When Do I Retire: There’s a ‘Best Date’ for You Financially
THE DAY YOU CHOOSE TO RETIRE COULD COST YOU
Written By: Joseph Polakovic
Choosing your final day of work may seem like a nostalgic selection rather than a financial decision. However, you’d be remiss if you didn’t strategize this beforehand. Too often, federal employees are leaving thousands of dollars on the table as they exit into retirement. Here are a few ways to make sure you’re getting all the money you’ve earned:
Start Big to Small- Year, Month, Day
First, it’s important to understand full retirement eligibility in order to choose the correct year and month for retirement. The rules for a full retirement are as follows:
- Age 62 with 5 years or more of eligible Federal service
- Age 60 with 20 years or more of eligible Federal service
- Minimum Retirement Age with 30 or more years of Federal service
Don’t Forget the Pension Boost
Seldom known in the FERS community is the extra 10% pension increase you will receive if you work until age 62 and have 20 or more years of service. Effectively, you would never take the FERS Special Supplement, but you get rewarded with a higher pension payout.
For an average FERS pension, that extra 10% will add close to $60,000 over a 30-year retirement. Every person’s situation is unique and it might not make sense for everyone to work towards certain milestones. However, it would be a bummer to retire at age 61 and unknowingly lose out on a 10% pension pay bump for the rest of your life.
Understand When You Get Paid In Retirement
When your pension check will arrive is important. The way the system works is that your retirement posts the 1st of the following month and your first pension check will arrive on the 1st of the month after that. Depending on which day you retire, this can be the difference between waiting 31 days for your first check or waiting 61 days. For example, if John retires April 1st, his retirement posts May 1st and he receives his first pension payment June 1st. In that situation, he’s waiting 61 days for that first payment. That’s a long time to go without income.
So, What’s the Answer?
First, determine your first eligibility date. Second, determine for yourself if it’s worth staying around for the pension boost. Finally, once you know the year and the month, always retire on the last day of the month.
In the above example, if John worked one day less and retired March 31st, his retirement would post the following day, April 1st, and he’d receive his first pension check on May 1st. In this situation, he’s waiting 31 days for that first payment. So not only is he going less time without pay but he’s essentially earning an additional pension check by working one day less and retiring at the end of the month! Remembering this tip just put an extra $1,700, on average, into your pocket.
Note: This is one of many moving parts when it comes to maximizing your FERS retirement. Orchestrating these numerous pieces is our specialty!