Is it Worth Working Longer to Get a Higher Pension?

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By on August 13, 2015 in Q&A, Retirement with 0 Comments

Q: Jesse, I am FERS employee with around 31 years of service and I was looking to retire next year at the age of 60. I was wondering though, is it worth hanging on until age 62 to get that slightly higher pension? Does it really make that big of a difference?

A: That is a great question and one I get often.

It is true if you retire at age 62 or later and you have 20 or more years of credible service you get a higher pension computation. Every credible year will count as 1.1% instead of 1%. You can have HR run some calculations for you to see the difference in your pension at age 60 versus 62 and only you can decide if that dollar amount is worth it.

Looking at things from a financial standpoint only and only considering your pension for now, in your case it might be worth holding on two more years. Again only you can decide that for yourself.

Let me give you a quick example. I don’t know what your High-3 is but let’s assume for a moment it is $75,000.00. If you retire next year at age 60 with 31 years of service (not including sick leave at this time) you would get 31% of your High-3. So your annual pension would be around $23,250.00.

Now let’s assume you waited until age 62. You would have 2 more years of credible service for a total of 33. Each of those years now count as 1.1% so you would receive 36.3% of your High-3. Assuming your High-3 didn’t change over those two years your annual pension would be $27,225.

So in our example, you would receive $331.25 more a month in pension for the rest of your life by waiting two more years. Only you can decide if that is worth it.

Remember this is only looking at your pension. There might be other things to consider such as additional TSP contributions and Social Security. This is a great time to look at things with a financial professional who knows the Federal System to insure you know all of your options before retiring next year. Congratulations on your upcoming retirement, whenever it is.

© 2020 Jesse Black. All rights reserved. This article may not be reproduced without express written consent from Jesse Black.


About the Author

Jesse Black is a financial advisor who specializes in assisting Federal Employees maximize their benefits. He is a Chartered Federal Employees Benefits Consultant and has over ten years industry experience. He has assisted thousands of people, assisted with benefit workshops and has been interviewed by the Wall Street Journal about Federal Benefits.