Is the Long-Term Gain Worth the Short-Term Loss?
by Robert F. Benson |
This is a true story.
My good friend, Joe (not his real name), was a dedicated Federal employee. At age 61 he was intending to stay on the job until 65, or later, despite the fact that he was quite close to achieving 41 years 11 months creditable service, which would earn him the maximum 80.0% of his high-three (old CSRS retirement).
In late March everything changed.
He was found to have blockage in two heart arteries, and the next day he underwent emergency bypass surgery. After six days in the hospital, Joe went home to recuperate. Because of previous health problems his sick leave balance was negligible. He found that his sick leave and annual leave, together, would be exhausted long before his doctors said he could return to work.
Although Joe loved his job, financial considerations made it impossible for him to be in LWOP (leave without pay) status for an extended period of time. So, reluctantly, he filed for retirement. He made it effective May 3 – any date after the third of the month would have meant no annuity payment for the month. However, his 41 year 11 month “anniversary” would not occur till May 14. The only way he could reach this would be to be in a non-pay status for 11 days, and retire on May 14. (Note: an employee can be in a non-pay status for up to 6 months in a given year, and still receive full credit for service time purposes.)
In order to receive the full 80.0%, Joe would have had to “pay” for it by missing out on his annuity payment for the month of May. His annuity at the 41 year 10 month level was $6,519 monthly – this was too much to sacrifice, so Joe stayed with the May 3 retirement.
By opting to retire before reaching the 80.0% max, how much did Joe lose?
Staying on the job without pay until May 14 would have given Joe $13.61 more, monthly ([one twelfth of 2.0% of high-three] / 12 ). He gave up $13.61 per month for the balance of his life in exchange for the May annuity payment of $6,519. If Joe lives 18 more years (his approximate life expectancy) the higher annuity would have meant an additional $2,940, plus COLAs.
It appears Joe did the right thing. He gave up a possible long-term gain of a few thousand dollars for a certain, immediate gain of $6,519. It is always a good idea to do the arithmetic.
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© 2013 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.
by Robert F. Benson |