On this week’s episode, Val explains the minimum retirement age and how to properly use the FERS pension calculator to know where you stand and maximize your future retirement.

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7.14.23: Audio automatically transcribed by Sonix

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

Val Majewski:
Well, welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange and really appreciate all the feedback and things that we're getting, the requests that you all are making on the website for federal retirement. Show.com when it comes to benefits, reviews, retirement analysis, requesting a free book. There's no excuse if you didn't watch our podcast episode about the book that I wrote regarding federal benefits and retirement information. Check it out. The name or title of the book is called There's No Excuse Your Guide to Maximizing Your Federal Employee Benefits. You can request a complimentary copy by going on the website again. Federal retirement show.com and completing a full benefits and retirement analysis. But as a result of the folks that we've been talking to, there's been a big question come up and this question's been revolving around when is the right time for me to retire and can we run multiple times, run multiple scenarios? Can we look at different options? Can I see the difference between retiring when I'm first eligible versus retiring at age 60 versus, you know, when at 62? What are the differences and what does that look like? How will that affect my bottom line? How will it affect what I'm going to be making or taking home in retirement? So today we're going to be talking about retiring when you're first eligible, maybe retiring voluntarily early versus retiring when you're first eligible for full retirement versus waiting until age 62.

Val Majewski:
So you'll see in the title says plus ten versus age 60 versus age 62. And we're going to go over a couple examples so you can see how this would affect your bottom line. And you can plug in the numbers yourself or request that benefits and retirement evaluation so we can walk you through your personal numbers. So with that being said, let's dive into today's content and talk about first retirement and comparing it to different timelines of when you want to eventually leave the federal government. So as you can see, we're talking about plus ten. If you're not familiar with this, I'm going to go over what that means as far as retirement eligibility versus age 60 versus age 62. Now to start, when is a Fers employee just like yourself? When are you first eligible for full retirement benefits, full unreduced immediate pension benefits? When can you get your full retirement annuity? What do you have to satisfy? What are the requirements? Well, you can see the three here. So as a first employee, general, Fers employee, then again, this is not pertain to some special groups out there. This is your general fers employee. There's one of three things that you need to satisfy in order to retire with full benefits. Those are age 60 with at least 20 years of service. At age 62, with at least five years of service or hit your your minimum retirement age and have at least 30 years of service.

Val Majewski:
These are ways in which you can retire with full. Retirement Unreduced. Immediate pension. Now, you may have thought, okay, well, what does that plus ten provision mean then? Because we're comparing that today, plus ten to age 60 versus age 60 to now, I just said was minimum retirement age. We're going to go over that in shortly in the next slide. But if you have your minimum retirement age based upon your birth year and have at least ten years of service, you can retire on an immediate pension. Sounds awesome. Wow. Some of you may be thinking, I know I've hit my and I have at least ten years I can retire. There's a warning. Big red flag. Stop here. Check this out before you go any further, because there is a permanent reduction, permanent reduction of 5% for every year prior to the age of 62, or if you already have 20 years of service and have not yet hit age 60, then 5% for every year under the age of 60. Generally speaking, 5% for every year under the age of 62. I'm going to go over an example of this. Now this is to collect an immediate pension. It will be a reduced immediate pension. If you do not want to see that reduction, the reduction can be eliminated by postponing your retirement. Okay. I'm going to mention that when we go through the example, but you can postpone your retirement.

Val Majewski:
What that means, though, is that pension is not going to be immediate and you're going to have to wait in order to get the full amount. So this is a provision plus ten you can utilize in order to leave government service voluntarily early and still collect an immediate pension. But that warning, there's a permanent 5% reduction for every year prior to the age of 62. Or as I mentioned, just to reiterate, if you already have 20 years of service but have not yet hit age 60, then it's 5% for every year prior to age 60. So what is? I'm going to go through that here in just a second. I'm going to skip ahead and we're going to go to minimum retirement age. Mirror. Minimum retirement age, as I mentioned, is based upon birth year. So you can see here by this chart, if you're born in 1956, which is the example we're going to use here in just a second, your minimum retirement age is 56. If your 1970 or later it's 57. If you're before 58, it's 55. And then you can see based upon the birth years, it can be 55 plus or 56 plus, but it's anywhere between age 55 and 57 depending upon your birth year. Okay, That's important. So again, if you've hit that minimum retirement age and have 30 years of service, great.

