for staying an extra six months.

Here's another example. Suppose Judy is under FERS and can retire when she is 55 and 10 months on June 19, 2007. If she retires on June 30, she will have 33 years and nine months of service (and let's assume that includes 23 years and nine months of civilian service and 10 years of active duty in the military). Her high-three average salary will be will be $82,751, and her retirement benefit will be computed as follows:

.3375 x $82,751 = $27,928/year or $2,327/month
+ FERS Supplement based on her civilian FERS service = about 24/40 of her Social Security entitlement
+ Her TSP investment that can be withdrawn if necessary
If she stays six months longer, her retirement will be computed on a high three of $84,381 and she will have about 34 years and three months of service. Her FERS annuity will be computed as:
.3425 x $84,381 = $28,900/year or $2,408/month
+ FERS Supplement based on her civilian FERS service = about 24/40 of her Social Security entitlement
+ Her TSP investment that can be withdrawn if necessary
Let's also assume Judy will contribute an additional $8,000 to her TSP account between July and December (and receive automatic and matching contributions). That adds up to $81 per month more in basic benefits, plus additional wages towards future Social Security benefits and additional TSP investments, all for staying an extra 6 months. Between the $2,408 FERS benefit and the supplement, Judy will need income from her TSP account to make up the needed cash flow unless she plans to continue working to supplement her retirement.

Are You Ready?

Are you ready to retire from the federal government? To help figure that out, think about the following questions:

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

By Tammy Flanagan

February 23, 2007

http://www.govexec.com/pay-benefits/retirement-planning/2007/02/should-i-stay-or-should-i-go/23787/