“Should I retire at 60 vs. 62? I know that I’d get the FERS supplement if I retire at 60 but I’d get the 10% pension bonus if I retire at 62. How do I do the math to know which one would be better?”
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Should You Take the FERS Supplement or 10% Bonus to Your Pension?
When planning for retirement, federal employees covered under the Federal Employee Retirement System (FERS) are faced with an important decision: should they take the FERS supplement or opt for a 10% bonus to their pension? This is indeed a tough call, as both options have their own pros and cons. Understanding the differences between the two can help you make an informed choice that aligns with your financial goals.
Firstly, let’s discuss what each option entails. The FERS supplement is an additional payment made monthly to qualifying federal employees who retire before they are eligible for Social Security. It is designed to bridge the gap between retirement and Social Security eligibility, typically until the age of 62. On the other hand, the 10% pension bonus gives employees who retire to an immediate annuity a higher annual pension payment, but without the buffer of the supplement.
To decide which option is better for you, several factors need to be considered. One significant factor is your projected longevity. On average, federal employees enjoy longer lifespans, meaning they will collect retirement benefits for a longer period. In such cases, the FERS supplement may prove to be more beneficial, especially if you retire early. It ensures that you receive a steady income stream until you become eligible for Social Security, thus potentially enhancing your overall retirement income.
However, if you believe that your retirement savings, combined with the modified annuity amount, will be sufficient for your needs, the 10% pension bonus may seem more appealing. By opting for the bonus, you can receive a higher payout during your active years, offering more flexibility in terms of how you manage your finances in retirement. This option may be especially attractive if you plan to continue working part-time or have other income sources to rely on during the transition period before Social Security kicks in.
Another critical factor to consider is taxation. The FERS supplement is taxable income, similar to your regular salary, while the 10% pension bonus is not. This difference can affect your tax liability and impact your overall retirement budget. It’s advisable to consult with a financial advisor or tax professional to determine the potential tax implications specific to your situation.
Ultimately, the decision of whether to take the FERS supplement or the 10% bonus to your pension depends on your individual circumstances, future plans, and financial goals. There is no one-size-fits-all answer, as each employee’s retirement journey is unique.
To make an informed decision, consider seeking guidance from financial professionals who specialize in retirement planning. They can help you assess your financial situation, analyze the potential benefits and drawbacks of each option, and guide you towards the choice that makes the most sense for you.
Remember, retirement planning is a complex process that requires careful consideration. It is important to weigh in different factors, such as your financial needs, health status, and lifestyle goals, before making this critical decision. By doing so, you can ensure a smoother transition into retirement and enjoy a financially secure future.
1q please, if I receive SSDI &I am a part time employee, will I still receive the SS supplement if I retire at 57?
Could I retire at 60, get the supplement, get another job that pays 45k a year and put 25k a year into a 401k? That way my supplement would not be reduced?
I will retire when I qualify at 57 with almost 36 yrs of service, plus I will add my sick leave to my service. I’d rather add years to my retirement vs. money. I will be comfortable. And I’m lucky enough to know exactly what I want to do when I retire. I’ve been planning for the past two years, with two and a half more years to go. For me, 57 vs 62, I’m adding five younger years to my retirement. And 57 vs 67, I’m adding my ten younger years to my retirement. Those 5 to 10 years, I can’t get those back if I wait. When I turn 57, I will be comfortable. I plan ahead (pension/ SRS/ and TSP without penalty).
So I'm actually trying to figure out what my high 3 is right now. Paystubs have 1 number listed for salary. W-2 forms (also the value on tax forms) is a different number for salary. What is the number that is actually used for this calculation. I'm making the effort to run numbers, but I'd like to know which will give me accurate information.
