Deciding when to retire can sometimes be a difficult decision. Your age, years of service, and your own personal situation come into play. Waiting until age 62 seems to be the norm for most, but is it really so costly if you retire at age 61, assuming you’re eligible to do so? Let’s look at an example to find out.
Retiring at 61
First, if you are a FERS employee with 20+ years of service, you can retire anytime after your 60th birthday.
Let’s say you are 61 and retire with 21 years of service. Because you retired before age 62, you would get 1.0% of your High-3 salary for each year of service, so in this case, 21%. If your High-3 is $75,000, that would be $15,750 annually, or $1312.50 a month.
You would also qualify for the special annuity supplement. There is a special calculation for this that uses your estimated Social Security benefit at age 62 (available from the Social Security Administration). For the calculation, you take the SS benefit and divide it by 40, then multiply that by your years of service. For the sake of this example, let’s say this adds $850 a month to your annuity. So, for that full year, until you are 62 and no longer eligible for this supplement, this adds $10,200, making your yearly annuity $25,950, or $2162.50 a month.
Retiring at 62
Waiting until age 62 to retire means you don’t receive the supplement, however, your annuity will be calculated 10% higher because you get 1.1% of your High-3 for each year of service instead of 1.0%.
In our example, you would get 24.2% of your High-3 instead of 21%. This is because working that extra year adds another year to your service, making it 22 instead of 21. Using a High-3 of $75,000 again, this makes your yearly annuity $18,150, or $1512.50 a month. Not counting the supplement, that’s a difference of $2,400 a year between the 2 years.
Now, let’s say you live another 20 years. Retiring at 62 will generate $363,000 (20 years x $18,150), while retiring just one year earlier generates $315,000 (20 years x $15,750). A difference of $48,000. Then subtract the special supplement amount of $10,200 you would’ve received for that one year and you get $37,800. Essentially, this is the amount you gain by waiting to retire at 62, which offsets the just over $10,000 you get from the supplement, 3.5x more.
In addition, you also miss another year of TSP contributions and agency matching, which in our example, could be as much as $7,500.
Many other factors come into play, such as work environment, illness, etc. But if you strictly look at the money aspect, it doesn’t seem to make sense to retire at age 61.
