Have you noticed that many federal employees retire at age 62? Is that just a coincidence or do they know something you don’t?
Here are the 4 HUGE reasons why federal employees retire at 62.
5 Year Magic
To leave the government and keep some of your best benefits (like health insurance, a pension, etc.) you have to be eligible, and as traditional FERS federal employees, you have to meet one of these requirements for a full retirement:
- Hit your MRA (Around age 57) with at least 30 years of service
- Hit age 60 with at least 20 years of service
- Hit age 62 with at least 5 years of service
As you can see, the “years of service” requirement plummets down to only 5 years if you are age 62 and beyond.
Many people simply want to leave as soon as they are eligible for a full retirement, but this is only one of the major reasons federal employees retire at 62.
10% Bonus for Life
Do you want a 10% increase to your FERS pension for the rest of your life? I know I would.
Long story short, if you have 20+ years of service and retire at age 62+ then your FERS pension will be 10% higher for the rest of your life.
For those that know how your pension is calculated, your multiplier changes from 1% to 1.1% if you meet the criteria.
This bonus is especially tempting for those that were planning to retire close to age 62 anyway. For example, if you were planning to retire at 61 and you had 20+ years of service then just working an additional year would mean a large increase to your retirement.
I Want TSP Now
Getting penalty-free access to retirement accounts (like IRAs, TSP, 401ks, etc.) can get complicated depending on when you retire.
You have to wait until you are at least 59.5 to access IRAs. The TSP will allow you to access the funds as early as 55 if you retire from the government at age 55+.
But as long as you retire after 59.5 then you won’t have to worry about early withdrawal penalties on your withdrawals so people that retire at 62 never have to worry about these penalties.
Note: Even if you avoid the 10% early withdrawal penalties you will still owe taxes on the withdrawal if you are taking money from pre-tax accounts.
No Bridge Needed for Social Security
Many FERS federal employees that retire before age 62 are eligible for the FERS Supplement which is an additional payment on top of their pension. The FERS Supplement, which stops at age 62, acts like a bridge to get people to the age that they could start Social Security (62).
For example, if you retire at age 57 with 30 years of service then you’d get both your pension and the FERS Supplement until 62 at which point your FERS Supplement would go away. While the FERS Supplement is way better than nothing, it is almost always smaller than what your Social Security payment would be at 62, so some people need to take extra from their TSP while they are getting the FERS Supplement to help make up the difference.
Long story short: Retiring at 62+ puts you closer to the age that you’ll be starting Social Security which lessens the pressure on your Investments (TSP, IRAs, etc.)
The Devil’s Bargain
So it is clear that all federal employees should retire at 62+, right? Hard no!
Retiring at age 62 has a ton of perks but that doesn’t mean it is the best option for everyone. After all, every year you keep working is one less year you have to enjoy retirement.
Does working longer mean more money in retirement? Yes, but at some point, enough is enough. The trick is figuring out how you can have a comfortable retirement without giving up too much of your life to get it.