I retired at 55 with a VERA/VSIP September 2022, just waiting for the supplement to start at age 56.6 my MRA. I haven’t looked back. Retire early and enjoy life while you are healthy. Who cares if you get a few extra bucks at 85
I'm going to retire this Sept 2023 at age 56 and a half with 38 years of service, I crunched all the numbers and the amount of money I will get in retirement after taxes and health benefits deductions and every other deduction I can think of will be $458 more every month than what I take home right now by going to work every day and that includes my Sunday premium! So basically, by still going to work after I turn 56 and a half, I am basically working for free… Or actually, I'll be losing $458 every month by still working! This is a no brainer… RETIRE! but if I keep working until turn 62, my break even point with the 1.1% will be when I'm around 80! I try to explain this to every one of my Co workers that could have retired 10 years ago and they just don't get it. Easy decision! Retire now and take advantage of the supplement until it stops at 62, and then you can supliment your income with your TSP or Roth accounts until you reach 70, when I I'll be starting my social security, by then I'll only be paying less than $400 in federal taxes every year and making close to $80,000 thanks to my Roth Accounts, sorry I got carried away with such a long reply, but I hope other people will see this and model their retirement plan after this or close to this, seriously, this is the biggest stress reliever and the anticipation of my upcoming retirement is gotten me at an all time high right now! I just want others that are close to a position that I am now to feel joy that I feel! That extra amount of money from the 1.1% multiplier is totally not worth working an extra 6 and half more years! I'm going to enjoy my retirement while I'm still young and healthy!
What are the chances the supplement will still be around in 20 years? I'm 37 and on my 16th year being a mail carrier and would really like to retire at 58 if I can financially
Thanks for the info.
What is your recommendation own gold and silver a company gold gate capital is wanting me to take my tsp and roll it over into a gold and silver Ira it's a self directed IRA any information you can provide would be greatly appreciated nope I am 60 years old and eligible to retire and I have about 380,000 in tsp
That 24,000 is correct but you didn't figure in that it will be 2 yrs which would be 48,000
Fed employees should save as much sick leave as possible for their older years. I am planning on working till 62 but I'm planning using tons of sick leave in my last years of working to make it easier for me. After retiring at 62 .. instead of sitting home all the time .. I am planning on getting a small part time or seasonal fun job and making up to $20,000. … in which one can without affecting your SS# , after 67 one can make any amount. I hear people say that they can't wait till 62 .. but for most people 62 is still young to do alot of things such as traveling etc .. and remember older folks need to stay active for a longer life.
I’m planning on retiring at 57 with 33 years. I wouldn’t trade any amount of money for working 5 more years.
I am a 56yr old federal employee special provision, so I have to retire at 60. All my TSP is in the traditional side. Should I move all of that to the ROTH TSP, or wait until retirement, and do it little by little, when my income is lower?
Question, if I retire after 62, shall I lose the 10% bonus eligibility?
Great video, Awesome summary in the end. I agree completely.
Very informative. Thanks.
Im retiring at 60 and hoping for 15 good years.
I turn 62 eight months after my 20th anniversary so the choice for me is easy. I will gladly take an extra 10%.
The only downside here is that it requires lifelong commitment to federal service (or 20 years). In reality, after 20 years, in the private sector one's net worth could be substantially more. It seems the smarter way to go is to work 10 years, get student loan forgiveness, be eligible for the FERS Pension, then pivot to the private sector to increase one's earning potential. You can always add more money into the TSP as a private citizen.
Do you know of a hack to get an early out?
Just before the "Final Thoughts", it says "a guaranteed 17.5% return on investment for the rest of your life". I don't see were that 17.5% comes from. How is it calculated? Should not ROI = (24,200 – 20,000) / 20,000 = 21%
Would I do it for 4 thous. Sorry but no way! My service was with the USPS. They could not pay me enough to work there any longer than I did It is really sad such a nice job can become so terrible
Makes a lot of since. Thanks for sharing.
I love your wisdom and insight-I just retired at 57 with 35 years of service, I think your math is a bit fuzzy because it doesn’t include (like in my case) 5 years of drawing the ss supplement and my pension combined. It’s almost $200,000 before I turn 62, and also I’m no longer working. So yea I could stay and get a bigger pension and grow my TSP, but my time is too valuable 🙂
If i retire at 57 w/ 30 years, it will take 14 years to recover 60,000(12k x5years). pls correct me if i'm wrong.
If I retire at age 59.5 this summer when I hit 30 years of service plus 1 year 1 month of sick leave conversion (31.08 years of service) with the 1% factor and the FERS supplement til age 62.
