I CAN'T AFFORD TO RETIRE: part 2 in the letter to federal law enforcement series

In the first part of this series, we covered Excuse #1--Where can I go and make this same amount of money? Now we will move on to a statement that is perhaps even more commonly heard around squadrooms, morning Starbucks runs, gyms, and in the rambling discussions during those long hours on surveillance...

Excuse #2: I just need a few more months (years) for my High-3.

While additional time certainly adds more money into your final retirement check, it is often not as much as people think. Understand that when contemplating retiring now or working farther into the future, you are simply deciding between an additional 1% per year, or nothing.  One percent.  That’s it. On our fictional $130,000 job, that equates to $1,300 a year, or about $108 a month BEFORE taxes.  Even if you are hitting the pay cap right now, that equates to only about $139 a month before taxes.  

Let’s assume for a second that you live 30 years after retirement (until age 80). Let's also assume you worked that extra year for 1% at a High-3 of $130,000. That equates to $39,000 additional you’ll receive in retirement, spread out over 30 years.  (1% x $130,000 x 30 years).   Again, this is before taxes.  (I understand that I have not adjusted this number for COLA or raises and in many years, FERS retirees get small COLA adjustments, and FERS employees may get a raise, but it provides a good frame of reference).  

I want to restate that, just so it is clear:  If your High-3 is $130,000 and you work an extra year to pad your retirement, you will gross an additional $39,000 (roughly) over the rest of your life.  One could easily make the argument that a better solution would simply be to retire, work somewhere for less than a year, and get that entire $39,000 in the first year of retirement.  You get it immediately rather than waiting 30 years to collect it all, and you could invest it, letting it earn money for you.  

"But staying an extra year increases my supplement too, right?"

Yes it does. By roughly 1/40th. In our fictional example, that would be about $300 a year extra in supplement payments, or about $25 a month before taxes. Worth it? That's for you to decide. But, while we're on the subject, let's take a deeper look into how this whole supplement thing works...

FERS Retirement Annuity Supplement, or simply, the RAS. Since OPM likes to give everything multiple names for no reason, you will also see it called the FERS Special Retirement Supplement (SRS), or sometimes, just the FERS Supplement. I hear employees often refer to it as the Social Security Supplement and sometimes the "bridge payment." Regardless, it's all the same thing.

Now, back to our math: One factor that should be considered along with the lifetime $39,000 is this:  for every year you work for the government after age 50 (in our fictional retiree example), that is one less year you will receive the supplement.  There is a time factor on that benefit.  You can only receive it until age 62.  The clock is ticking—this is not a benefit you’ll receive for the rest of your life; there is a finite time to collect on it.  Each year you aren’t receiving it, is an additional $14,400 (or so) that you are giving up by choosing to work for the government. Remember that prior to your MRA (which is 56 or 57 for most of you), you can earn an unlimited amount of money and still get the supplement.  But that stops at your MRA.  After that, you’ll start to lose your supplement once you make over $18,240 (for 2020).

Think about this for a second: you are giving up $14,000 a year today so that you can increase your retirement check by $1,300 a year in the future?  

Now, let’s look at some of the extremes:

1.     Working a few more months.  I have met people wanting to work literally just 2 more months to get their retirement up to a certain amount.  2 months?!  So, 2/12ths of 1%?  That adds $18 a month before taxes to your retirement check.  If you live another 30 years, that’s a total of $6,500 over your lifetime.  To put it another way, it is less than 50% of 1 year of the FERS supplement.  Working a few months for a better retirement check is simply illogical.  

…the other extreme….

2.    Going until mandatory, then filing an extension, then filing another one, then getting forcibly removed from the office, kicking and screaming, leaving fingernail marks in the carpet.  Let’s assume you can work until you’re 58.  That adds 8% to your retirement check (ages 50-58).  That’s pretty much the max you can do as an SCE, and that includes an extension.  I’ve known a few people that received 2 extensions, but it is rare.

Also, typically if you’ve been granted an extension, you’re probably at least a GS-13, more likely a GS-14 or higher.  And since we’re discussing extremes, let’s bump up the High-3 to $160,000. So, you get an extra $12,800 a year, or roughly $1,067 a month before taxes.  Assuming you live another 22 years (until 80 like first example), you’ll make an additional $281,600 in retirement over that time.  (Gross, i.e., before taxes).  Sounds like a lot.  But let’s think about how much money you’ve left on the table in the form of the FERS Supplement you didn’t receive.  $14,400 times 8 years is $115,200, or about 40% of what you made by working.  

(Most of you will not be receiving a High-3 of $160,000.  The majority of federal LEOs are GS-13's, so this best case scenario I put forth won’t even apply to you, unless you live in some of the higher locality pay areas. But it may be realistic for some 14's and up. Everyone's numbers are different--do your own math.) 

Granted, your Supplement amount from age 58 to 62 will be higher since you have more creditable years, assuming you don’t work.  (Assuming you do work, you probably won’t see ANY of the Supplement). Your Social Security at age 62 will undoubtedly also be higher.  However, the same would hold true if you retired, and went to work in the private sector....

The question is simply this:  Would you have been better off working in the private sector for 8 years, collecting all the retirement money AND the private sector money?    

Everyone is different, but in most cases, I would argue the answer is yes.  It is very dependent on your marketability and experience, however, and that leads me into my last point, which will appear in the third, and final part of this series. Click HERE for Part 3.