Federal Employees: When to Retire – 60 vs. 62?

11.22.24: Audio automatically transcribed by Sonix

11.22.24: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Welcome back to the Federal Retirement Show. I am your host, Val Majewski with American Benefits Exchange. As always, really appreciate you taking the time out of your schedule to view our content to see what we have in store for you, the federal employee that's looking for information regarding benefits and retirement. And we've gotten a lot of great feedback. I've been traveling all over the country giving presentations, doing workshops, doing retirement briefings, and more and more. I'm hearing of people that have been viewing the podcast, have seen our content, have, uh, you know, reached out to us as a result of it and have told others about it. So please share us and let everybody else know that you work with, because I know you work with other federal employees that need this information and let them know about just what we're giving and providing to you all so you can make the best decisions as you work through your career and into retirement. Now, today's conversation stems around some of the recent ones I've had with other federal employees. Just like you people that are contemplating retiring at different ages and wondering what the difference is. And there was a couple of folks recently that have come across, um, you know, their earliest retirement age, and they're wondering if it's worth staying a little bit extra. And the conversation has revolved around, should I retire at 60 when I'm first eligible, or should I wait until 62? They've heard a lot of good things about waiting until 62, so perhaps you are in a similar predicament.

Speaker1:
Maybe you've done the research, you've looked at the minimum requirements, and if you have not seen those, go back and view our previous episodes where we've talked about the retirement requirements. For those that are Fers employees, what you must satisfy in order to retire with full benefits. As a Fers employee, there's a certain age requirement and years of service requirement that you need to hit in order to retire with full benefits, so I highly recommend go back and view those previous episodes, check out that content, get a baseline information, and then come back and join us here at this point in this episode. But what we've been been looking at and what we're talking about today is the difference between age 60 and 62, 60 versus 62. I know it just seems simple. It's like it's just two years. What's the difference? Why is there a big deal about waiting until age 62? What's what's the point? What? I'm going to go into those details and I'm going to share with you the the pluses and the minuses. Most of it, in my opinion, are pluses, but the negative. You have to work two more years to get to age 62 if you want to make this work. So the thoughts when we start okay.

Speaker1:
What are the thoughts? Um, many want to retire when they're first eligible. Now if you go back again and see the retirement requirements, one of those requirements is at age 60 with at least 20 years of service, 60 with 20 years of service. I see a lot of people that I talked to. Their first eligibility is at this time is at age 60. So some people have been working their entire career and just said, I'm waiting to get out when I'm first eligible. So for many, that is, at age 60, with at least 20 years of service, there's a way you can retire earlier than that. But you have to have 30 years of service and hit your minimum retirement age. But let's look at this one. It's age 60. With at least 20 years of service. Is it worth staying until age 62? And if you do wait until age 62, how much more can you receive? So there's a couple of things here. Um, eligible to retire at age 60, let's say 60 with at least 20 years of service, is it worth staying until 62? Well, first of all, we have to go into what the calculation is for your pension. And we've done previous episodes on this. We've gone over pension calculation. We've talked about retirement income. I'm going to revisit some of those things today during our conversation. But you you might you make the best decision for you.

Speaker1:
I'll say this at the front end. I'm not going to make a blanket statement that it is always best to do this, or always best to do that. I just want to provide info, give you the guidance, the suggestions, and you determine with your family, your spouse, um, whatever situation you're dealing with, what's best for you. But I just want to give you give you some thoughts here. So how do we calculate your pension? What do we do and how do we get there? Well, we need to know a couple of things. We need to know your high three. We need to know the age at which you're going to retire. And we need to know how many years of service you have as a first employee. Now, years of service is going to count the total years served as a first employee. Any military time that you've purchased back, as well as any leftover sick leave time. When it's all said and done, that's going to be your years of service. Now. First of all, hi three. We've gone over there's several episodes on hi three, but the average of your highest three consecutive years or 30 consecutive 36 month period. The average of that three year period. The highest three year period of your working career is your high three. Then we're going to multiply that by a factor of 1 or 1.1%.