Versus if I retire at age 62 with 1 year 2 months of sick leave would be 33.66 years of service with a 1.1% factor, but no FERS supplement and no pension for 2.5 years.
I like the retiring earlier option since I like getting the free money FERS supplement, job stress is increasing lately, I will get 2.5 years of pension that would need to be caught up if I wait til 62, and my salary is very high and no debt or mortgage, so my pension will be about double my living expenses. MY TSP is Huge from being maxed out in the C fund for 25 years. Don't really need the extra 10%, I will get free money right away, I will get pension checks 2.5 years sooner, and I will end the job stress that much sooner. I can understand if people had kids in college or less savings to stay til 62, since an extra 10% for the rest of your life on top of more years of salary and more TSP contributions could make a difference in the long run.
Love the video. I love the last part because you cannot buy back time. I would recommend trying and setting yourself up so you can retire at the minimum age.
When comparing the benefit/cost of retiring at age 60 vs 62, you should also include the collection of your FERS pension for the 2 years between age 60 and 62 as well as the FERs Supplement over that period to determine how many years before break even 1.0 vs 1.1 multiplier. In your example that equates to $40,000 pension + 24,000 FERs Supplement = $64,000 money in your pocket (gross) allowing you to sit on your deck drinking martinis for two years, get another job, etc. How many years retiring at age 62 will it take to recover the $64,000 you received collecting FERS pension and Supplement at the new 1.1% multiplier pension rate of $24,200 per year? $64,000 / $4,200 (increase in pension rate) = 15. 2 Years.
That is a 15 year break even period. So at age 62+ 15 years = 77, you will begin to truly benefit financially by retiring at age 62, rather than age 60. This of course ignores the other benefits, some of which you articulated, one may gain by delaying retirement to 62 (TSP matching and contributions, etc) Ultimately a value must be assigned to those 2 years. If you will live to age 95, ya maybe stay till 62. If you might get hit by a tornado at age 65…. hmmmm. I appreciate your videos.
I can retire in about 4-years at age 58 with 30-years of service… there is no amount of money in the world that would have me work one-second longer than I have to… this is not a math problem; it's a "life is short" problem… get out and enjoy your retirement; it isn't always bout money.
If you get a slip from a doctor or have a good super you can go out on sl and retire at the end of your sl seen it done many many times
I retired last yr at 58 and 35 yrs I get 10k a yr of SSS for 4 yrs for a grand total of 40k if I stayed for 4 more yrs of misery I would only get 2.4k a yr that would take me 15 yrs of the extra 10% to make up for that 4 yrs of hell, best thing I ever did was move on bottom line is you can't make it all take your money and run ITS NOT WOR5H IT!!!!!!
But retiring at 56 it would take me WAY longer to make it up not to mention I'd still be working another 6 years and wouldn't be getting those years of retirement too. With any decent amount in your TSP you should be able to make nearly as much or more than while working and still paying into the system.
I know how to not run out of money in retirement. Don't live as long!
Great video and exactly what I’m wrestling with. Luckily I have 4 years to figure it out. 30 years at age 58 gives me 120% of my salary, including 401k/TSP withdrawals. Staying to 62 gets me to 158%. Most of the increase is due to 401k growth.
People die in their 60s all the time. Don't just assume you have 20-30 more years of life to blow the extra money.
at 60 it'll be 22 years of service so 60 is tempting to retire. with that said even if I do I may wait until 64 or 65 to apply for social security retirement. In between I'd only draw from TSP if needed. Is that a good plan?
Excellent information! I’m MRA in 3.5 yrs (with 31 yrs in). At this point I’m not sure I can deal with working beyond that… (DHS)
I was a Title 32 employee meaning that my civil service position was contingent on my membership in the Air National Guard. I was forced to retire medically from the Air National Guard in 2012 (age 52) and in turn had to retire from my civil service position. I am getting a FERS disability annuity until I turn age 62 and then it converts to my FERS Retirement. I turn 62 in July 2022. How does this work for me?
As I understand theres also 5% per year for every year under age 62 deducted from your pension. If im not mistaken the 1.1 is for 20yrs of service or more and is not affected by your age.