As this holiday approaches, I thought I'd share an example of how your retirement will increase as you labor longer in your federal career.
The reason is that the value of your "high-three" average salary -- which helps determine your benefit, whether you're in the Civil Service Retirement System or the Federal Employees Retirement System -- continues to increase little by little as you keep working. Think of it this way: Every day you work, you are substituting that day's salary for the pay rate that was in effect three years ago. In addition, every 30 days or so, you are adding another month of service to the computation of your basic retirement benefit.
For those who receive matching Thrift Savings Plan contributions, they also continue to increase as you extend your career -- as do Social Security benefits.
How much of a difference can sticking around make? Let's look at a couple of examples.
|Fred (FERS)||Frieda (CSRS)|
|Length of Service||
|Basic Benefit||Basic Benefit|
|Retire on Sept. 30, 2007||30 years||$57,598||
|Work 3 more months||30.25 years||$58,139||
|Work 6 more months||30.5 years||$58,594||
|Work another year||31 years||$59,523||
By the way, this example assumes that Fred is under age 62. If he were 62 or older, his benefit would be 10 percent higher. And I realize that unless Fred had some years of military service, it is unlikely that he would have 30 years of FERS service by Sept. 30, 2007, since FERS hasn't been around that long.
In addition to the increase in the basic benefit, Frieda and Fred would be able to continue to contribute to their TSP accounts and, in Fred's case, receive matching contributions from his agency. If he stays another year, he could receive $3,070 in additional matching contributions plus the ability to save up to the IRS tax deferral limit for each year. The limit on tax-deferred contributions in 2007 is $15,500 and an additional $5,000 in catch-up contributions if you are at least 50 years old.
Since FERS employees also contribute to Social Security, another year of earned income would increase Fred's Social Security retirement or his FERS Special Supplement by around $25 per month.
If you want to review the rules for computing a CSRS or FERS retirement benefit in more detail, check out these columns from earlier this year:
- Estimating Your Benefits (April 27)
- Basic Retirement Computations (May 4)
- Retirement Estimate: The Details (May 11)
Finally, lest you get the wrong idea, I am very much in favor of the concept of retirement. Some employees I've talked to over the years say they are loathe to make the decision to actually retire because they know they'll miss out on increased benefits if they leave. The only problem is that the longer you stay, the less time you'll have in the post-retirement phase of your life.
Whatever your position on staying vs. getting out as soon as you can, we've got a holiday weekend coming up. So take a break if you can, and enjoy at least a few days off.
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.