Key Points
- Predictions of federal retirement tsunami have not been accurate.
- Now more than 325,000 federal employees 60+ years old; 100% more than when tsunami first predicted.
- Pay raise in 2022 less than COLA; 2023 disparity could be even larger.
- More retirements likely with older workforce and disparity with COLA.
- Motivation and values change with age.
- Retirement tsunami could occur more than 15 years after it was highlighted.
False Projections of a Federal Retirement Tsunami
A retirement tsunami with a resulting “brain drain” has been predicted for the federal government for more than a decade.
Many factors can impact a person’s decision to retire. Over the past few years, we have experienced a government shutdown, a pandemic, manufactured fear of a new administration taking power after an unexpected election result, pay freezes, and a vaccine mandate.
Why Projections May Not be Accurate
Some of these events were unexpected or not widely predicted, and even if the events were expected, the reality was different than anticipated. For example, a pandemic was not widely expected. When it occurred, it did not drive an unusual number of federal employees into retirement.
Many more started working at home. Government human resources policies changed. Employees received the same salary—they may have even gotten a raise or a promotion while working at home—but they did not have to drive to work in rush hour. Working at home was probably safer.
Not only that, most current federal employees are under FERS and most have accounts in the Thrift Savings Plan (TSP). The amount of money in these accounts took a big hit when the stock market dropped quickly at the start of the pandemic. Planning for retirement may look different when the amount of money for a retirement income has dropped significantly—especially if the amount of time necessary to process retirement applications and to start receiving a predictable retirement income can take months.
What About the Retirement Tsunami?
Federal retirement expert John Grobe wrote in 2011:
In 2006 the Director of OPM, Linda Springer, predicted a “retirement tsunami” that never materialized. The reason it never showed up was that, even though she was reading the demographics of the federal workforce correctly, she did not predict the financial meltdown that has since been christened the “Great Recession.” This puts her on a par with most U.S. economists of that time….
Not only did Springer’s prediction not come to pass, the opposite actually occurred. By the end of fiscal year 2008, retirement claims dropped dramatically.
Another human resources expert, Jeff Neal, wrote in 2020 an article entitled Will the Pandemic Trigger the Long-Predicted Retirement Wave?
[T]he numbers that were used to support those (retirement tsunami) predictions were flawed. They simply looked at the retirement eligibility of current workers and projected the percent who would be eligible to retire in a few years. Such (retirement) projections are meaningless, because they assume a static workforce. What really happens is that people leave the workforce and are replaced with new people. The long-term turnover rate in the government, like every other organization, is 100 percent. Everyone leaves eventually.
The message we should have taken from the numbers is that the federal workforce is aging and the government is not effective at hiring young people.
There Are 325,000+ Federal Employees Over 60
As of the end of the fiscal year in September, there were 325,368 federal employees 60 or older. These 325,000 employees are in their 60’s, 70’s, and older and usually eligible to retire.
The federal government had 182,472 employees at the end of the last fiscal year who were 29 or younger. The average federal worker at the end of September 2021 was 47.29.
The number of older federal employees actually went up in one fiscal year. At the end of September 2020, there were 318,782 federal employees 60 and older.
In 2006, when the OPM director at the time was concerned about a retirement tsunami, there were 162,461 federal employees 60 and older. The “retirement tsunami” was supposed to crest in 2008-2010.
What if many or most of those employees who are 60 and older should suddenly decide to retire? Those jobs would be hard to fill. For some jobs, it would be harder to fill those jobs with people who are as qualified as those who are retiring.
Human resources expert Jeff Neal wrote in 2020 when there were fewer federal employees eligible to retire than there are now:
One of the greatest risks of a workforce with many employees eligible to retire is the likelihood that some event could trigger an exodus. Given the government’s hiring challenges, a retirement wave of tens of thousands of employees over and above typical attrition numbers could be catastrophic.
If I were a human resources manager in the federal government today, I would be concerned.
Uncle Sam is not good at hiring younger people. If the retirement system is a good one, and it is a good one, and these retirement-eligible federal employees decide this is a good time to retire, there could be a retirement exodus. Most of these 325,000 can retire when they decide to leave. Age, salary, working conditions, health conditions, and a variety of personal reasons all contribute to their personal decision to retire.
COLA, Pay Raise and Federal Retirement Applications
From 2012 through 2021, the average number of retirement applications received by the Office of Personnel Management has been 96,600. 2012 was the lowest year with 57,091 applications. 2013 was the highest year with 114,697 retirement applications.
