Waiting Game

By Tammy Flanagan

May 27, 2011

A friend of mine, Scott, had a long career in the military, and then followed it up with a second career that he pursued until he was eligible for unreduced Social Security benefits at age 66. During the latter phase, he also received his military retirement check. He didn't need to work as long as he did, but he had dreams that he and his wife would have a lifestyle in retirement that required a bigger nest egg than he had at 55 or 60.

For Scott, the key to achieving his retirement dream was banking his military retirement pay. At the end of the second career he had put enough money away to pay off the mortgage on his primary residence and to purchase a smaller second home in Florida with cash. And he still has additional savings that he and his wife use to travel around the country and the world.

Scott simply couldn't have accomplished all of this if he had retired earlier. He decided that delaying retirement was worth it. That might be the case for you, too.

Your 60s and Beyond

As you contemplate when to end your federal career and settle into retirement, there are several things you should remember.

Under the Federal Employees Retirement System, cost-of-living adjustments begin at 62. So if you decide to retire before you hit that age, your retirement benefit will stay level until after you reach your 62nd birthday. (Some special groups of employees, such as law enforcement officers and firefighters, start receiving COLAs immediately upon retirement.) Although there hasn't been any COLA for retirees in 2010 and 2011 due to low inflation, this could change asthe economy begins to recover and prices climb.

The difference in Social Security retirement benefits between age 62 and your full retirement age (65-67, depending on your year of birth) is significant. You not only benefit from more wages added to your lifetime of Social Security covered earnings, but you also avoid the reduction to your benefit that is applied if you begin receiving your Social Security retirement prior to your full retirement age. If your full Social Security retirement age is 67, then you'd have to accept a permanent 30 percent reduction to your benefit if you choose to start getting it at 62. Take Scott's example. His wife, Fran, who is about the same age as he is, also postponed receiving Social Security benefits until 66 (which is both her and Scott's full Social Security retirement age). She can receive 50 percent of Scott's benefit, allowing her to delay her own Social Security benefit until she turns 70. Delaying Social Security retirement benefits beyond your full retirement age adds additional credits to your benefit. For those of you born in 1943 or later, for every 12 months beyond full retirement age you delay your benefit, you get an 8 percent increase in the benefit. (The Social Security Administration has more information on delayed retirement credits.) Scott put his military retirement checks into safe investments, such as money market accounts and CDs. That way, he accumulated the money he needed to pay off his mortgage and to purchase his second home without the fear of a downturn in the market or a drop in bond rates. For short-term savings goals, you should minimize your risk.

As you begin to develop a rough idea of what you think you will need to live comfortably in retirement, it might be worthwhile to sit down with a financial adviser who is skilled at helping people reach their goals. The Certified Financial Planners Board of Standards offers a tool to help with finding an adviser.

Go for Your Goals

For some of us, life gets in the way of our retirement dreams, and we may have to alter our plans at various points in our careers and lives. As I've talked to people who have been successful in achieving their retirement objectives, my observation is the key is setting goals early in your career and developing a plan to reach them.

That said, it's never too late to develop a plan and find a way to reach your goals. Depending on your circumstances, this may require some sacrifices, such as living on less income to save more, or staying longer in the workforce to receive more generous federal retirement and Social Security benefits.

Some people just get lucky or have rich relatives who die and leave them a generous inheritance. But most of us have to plan, save and understand the basics of money management to fulfill our retirement dreams.

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.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.

By Tammy Flanagan

May 27, 2011