Speaker1:
And when do we use either one. If you're under 62 1%, and if you're 62 or older and have at least 20 years of service, 1.1. So you can see here why we're having this conversation. If we're just doing math, because at age 62, if you have at least 20 years of service, which you would if you're eligible to retire at age 60, it's going to give you an enhancement of your calculation. And you might be like, yeah, it's extra 0.1% that it could be significant. And depending on what your high three is and how many years of service you have, it can be a good amount of money. We'll go over an example here in just a second. We take that result whether it's using 1 or 1.1%. Multiply it by your years of service and that is your annual retirement annuity. Your pension your Fers annuity. So let's look at an example here. And I want to compare between age 60 and 62 okay. So let's say we had a person that retires at age 60. And their high three is $100,000. I just want to keep the math easy for us. Let's say the high three is 100,000. You could do your own math here and follow along with me. 100,000 going to retire at age 60 with, say, 25 years of service. It may not be exactly age 60 with 20 years of service, let's say 60 with 25 years of service.

Speaker1:
So how do we calculate the pension here? Go back. Remember, it's high three. So 100,000 times 1 or 1.1%. In this case under the age of 62 we're going to use 1%. Multiply it by the years of service 25. Simple math here 100,000 times 1%. $25,000 per year in retirement. 25,000 is the pension. Okay. So let's use that as a baseline. This is when they're first eligible going to retire at age 20 sorry at age 60 with 25 years of service. And they might be thinking is it worth me staying two more years and getting to age 62? Well, let's look at the pension calculation. Then we'll talk about some other considerations. But let's talk about just straight pension calculation okay. Now you might see the high three in this example is a little higher. And I'm just ball parking with pay raises and increases. Over the next two years. This person's high three will will be slightly higher if they get cost of living adjustments or pay raises or promotions or things like that. So the high three I'm going to assume, let's say it increased by $2,000. So now two years later they're at $102,000. High three. So that's already an increase for the calculation. Now we're at age 62 with 27 years of service. So two more years. So age 62 at 27.

Speaker1:
Now that means we're going to use 1.1%, not just 11. 1% in the calculation. So a higher factor and then more years of service 27. Now I'm not even considering, let's say there was more sick leave built up or or whatever it might be. There could be a little bit extra, but now we're up to $30,294 per year. The previous slide just two years earlier is 25,000. So typical rule of thumb. You're going to increase 1% for each year. And you would think okay, two more years, two more percent in this case $2,000. But it's really it's over $5,000 for this person just waiting two more years from age 60 to 62. And that's just the pension calculation. And that's a higher starting point. Now you're going to get cost of living adjustments, things like that from there. So in this case somebody that has a high three of 100,000, and the high three is going to be a little higher at 62. We've got a higher factor and two more years of service. Now this is going to be $5,000 more over five. Over $5,200 more per year. Starting point. That could be significant for some folks. So just understand the difference there. Just in the pension calculation. Well what other things do you have to take into account. Right. Not just a higher pension, but what are all of the retirement income sources now? I say CSRs and we're talking really fers here, but fers income, you'll have either the first supplement or Social Security, depending on what age you are when you retire.

Speaker1:
There's TSP and then any supplemental accounts and things like that. The whole goal. You've seen this slide before. We want to get people as close to 100% of their pre-retirement income in retirement. But I generally see between 50 to 80%. This could help get you closer to 100 by weighting these two extra years, especially at this time frame, right at two more years of you're eligible to retire at age 57, going from 57 to 59 will not be as significant as going from age 60 to 62. But these this is, I think, the biggest two year jump that you're going to see when figuring out your retirement calculation for a number of reasons. What's the other thing? Well, let's look at the the second line there. First supplement Social Security. Well, if you retire at age 60 when you're first eligible, you're not getting Social Security right away. So at that point you're getting the Fers supplement. Now how is the first supplement calculated? If you recall from our previous episodes about the first supplement, we need to know two things. We need to know your number of first service years. This is first service years only. This does not count your military buyback. This does not count your leftover sick leave.

