Should I stay or should I go now?
If I go there will be trouble
If I stay it will be double
So come on and let me know
Should I stay or should I go?
With all the early out offers, VERA’s, VSIP’s, and RIF considerations, this punk rock song is fast becoming the federal worker’s theme song. The considerations for whether to stay employed vs. join the ranks of the retired can often be emotionally based.
Federal employees are often being asked to do more work without any more reward. A common lament is that the work keeps piling up as more employees leave, and it just isn’t worth it if retirement benefits are going to be re-structured, on top of it.
Not sure what to do?
Before you let your current situation get the best of you, it’s a good idea to take a look at the actual retirement figures for your own situation. Here are some tips, tricks and traps to help you analyze the pros and cons of retiring earlier than you may have planned.
Have your annuity calculations run with the date you planned to retire (you do have a date in mind, don’t you?), and also have the calculation run based on the early-out offer date. Comparing the two amounts is not enough. You’ll want to have an analysis run taking into account current taxes, implications for Social Security, and the value of your TSP at the two points in time.
If you stop working early, your Social Security estimate will be inaccurate since they’re counting on you continuing to work and contributing to the system when they provide their estimate. The TSP can be a double whammy because if you retire early, you may need to start withdrawing from the TSP for income. Not only are you no longer contributing, you’re depleting your funds sooner than anticipated.
The lure of a Voluntary Separation Incentive Payment can be enticing. You were thinking about retiring, anyway. Why not just consider the $25,000 as a nice parting gift and go?
If you really were planning to retire, then the VSIP is a bonus at the end of your career. However, if you’re thinking that the $25,000 buyout is just what you’ll need to complete your retirement plan, face the facts. $25,000 (~$17,500 after taxes) is not going to make or break your retirement. It’s just not enough.
Next, you need to determine whether your assets will last throughout your life expectancy accounting for reasonable withdrawal rates, rates of return on your investments, and inflation factors. Remember, retiring early means you’ll have saved fewer years and need retirement income for a longer period of time. If you’re married, survivor benefits have to be a consideration, as well.
While recent studies vary on the topic of life expectancy, the averages typically show that a couple at age 65 has a better than 50% chance that one member of the couple will live to be 90 and nearly a 20% chance that one of them will live to be 100! For many federal employees, they will live longer in retirement than they spent in their career.
Everyone’s situation is different. There are family dynamics, workplace issues, health concerns, and just being downright tired of the rat race. Before you make a rash decision and leap too soon, make sure you understand the ramifications for you personally.