When it comes to preparing for retirement, there are eight ages that every Federal employee should know about. Knowing what each milestone age means will help you, the Federal Employee, plan more efficiently. Hopefully this will help you be prepared, maximize your benefits and avoid potential financial mistakes.
Age 50 – Statistically this is the age most people begin serious retirement planning. It is never too early to start planning and hopefully you have begun saving and planning many years before age 50. At age 50 though is where I find most people really get serious about it. Due to the fact that not everyone planned efficiently or were able to save prior, the IRS has allowed people 50 years old or older contribute more to their retirement plans. This is called the catch up provision. Federal Employees who reach this age and beyond are able to contribute an additional $6,000 to their TSP. If you haven’t saved much in your TSP you may want to take advantage of this option.
For Federal Employees who are special provision such as Law Enforcement, Air Traffic Control or Firefighter, this is the age you can retire with 20 years or more of service. Also with new legislation that just passed, special provisions will be able to access their TSP penalty free if you retire the year you turn 50 or older. So you would be able to pull from your TSP (not IRAs) without paying the 10% penalty.
Age 55 – For most Federal Employees age 55 is when you would be first eligible to retire with a full unreduced annuity if you have 30 years of service. For CSRS you can retire at age 55 with 30 years of service. For FERS if you have 30 years, you can retire at your Minimum Retirement Age between age 55 and 57 depending upon your year of birth (see table below). If are eligible to retire at your MRA, you are also eligible for the FERS Supplement. If you aren’t able to retire at this age, retirement is growing ever closer. This is an age to consider are you able to contribute even more to your TSP?
|If you were born in||Your MRA is|
|1947 or earlier||55 years|
|1948||55 years, 2 months|
|1949||55 years, 4 months|
|1950||55 years, 6 months|
|1951||55 years, 8 months|
|1952||55 years, 10 months|
|1953 to 1964||56 years|
|1965||56 years, 2 months|
|1966||56 years, 4 months|
|1967||56 years, 6 months|
|1968||56 years, 8 months|
|1969||56 years, 10 months|
|1970 or later||57 years|
Another milestone that age 55 brings is the potential to access your TSP without the 10% penalty. If you retire or separate from service the year you are turning 55 or older, you can access the TSP without paying an additional 10% penalty. Retirement accounts like IRAs have a 10% penalty until age 59.5 for most withdrawals.
Another important thing to consider at age 55 is your Life Insurance options. At age 55 your FEGLI Option B premium is going to double from the previous age band. This is the time to consider a few questions. Do I still need life insurance? If so, how long do you want to have life insurance? Do you want life insurance in retirement or just during your working years? Have I looked at all my life insurance options including outside individual policies?
Age 59.5 – The infamous age of fifty nine and a half is when you are able to access all of your retirement accounts such as your TSP and IRAs without paying a 10% withdrawal penalty. If you’re still working, at 59.5 years old Federal Employees also have access to a TSP benefit called an Age Based In Service Withdrawal. This benefit allows a one time, lump sum withdrawal from your TSP even though you are working. You can withdraw some or all of your TSP. You can pull out the money and pay taxes on it, or you have the option to roll your TSP into another retirement account like an IRA.
Age 60 – The young age of 60 is when Federal Employees are able to retire with 20 or more years of service. If you’re FERS and thinking of retiring at age 60, make sure you have someone calculate what you would receive at age 62 before you decide to leave at 60. In some cases, holding on for two more years could be worth several hundred dollars more pension benefit per month due to a higher computation. Knowing those figures will help you decide the best age to retire. You can ask yourself if it is worth hanging on for two more years to get a higher pension for the rest of your life. If you retire at age 60 with 20 or more years of service under FERS, you will also be able to draw the FERS special supplement until age 62.
At 60, your FEGLI premiums are a little more than double what they were in the previous age band. Remember, they doubled at age 55 and now they have doubled again. If you did not look at your life insurance options at age 55, this might be a time to take a very close look at your life insurance choices, and make sure you look at your survivor benefit options also as you are likely close to retirement.
Age 62 – A lot happens and needs to be considered at age 62. A Federal Employee is able to retire at age 62 with five or more years of service. If you’re a FERS employee and you have 20 or more years of service, then you get a slightly higher computation of 1.1% instead of 1% for each credible year of service. That might not sound like a lot and in some cases it isn’t, but in some cases it can be a significant amount. For example, if you have 30 years of service when reaching age 62 that means 3% more of your High-3 for the rest of your life.
Age 62 is also when a Federal Employee is first eligible for Social Security. For FERS Social Security is a big part of your retirement. Although you’re eligible to take Social Security at 62 you do not have to take your benefit. You can delay your Social Security until an older age and receive a higher benefit. What I recommend to everyone is to go to www.ssa.gov and create an account. On their site you will be able to see what benefit you would receive at each age, and that will also assist in your planning.
Age 65 – At age 65, most Federal Employees are eligible for Medicare and you will automatically be enrolled in Part A of Medicare. There is no premium for Part A, if you paid Medicare taxes over your career. Part B is the part where you will have to pay a premium if you elect to get it. See www.medicare.gov for current premiums for Part B.
One of the most common questions I get when my clients reach this age is why do I need Medicare when I already have FEHB? If you elect Medicare Part A and Part B, then Medicare becomes your primary insurance and your FEHB is your secondary. In many cases, your current FEHB plan will have even lower out of pocket costs to you. For example, there could be lower or no cost for deductibles or co-pays. There are a few important disclaimers here though. The first is if you are retired and you elect not to get Part B of Medicare, you will pay a penalty later on if you elect to receive it at an older age. Secondly, if you’re still working at 65 or older with health coverage, you can elect not to get Part B and acquire it when you retire with no penalty. My final disclaimer is one I see too often, if you want to keep your FEHB with your Medicare do not sign up for another Medicare Health plan like Medicare Advantage or Part D prescription coverage. Almost all of those automatically kick you out of your FEHB, so only sign up with one of those plans if you’re sure that is what you would like. An even safer route is to speak with someone who knows your options before making an important decision.
Age 66- Age 66 is potentially your Full Retirement Age with Social Security. As the chart below shows, your full retirement age will be between age 66 and 67, depending on your year of birth. Your full retirement age is when you can receive a higher Social Security benefit but also when you do have not have a wage earnings test. That means if you do not plan on retiring or you have earned wages from somewhere, you are able to earn whatever you want without reducing your Social Security. As I mentioned previously, I recommend creating the account on www.ssa.gov to see your full retirement age and what your benefit would be at when you reach it.
|Year of Birth *||Full Retirement Age|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
|*If you were born on January 1st of any year you should refer to the previous year. (If you were born on the 1st of the month, we figure your benefit (and your full retirement age) as if your birthday was in the previous month.)|
Age 70– At age 70, you will receive an IRS notice. That notice will remind you that in six months, at age 70.5, you will most likely have to start pulling your Required Minimum Distributions (RMDs) from your TSP or any qualified retirement accounts. Generally, you must pull the minimum amount for the year, or you could face hefty penalties. If you have a TSP and you are still employed by the Federal Government, you do not have to pull your RMDs from the plan until you retire. Age 70 is also your highest possible benefit you can receive from Social Security.
This roadmap to aging will hopefully help you better understand some of the stops along the way. As you reach each milestone, I recommend you review your retirement goals and if possible meet with someone who knows the Federal System who can be your compass to guide you along the way.