Speaker1:
This is just for service years. We divide that number by 40 and multiply it by your age 62 social Security benefit. That becomes your first supplement, and you'll get paid that from whenever you retire, until you become Social Security eligible at age 62. Then it will stop. But you can see by the number here, by the fraction, you're going to get less than your age. 62 Social Security benefit for a couple of years. So how would this look for this person that is retiring at age 60 with 25 years of service? Let's say it was all for service time. No military purchase back, just 25 years of first service. So take 25 divided by 40. And I'm estimating, assuming that this person would get $2,000 per month when they retire from the first supplement. I mean, sorry, from age 62, Social Security, so 25 divided by 40 times $2,000 that they would get at age 62 from Social Security, that equals 20, sorry, 1250 per month or $15,000 a year right away. So we go back to the retirement pension calculation. We've got the 25,000 that they're going to get at age 60 from just the pension calculation, plus the 15,000 they're going to get from the first supplement. We're up to $40,000, right? 40,000. Well, we already know now that they would get 2000 at age 62. So if this person waited until age 62, they'd get 24,000 right away, plus the 30,000 that they're going to get.

Speaker1:
So now we're at 54,000. So we go from 40,000 to $54,000 just by waiting two more years. So instead of getting 40,000 right away at age 60 and having it bump up at 62, when you get the higher Social Security, well, now, right away, if you wait till 62, there's no first supplement. You're going to get Social Security right away, which in this case, in this example is 24,000 a year, plus the 30,000 they're getting from the pension. So we go again from 40,000 total when we add up pension and first supplement compared to age 62 pension and Social Security. Right away. We go from 40,000 up to 54,000. That's a big jump. Now, I know you might be saying, well, you know that person at age 62, if they retired at 60, they will get a bump up and they will go from, you know, 25,000 up to, you know, 49,000. You're right. But they've got to start at a lower amount. They're going to be making 40,000 for a couple of years between those two, when if they retire right away, if they waited two more years, they'd start off right away at 54. So that's just from those two things. There's another piece of the puzzle which was TSP. So what happens to TSP if you wait two more years? Simple.

Speaker1:
You have two more years of contributions. You have two more years of matching. You have two more years of interest earning. And that could add more to the calculation. So you can get more income if you want to use TSP for income in retirement. So look this is this is not my recommendation. I don't want you just to think this is my blanket statement. Blanket recommendation. But I've run these scenarios for people and they're deciding between age 60 and 62. Most of the folks will tell me and that you may be different, but most of the folks will tell me. Yeah, it looks like it's financially beneficial for me to wait those two more years until age 62 rather than retire right away at age 60. Is that good for you? I don't know, your situation is is totally different, but just from a numbers standpoint. Taking out emotion, taking out your situation, taking out any stress or things like that, or, you know, the the workload at your job just from a numbers perspective. In my opinion, it makes sense to stay those two more years if you're if it's between age 60 and 62. Again, if it's from 57 to 59, okay. But if you're contemplating retiring at age 60 or 61, it makes sense to wait until 62. It actually would make sense to wait until 62 in general. But again, if you're first eligible and you want to get out right away at 57 or whatever age.

Speaker1:
The biggest two year jump for me is going to be from age 60 to 62. It's two more years. So why stay? Okay. You get an increased pension calculation. Simple. Why is that? Two more years of service. Two more years of service added on there. That's part of the calculation. There's an increased high three. Chances are you're going to get pay raises for those two years. So you'll see an increase in your high three. How significant that increase will be. It depends on the pay raise. Depends on the promotion depends on the timing. But chances are you're going to have a higher high three. So a higher high three higher factor. We're going at 1.1% instead of one. And we're going to have more years of service. So all three of those things increase your pension calculation and they work together. Awesome. Social security is right away. You get to collect it right away. You don't have to wait and get a fraction of it through the first supplement, although that's a good benefit that you get. It's a bridge for those that do retire with full benefits prior to age 62. It's still going to be a fraction of what you get at age 62 from Social Security. So here you have the ability to get your Social Security right away, albeit it's a reduced Social Security compared to your full retirement age benefit, but it's not reduced for the first supplement.