Val Majewski:
You're eligible for full retirement. If you have hit the minimum retirement age and have at least ten years of service, you're eligible for an immediate pension on a reduced. Annuity of reduced pension payment based upon how many years prior to age 62 you are. So let's go to the typical full benefits first, pension calculation first, I want to nail this down before we go into the examples. First, it all starts with your high three. This calculation is pretty simple. And if you don't want to do simple math, if you don't want to figure out all of your numbers, that's why folks are requesting a benefits and retirement evaluation, because we have built software, proprietary software for American benefits exchange where we can run these numbers dynamically and change it from second to second. So you can see what each age looks like If you want to retire at 70, 65, 62, 60, whatever, we can enter in all of the inputs and see the numbers change dynamically so you can see what looks the best for you, your situation, your family. It all starts with we need to know or estimate what your high three is going to be. Now, your high three is your average of your highest three consecutive years of total base pay, your highest 336 month period. They take the average of that. And they use that as your starting point for your pension calculation.

Val Majewski:
It doesn't matter if it's your first three years, your middle three years, just generally speaking, with normal pay raises and things like that. It is normally the last three years, but it doesn't have to be. Talk to plenty of federal employees that moved to a very high locality pay area for a certain period of time, got their high three way up and then they moved out to a different area and their current salary was significantly less. But they've locked in that high three at the higher rate. That could be you or you could have stayed in the same location and got regular pay raises that adjustments over time. And you've just seen the last three years always be your highest three years. It just depends on the situation. Now, what's included in the high three? Generally speaking, it is base pay plus locality. If you're a shift worker, then shift work pay counts in there as well. But they're not counting leaves. They're generally not counting bonuses. There are some special groups where bonuses could count, but just generally speaking. Base pay plus locality is what they're utilizing base pay plus locality high three. They're going to multiply that number by a factor of 1 or 1.1%. When do we use either 1%? If you're under the age of 62, 1.1%, if you're 62 or older and have at least 20 years of service. The 1%. It's under 62 or if you're over 62, you don't need to have 20 years of service.

Val Majewski:
1.1%, 62 or older, with at least 20 years of service at the time of retiring. Then they're going to multiply that result by your years of service. This could be total. This is total years of service. So your work as a Fers employee and any other time that you've purchased back, perhaps it was military time you purchased back or any leftover sick leave time that's added into the calculation will be thrown in for your pension scenario. So that result will be your annual retirement pension. Your annual retirement annuity high three plus the factor of 1 or 1.1%. Multiplied by your years of service. Generally speaking, you can expect 1% of your high three for every year of service. Just a general calculation. Well, let's go to a scenario about the plus ten provision, because we're going to be going into those three scenarios in chronological order. So let's say you wanted to choose your at the point where you can leave early and you want to choose the right scenario for you and understand how the timing affected what your payout is going to be. First, let's look at the plus ten. And if you recall, this is where there's a reduction and you'll see this as we go through it. For all three scenarios. I'm using the same high three. As I go through. You'll see that that might be skewed a little bit and I'll explain.

Val Majewski:
But let's say somebody and you can understand if the birth year in this example is 1956, today, that person would be 66, maybe 67 years old, depending upon if they turned 67 this year. I'm just saying, let's say their birth year was 1956, which makes their 56. Let's say that they're currently 56 years old for this example. I'm not saying there's 67 today. I'm saying let's look back to when they were 56. Okay. Hi. Three of 100,000. Let's say they're born in 1956. So there is 56 years old. Let's say they currently are 56 and they have at that point 16 years of service. So 16 years of service at age 56, they haven't hit any of their requirements for full retirement. They've got their. They don't have 30 years. So when are they first eligible? First of all, they're first eligible four years later and they've hit age 60 and they'll have 20 years of service. That's their first eligibility for full retirement. But they're eligible for some sort of retirement. Now, why? Because they've hit their their minimum retirement age and they have at least ten years of service. They don't satisfy the full requirements, but they satisfy the plus ten provision. Well, how will this work? Let's take that high three of 100,000. We're going to multiply it by 1%, then by 16 years of service. Let's say it was 16, even dead on.

