Retire or Keep Working?

As you get closer to the time when federal employees start thinking about retirement, there can often be apprehension about whether or not you are ready. This article will attempt to give you a clear understanding of the financial impacts of your decisions, so you can be informed and comfortable with what you decide.

As you get closer to the time when federal employees start thinking about retirement, there can often be apprehension about whether or not you are ready.  This article will attempt to give you a clear understanding of the financial impacts of your decisions, so you can be informed and comfortable with what you decide.

The first step in deciding if you are financially ready to retire is to put together a complete retirement income plan, including your federal annuity, Social Security, TSP, other savings, spouse’s income and retirement, etc.  That plan will help establish where you stand, and what your potential income and lifestyle in retirement could be.  If you find that you are one of the people who will end up taking home more in retirement than while working, congratulations!  If not, the rest of this discussion is for you.

How much does delaying retirement help my pension?

One option for increasing your retirement income is to simply wait longer before retiring.  This will increase the federal annuity you receive, and contribute to a higher budget.  Depending on how close your planned retirement income was to your goal, this may make up the difference.  For the examples below, the additional time is converted to a change in monthly income, which is the easiest way to make a reasonable comparison with your own budget.  They are also based on someone retiring with full retirement eligibility prior to age 62.

Retirement System CSRS FERS CSRS FERS
Annual Salary $50,000 $50,000 $100,000 $100,000
Annuity increase per year of service 2% of salary 1% of salary 2% of salary 1% of salary
Additional monthly income for one year of additional service $83 $42 $167 $83
Additional monthly income for one month of additional service $7 $3 $14 $7


These examples are based on a standard formula for someone eligible at their minimum retirement age.  Your specific calculation may vary depending on your service history.  However, it is important to note the amount that a monthly budget in retirement will change for continuing to work.  Staying an additional month or two will obviously help, but typically not enough to make a material change in your retirement plan.  Waiting a few years, however, can add up to a much larger impact.

How much does delaying retirement help my TSP?

The TSP should also be considered as a benefit to postponing retirement.  Not only do you have a chance to save more funds while still working, the length of retirement that the TSP funds are intended to cover is also reduced.  The same concept of breaking down a TSP balance into monthly income amounts is also important, for proper consideration of what it can do to your budget.  As an example, if you work an extra year and are able to put another $10,000 into your TSP account, that can increase your monthly retirement budget by $33.  The traditional 4% withdrawal rule is used for this rough calculation, though any planned withdrawal would need to be part of a larger financial plan and should not rely on a “rule of thumb”.

What are the most important retirement timing milestones?

In addition to the additional earned annuity or TSP savings achieved by working longer, there are several other specific milestones that could be important when considering your retirement plan.  Here are some of the biggest:

Standard retirement eligibility

While it is possible to retire after reaching the minimum retirement age (MRA, typically age 56-57 for FERS) with ten years of service, the penalties can be very significant (5% per year prior to age 62) if you leave before earning full retirement eligibility.  In addition to a large penalty on the annuity amount, you would also forgo eligibility for the FERS supplement if you would have otherwise received it.  One of the first and biggest things you can do to maximize your retirement income is to stay working until you are eligible for un-reduced benefits.  The age/service cutoffs for FERS is MRA/30, 60/20, or 62/5.  For CSRS, the cutoffs are 55/30, 60/20, and 62/5.

Reaching age 62 with 20 years of service

It is possible to retire on a full annuity prior to reaching age 62 with 20 years, but it is at that point that the FERS annuity is increased by 10%.  This increase only happens at the 62/20 level, and does not phase in.  If you are close, you should consider waiting to receive the large increase in benefits for the remainder of your retirement.

TSP loan payback

If you retire with an outstanding TSP loan balance, it will all be declared income roughly 60 days after retirement.  You would no longer have the loan to pay back, but the large amount of income in a single year could adversely affect the overall tax rate.  The specific situation will vary depending on the loan size, income, and time of year, so you should run through the calculations prior to making your decision if you have an outstanding loan.

Penalty-free TSP access

Those employees retiring before the calendar year they turn 55 (VERA, LEO, etc.) will face a 10% early-withdrawal penalty on money taken out of TSP (doesn’t apply to IRA rollovers, just cash received) until they are age 59 ½.  If you wait until the year you turn 55, the penalty no longer applies.

FEHB eligibility in retirement

You need to have been enrolled in FEHB for five years prior to retiring to be eligible to carry the same coverage through retirement.  It is important to keep this in mind if you are counting on that FEHB coverage for you or your family.  Tricare coverage will also satisfy the five year requirement.

Other factors for consideration

In addition to the federal annuity and TSP considerations, there are other questions that you should consider as you set up a retirement date.  Some of them you will be able to work through on your own and others may need additional assistance.

Can you afford to retire?

While this is the most basic of questions, it should also not be taken lightly.  You can’t go back once you make your decision, and regrets after the fact will only serve to make a stressful time of transition that much worse.  If you are comfortable with your decision after reviewing your situation in-depth, you are much less likely to face surprises down the road.  This discussion will also need to include your spouse and family.

Is working in retirement part of your plan?

This is common, especially for people who retire soon after their minimum retirement age.  If you do intend to work outside of the federal government, you may wish to begin the job search before retirement so that you can make a smooth transition to your new position.

Did you recently receive a promotion, raise or step increase?

The retirement annuity is based on your “high-3” salary.  If you just received a large pay increase, you would need to remain at that level to get the maximum benefit for retirement purposes.

Have you considered a “phased retirement”?

This is a relatively new option, and is only available if agreed to by your agency.  You should contact your agency’s HR department if you are interested in further details.

Are you prepared for a cash flow crunch immediately after retirement?

Keep in mind that when you retire, you will only receive a partial “interim annuity” until OPM finishes your final calculations.  Also, you will not receive a supplement for that time.  A check for unused annual leave can help, but you should also be prepared to utilize other funds as necessary.  There are several strategies to help with liquidity prior to retirement, and it may be beneficial to get those plans in place before setting a date.

Do you actually want to retire?

It seems like an obvious question, but many people derive a great deal of identity from the valuable work that they do and don’t want to stop doing it.  If you would rather go to work in the morning than any of your other options, it doesn’t really matter whether or not you are financially ready.  Keep doing what you enjoy.

Every person faces a very personal and significant decision when looking at retirement.  The best thing you can do is be as well-informed as possible, so that you are comfortable with whatever you decide.  The transition from a full-time career to retirement is stressful in many ways, and everything you can do to reduce that stress is beneficial.

About the Author

Jason Visner is a financial advisor with Brook Federal Advisors, and works with federal employees to optimize their retirement benefits. The process starts with a complimentary analysis of the complete federal benefit package, and then builds an overall retirement plan on that foundation. He can provide recommendations on FERS or CSRS annuities, survivor benefits, military/LEO service, FEHB, FEGLI, TSP, IRAs, annuities, and social security. He can be reached at 262-456-5514 or