Speaker1:
So it's a it's a greater benefit than you would get at age 60 and two more years of of service. Right. This all helps with two more years of TSP and TSP contributions. Tsp matching funds TSP interest earning, and that should increase your TSP balance at the time of retirement, which will increase your TSP income if you choose to use TSP for income. So all of these things benefit you. In my opinion, it's worth staying until age 62 if you're going to contemplate between 60 and 62, right? That's the the moral of today or the the title of today is 60 versus 62. If you're contemplating that 6061 for retirement, it is worth it to wait an extra year or two to get to age 62 because of all these enhancements, because of all of these things that we'll see an increase in when it comes to your pension calculation. So if you have questions about this, if you want to run over your situation and and go through it, go to our website, go to Federal Retirement Show.com. Fill out the form one of our our reps. If it's not me personally, one of our folks nationwide will be reaching out to you to schedule a time to do your personal benefits and retirement review. We can run through the numbers, and if it makes sense, if you're eligible to retire at 60, should you wait until 62? Is that something you've thought of before, and is it beneficial for you going forward to change your plan to wait a little bit longer? We can check that out.

Speaker1:
We can run both scenarios. You can make the decision. Talk to your family. Talk to your spouse, your significant other, whoever and and see what they say as well because they're in this with you when it comes to your retirement income. So I hope you found this helpful. Hope you find the rest of our content helpful as well. Go back and view our 100 plus episodes that we've already recorded that's there for you. Um, there's a lot of great stuff in there. If you're in the car, you're driving to work, you've got time. You want to listen to it while you're working out, go for it. A lot of great stuff. The episodes are from 5 minutes to 30 minutes. Uh, a lot of useful information. That's why we put this out there. That's what this radio show podcast is for, is for you, the federal employee that's looking for accurate and honest information when it comes to benefits and retirement. Again, my name is Val Miyazaki with American Benefits Exchange. Thank you for joining me and look forward to seeing you on a future episode.

Speaker2:
Ufcw's media rights is up for grabs in 2025, and a variety of different platforms, including Netflix, could be throwing their hat into the ring. I'm Jim Tarabukin with the Retirement Radio Network powered by Amira Life. Ultimate Fighting Championship CEO Dana White recently sat down with CNBC to discuss the possible framework of the organization's next media rights deal.

Speaker3:
Will it be Disney? Will it be YouTube? Will it be Amazon? Who knows. But yeah. Our rights deal is going to be a big deal coming up here. And who knows we could end up like the NBA and the NFL where we end up on on multiple channels instead of just one.

Speaker2:
Ufc's current deal with Disney ends at the end of 2025, and TKO Group Holdings owns both the UFC and World Wrestling Entertainment. Significant because earlier this year, the WWE and Netflix agreed to a landmark streaming deal that will see the streaming platform air WWE Monday Night Raw beginning in 2025. That agreement opened up a further possibility of the UFC following in the streaming footsteps of their fellow subsidiary. Netflix has shown early aggression and is reportedly entered negotiations with the UFC regarding the meteorites. Tko Group Holdings CEO Mark Shapiro recently told CNBC. The ownership group prides themselves on being ahead of the curve.

Speaker4:
So we'll be negotiating on all fronts, if you will. Ari and I will have a pretty big first quarter as we go around the merry go round, if you will, to talk to the different players who are interested, potentially splitting the packages. We've got linear, we've got digital, we've got pay per view. I mean there's there's a lot of options here. We're going to explore all of them.

Speaker2:
While details are still under wraps, insider suggests that Netflix aims to leverage its global reach to attract new UFC fans, offering exclusive behind the scenes footage, athlete profiles, and maybe even live coverage of major events. This potential partnership could see live MMA fights broadcast on the streaming giant for the first time, a move that would bring UFC content to millions of households worldwide. And with the growing popularity of combat sports, Netflix pushed to diversify its content lineup could be a real game changer for the platform for the retirement radio network powered by Amira Life, I'm Jim Tarabay.

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