Val Majewski:
That's $16,000. 16,000. But remember, there's a permanent reduction. It's 5% for every year prior to age 62. That's six years earlier. That's a 30% permanent reduction that this person's going to see. So instead of 16, they're actually going to get $11,200 per year for the rest of their life. This does not bump back up once they hit age 60 or 62. It is a permanent reduction. So this is not something that we normally recommend to folks unless you have your dream job lined up, unless you have an awesome situation, you hit the lottery, whatever it is, unless you have some way to make up the difference. This is not something we normally recommend, but it is an option. So let's compare $11,200 retiring at the minimum retirement age. And even if they retired at age 57, 58, 59, they're still not eligible for full retirement, but they're still eligible for the plus ten provision during that time. I will say real quick, if we go I'm going to go back before I jump ahead. This person can eliminate this 30% penalty here. This 30% reduction, how can they do that? Well, at age 56. Again, they're not eligible for full immediate pension, but if they wanted it unreduced pension, they can postpone their retirement. You can go back and watch our episode on deferred versus postponed retirement, but this would mean that they fill out a postponed retirement application and they would collect their pension at age 62, and at that point it would be Unreduced Okay.

Val Majewski:
Unreduced Because that would be when they're first eligible for retirement, would be age 62 based on their 16 years of service. So they can postpone payments. They just wouldn't collect anything for the next six years, unfortunately. But if they wanted an immediate pension at this point, they would need to take the reduced amount. So let's say that they didn't want to see it reduced and they're like, no, what am I first eligible? Well, we just said they're first eligible at age 60. They'll have 20 years of service at that time. So let's go through this calculation one more time. 100,000. Now, just to keep the math simple, I'm still using 100,000. But understand, over the next four years, this person would be making more money, assuming they'd got pay raises and cost of living adjustments, things like that that are being applied to their current income. Maybe they've gotten promotions so they can be making more money over the next four years, which would have increased their high three. But just to keep the numbers easy, we're going to stick with the same 100,000, multiply it by 1% because they're not yet eligible for that 1.1 at age 60, two times 20 years of service. So that's again, 1% for every year of service, this person would make 20,000. So by waiting four years more, they almost doubled their income went from 11,200 to $20,000 per year for the rest of their life.

Val Majewski:
In this case, it'd be well worth it to wait until at least age 60. But when we get to that kind of critical area and for me, that's for folks that are looking to retire at age 60, I want to show you at least what age 62 looks like. Why? Because you notice that age 62 from the previous calculation or formula that we went over, you get a bump in the percentage, it goes up by 10%. You get 1.1% in the payout factor rather than just 1%. So let's see how that would affect this person if they waited just two more years. So they're making 20,000 a year now. If they retire at age 60, what if they went two more years and waited until age 62? I'm still showing the same high three of $100,000. Now, granted, two more years probably would add some more salary, some more pay raises, maybe another promotion. Who knows? It could have increased their high three again. But let's say that they've made the same amount of money from age 56 until 62. That's highly unlikely. But let's say that they did 100,000. Now, when we're looking at the factor there at age 62 and they have at least 20 years of service. We're going up to 1.1%. And it's not just 1.1% times 20 like they had at 62.

