Today we’re talking retirement planning—retiring at 60 versus age 62. This story is based on the experience of one of our clients as they evaluated retiring at age 60.
In this post we’ll discuss key concepts–including the FERS Basic Annuity, Thrift Savings Plan (TSP), Special Retirement Supplement, Social Security, and how these sources of income work together.
The Journey to 60
First, some background, and, for the sake of privacy, we’ll call our guy Sam. He is a maxed out GS-15 eligible to retire under MRA+30. Pre-pandemic, he commuted daily in the DC area, which added a minimum of two hours to his day. Sam liked his work, but the commute was a grind, which had him eyeing retirement at 60.
The pandemic brought a significant change when he was able to work remotely. This became a breath of fresh air that revitalized his career.
On the family side, Sam is the primary breadwinner. They have three kids—one is a young professional, and the other two are finishing college. One financial priority has been to pay for college so their children would graduate debt free, however, this has limited the ability to build additional retirement assets over the past 5+ years. An additional goal in their retirement plan is to relocate after retirement.
Sam turned 60 in 2022 with 35 years of service. At that point his high-3 salary was $173,200, resulting in a projected FERS annuity of $60,120 annually. He was also eligible for a special retirement supplement of $27,300 per year. Together, that amounted to $87,920 in retirement income.
There’s also the TSP to consider. Sam had about $850k invested with a rough split of 65% C Fund and 35% G Fund. If you recall, 2022 wasn’t a great year for stocks, and his account was down about 10% by year-end. At the time, we were considering $34,000 to be the maximum annual income from the account based on a 4% withdrawal.
All totaled, Sam’s gross retirement income was looking to be around $121,000 annually, replacing about 70% of his federal salary.
Taxes, however, are a significant factor we can’t ignore. The TSP, FERS basic annuity, and Social Security are all taxable, lowering the take home amount.
Fast-forward to 2024
Sam decided 2022 wasn’t the right time for several reasons. Here’s how things changed since then.
Sam’s high-3 salary increased to $183,900 with inflation driven pay raises. Now with 37 years of federal service, his projected annuity also rose to $74,800 annually. At 62, he is now eligible for Social Security benefits, estimated at $2,600 per month—higher than his special retirement supplement would have been.
The TSP also grew significantly, reaching about $1.1 million, thanks to investment gains and contributions. This increased Sam’s 4% annual withdrawal potential to $44,000.
Financial Factors
By delaying retirement to 62, this family unlocked several financial benefits:
- Increased FERS Pension: Delaying added two more years of service and bumped the annuity multiplier from 1% to 1.1%, thanks to meeting the age and service threshold. Significant pay raises during this inflationary period also increased the pension amount, padding his high-3.
- Social Security Timing: Waiting allowed flexibility to decide when to claim benefits, whether at 62, full retirement age, or later. As the primary breadwinner, spousal benefits are an important consideration.
- Boosted Savings: Contributions to the Thrift Savings Plan (TSP) and strong market performance grew the account balance from $850,000 to $1.1 million, enhancing the portfolios potential for sustainable income.
These changes resulted in a higher overall income and a stronger financial position. He is now considering working additional years, as his youngest child finishes college, while laying the groundwork for relocation.
For those debating retirement at MRA vs. 60 vs. 62, it’s not an all-or-nothing choice. Transitioning to private industry, part-time work, or other fulfilling roles can offset retirement stress while contributing to household needs.
Ultimately, the decision often goes beyond the numbers–it depends on your situation and definition of ‘enough’.
I hope you find this information useful. I’m a certified financial planner, and I’ve been helping federal families make informed decisions about retirement and investment management for a long time. I also publish a biweekly newsletter with insights into topics like this and more. If you’d like to join the list, please subscribe here. Don’t be afraid to ask questions. I’m here to help.
The content is developed from sources believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