Perhaps the pay freezes of 2011, 2012, and 2013 had a significant impact on the number of applications. Perhaps it is coincidental that during those three years, the annual COLA increase (3.2%, 2.1%, and 1.5%) was greater than the pay raise. It may also be that retirement-eligible employees looked at their annual raise and the COLA and concluded it was a good time to leave the federal workforce.
| Year | Pay Raise % | COLA % | Retirement Applications |
| 2010 | 2 | 1.6 | 52,660 (actual in FY) |
| 2011 | 0 | 3.2 | 64,238 (actual in FY) |
| 2012 | 0 | 2.1 | 57,091 |
| 2013 | 0 | 1.5 | 114,697 |
| 2014 | 1 | 1.6 | 101,568 |
COLA and Pay Raise Differential
At 5.9%, 2022 was the largest COLA in 40 years. The amount of the 2022 COLA was not known until October 2021 and became effective in January 2022. The pay raise effective in January 2022 was 2.7%. So, the differential between the pay raise and the COLA was 3.2%
In effect, in 2022 there has been the biggest disparity between a pay raise and a COLA in recent memory.
In 1981, the COLA was 11.2% and the pay raise was 4.8%—a differential of 6.4%. In 1982, with a pay raise of 4%, the differential in the pay raise and the COLA was 3.4%.
And, of course, there have been years in which the pay raise was larger than the COLA. Under President George Bush, there were three consecutive years (2002, 2003, and 2004) in which the raise was larger than the COLA. And, in 2009, the raise was 3.9% larger than the COLA.
We do not, of course, know what the COLA will be in 2023. We do know the White House budget contemplates a raise of 4.6%.
Right now, there is an estimate that the 2023 COLA will be 7.6% which would be the highest COLA since 1981. With the current unknown result of the war in Ukraine and whether inflation will come under control later in the year, the 7.6% projection could be off significantly—and it could turn out to be much higher as the CPI-W inflation index is up 8.6% over 12 months as of the last reported reading.
COLA, Pay Raise and Federal Retirement
The earlier years above suggest that when the COLA is higher than the pay raise, a larger number of federal employees than usual may conclude it is a good time to retire. In 2021, there was an increase of retirement applications to 104,699 from 92,088 in 2020.
As of February 2022, there is a retirement backlog at the Office of Personnel Management (OPM) of 35,424. It is too early to tell whether the rapid rise in inflation, the differential between the recent COLA and the pay raise, or the possibility of another significant difference between the 2023 COLA and pay raise will impact the number of federal retirement applications.
It is reasonable to anticipate the number of retirements will grow as those already eligible to retire will look at how much their retirement annuity would go up with the increase in their Social Security payment and their COLA increase compared to their raise if they continue working. Some with experience and knowledge that will be valuable in a private-sector job may decide to pursue a second career. Others may decide more time to travel or spend with family members would be valuable to them.
There are changes occurring in society as a result of current economic and political events. The federal government will also be influenced heavily by these events. We are coming out of a pandemic. The 2023 COLA is likely to be as large or larger than in 2022. An older workforce is generally less healthy, and with a war going on that may influence our country in ways that we cannot yet predict, what impact will this have on the large number of retirement-eligible federal employees?
Motivation, Values Change With Age
Unfortunately, perhaps, I can relate to the circumstances of those who are over 60 and eligible to retire. If I were a retirement-eligible federal employee in our current economic and political climate, I would consider leaving as soon as possible.
As a federal employee, the sooner I retire in 2022, the more my annuity will go up in 2023. People 65 and over are often contemplating the final quarter of their life. Family is important. Time left on earth is important. Meeting a bucket list of things to do, which may include travel and enjoying children and grandchildren, has taken on new significance.
As a type-A personality throughout my life, and one who is now 65+, future promotions are no longer a motivator. Social status and career achievement are no longer in the forefront of interests or concerns.
Instead, questions such as “Do I have enough income to be comfortable?” and “Do I have time left to do what I want to do in life?” are much more important. In effect, a career and many of the niceties associated with a career that dominated a person’s life when younger have diminished in importance.
An increase in federal employee retirement applications is likely to result from the unique concurrence of events now occurring. A federal retirement with an annuity that receives a COLA each year, Social Security payments with a COLA, and TSP income will enable a comfortable retirement for many. I would look at the differential with the pay raise and the COLA and take advantage of the years I have left to enjoy without going to work.
This will create problems for the federal government as retirements increase and the competition with the private sector to hire younger employees is intense.