Val Majewski:
They worked two more years to get to this point. So now we're at 22 years of service. They would take home 24,200 per year for the rest of their life. So we look at and review the scenarios. If this person were to retire when they were first eligible using that plus ten provision, they'd walk away with 11,200 a year for the rest of their life by walking or working four more years till age 60 when they're first eligible for an unreduced pension. Now they're up to 20,000 per year, which is also great. They've increased almost $9,000 a year for the rest of their life. That is well worth the extra four years well worth it. But if they want to increase it even a little more, they've gone from 20,000 to 24,200 and this is for the rest of their life by just working an extra two more years. So the difference obviously from age 56, using the plus ten in this example to age 62 is very significant. It's more than double, but an extra $4,200 a year for the rest of your life by working an extra two years could be huge for you and your family. So it's important to consider not only when you're first eligible, but also waiting until age 62 to get that extra bump in the pension calculation that's right for you. Or if you want to see what your situation looks like, again, reach out to us federal retirement.

Val Majewski:
Show.com fill out the form. We'll be in touch to schedule your personal benefits and retirement analysis and once completed if you desire. If you want it, you'll get a copy of my book. There's no excuse your guide to maximizing your federal employee benefits. So how do you know? How do you know what's right for you? Right. Where do you currently stand? Do you know when you're first eligible? What is your pension currently look like? Do you understand what that's going to look like when you are first eligible? Is it beneficial for you to wait a little bit longer until age 62 or beyond in order to get that little extra bump in your pension calculation? I'm not sure that's up to you to decide, but we can just show you the numbers. We could run the scenarios so you can see in plain black and white, plain English what that looks like so you can make the best decision for you, your family. So it gives you that peace of mind when you're thinking, I'm going to leave at this date or at this time or at this age or at this many years of service, you understand what the significance is of waiting may be just a little bit longer and how that's going to affect you for the rest of your life, because this is a lifetime payment, you know, 4200 bucks per year over the next 20 years.

Val Majewski:
You know, it's going to add up to a lot of extra money for you that's in your pocket. Now, what else are you doing during that time while you're waiting to retire? You're putting more money into your TSB, you're getting more matching funds. You're increasing your Social Security potentially by waiting longer or increasing your first supplement payment by waiting longer. So everything should get increased the longer you wait to retire again. Which one is right for you? I can make that decision. That's up to you. We can just put the facts, the numbers in front of you. You can see what it looks like. Ultimately, you make the best decision. So I know that's a lot. But for this episode of Fers retirement and really Fers retirement comparison between plus ten or retiring when you're first eligible to age 60 versus waiting a little bit longer till 62. I know this is a generic example, but we'd love to go over your personal situation and create a few reports for you so you can see in black and white reach out to us. I'll say it again, it's federal retirement. Show.com fill out the form and just as a bonus, you'll get a free book. Again, my name is Val Majewski with American benefits exchange. I really appreciate you joining me on this episode of the Federal retirement show and look forward to seeing you on a future session.

Producer:
New rules across Major League Baseball have shown their effects both on and off the field. I'm Jim Tarabukin. With the retirement radio network powered by Amara Life in 2022, the MLB Players Association agreed to a handful of new on field rules, with the goal to increase the pace of play. A pitch clock was introduced prior to the season, eliminating downtime between pitches. The numbers are in and game times across baseball are down an average of 31 minutes this season. But the new on field legislation has led to necessary changes off the field. President of Life Flip Media Eric Mitchell, explains the controversy.

Eric Mitchell:
Further, it's controversial because everybody is so used to the seventh inning. That was it, right? Beer sales are shut off, so games are shorter. Beer sales are you know, it's important. They're also major sponsors of the teams.

Producer:
Mlb teams aren't governed to a league wide alcohol sales policy on how long into the game beer can be sold, but the seventh inning has traditionally served as that cut off point. But according to the Associated Press, the Milwaukee Brewers and the Texas Rangers are two of five teams that will now sell alcohol through the eighth inning of their home games. Milwaukee President of operations Rick Schlesinger talked to MLB.com about his team's revised policy, saying, quote, If it turns out that this is causing an issue or we feel that it might cause an issue, then we'll revert to what we've done previously per the same report, the Miami Marlins and the New York Mets will halt their sales after the conventional seventh inning timestamp, but aren't ruling out potential changes in the future for the Retirement.Radio Network Powered by AmeriLife.

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