Should Federal Employees Retire at Their Minimum Retirement Age (MRA)

7.5.24: Audio automatically transcribed by Sonix

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

Speaker1:
Well, welcome back to the federal retirement show. I'm your host, Val Majewski with American Benefits Exchange. As always, I appreciate you taking the time out of your schedule to view our content. I highly encourage you to go back and view our previous episodes. There's a lot of awesome information there. Guidance, interviews, uh, material that we think is relevant for you, the federal employee. Because why? We want to make sure you have all the information you need to make the best decisions for you, your family, as you progress through your working career and into retirement. We do this because we just find that most federal employees that we have the pleasure of speaking with are very uninformed when it comes to benefits and retirement information, and find the information that we share to be extremely valuable. Why wouldn't you want to know everything you need to know when it comes to planning for retirement, navigating your career, and making sure you're taking advantage of everything the government gives you? Now, occasionally you've seen this. We've taken questions from the audience or questions that we've gotten from or received from federal employees during benefit reviews that we've performed. And we'll first of all, what happens during a benefit review is we'll go over your entire situation, right? We'll look at your vaguely, we'll look at your retirement system. We'll look at your current situation there. Then when do you plan on retiring? Talk about minimum retirement.

Speaker1:
Do some retirement projections. Look at Social Security, TSP and everything in between. So again you have a great picture of what it all looks like, so you can plan accordingly and see if there's any areas of of concern when it comes to your benefits and retirement information. And we always explain that doing so is like getting a checkup every year when you go to your doctor, right, you hope that when you get a checkup, you get your physical that everything's going to look okay and they're going to give you a thumbs up, a clean bill of health. But if something is a concern, the doctor will prescribe something or make you aware of it or give you a remedy. Same thing here. Now, we're not saying that we're doctors. Don't get me wrong. But like a doctor, we're going to do a checkup for you. And we're going to either give you a thumbs up. Hey, you're on the right track. Keep doing what you're doing, or we're going to say, hey, here's some areas of concern and here's a remedy. Here's a prescription, here's a way you can make yourself feel better if you get that analogy. Awesome. Because that's what we do. And that's our goal, is to make sure that you are just pointing in the right direction. You have all the remedies, all the prescriptions, all the solutions that you need.

Speaker1:
So you're going forward with confidence, knowing that you're getting better and better. Your situation is getting better and better as you progress through your career. Now, we got a question recently, and talking to somebody who's got a good amount of years of service already and has seen and been asking about when they can retire at the earliest time. And there's a couple things in there. But the question that we got from this veteran employees, should I retire at my mirror? Should I retire at my mirror? Now I can't just say a blanket statement. There's a one size fits all solution, whether that's yes or no. But we need to dive in a little bit and see what we're looking at. So let's dive into this person's situation and see if they should retire at their MRA. So what are their criteria? It's actually pretty simple, right? Let's say this person has been working throughout their career. Uh, just happened to be in their late 40s currently, and they've got a good amount of years of service. But they were wondering throughout this process of, you know, when am I going to retire at the earliest possible time? Now, we ask that question a lot. When we go through our benefits evaluation and we look at everybody's situation, we have to project a certain time at which you're going to retire. We've got to look at numbers and see if you're on the right track.

Speaker1:
And a lot of folks, when it comes down to the question of, you know, what age or how many years of service will answer, I just want to retire when I'm first eligible. Tell me, when am I first eligible for retirement? Well, this person had a leg up on us. It wasn't that they didn't know. They just said, I've heard I could retire at my minimum retirement age. Am I or should I retire at my MRA, my minimum retirement age? So let's take a look. And we're going to explain on a very high level what we did and what we were. I shouldn't say giving advice. I was just giving information to this federal employee as to the, the, the good, the bad, the ugly when it comes to, uh, retiring at their MRA. Now, this person's MRA. They were born after 1970 is age 57. Now your MRA. Minimum retirement age can be anywhere from 55 to 57, depending upon your birth year. This person was after 1970, so it's 57. And the number of years that they're going to have at that MRA is 26 years of service now 26. And change will just keep in round numbers here. 26 years of service. All right. Now, do you know, just asking yourself a question. Is this person eligible for full retirement? I'll give you a second. We're not going to play the jeopardy music, but just off the top of your head, shout it out.

Speaker1:
Is this person eligible for full retirement at their minimum retirement age? The answer is no. Why? Well, because there's three criteria that you have to satisfy. You have to satisfy one of the three criteria. I encourage you to go back and look at our previous episodes on the first system. This person's a Fers employee and we talk about eligibility for full retirement Unreduced full retirement. And those three criteria are age 60 with at least 20 years of service, 62 with at least five years of service, or hit their minimum retirement age MRA and have 30 years of service. So this person is not eligible for full retirement at their mirror. But they did some homework and they did some digging and they realized they could retire at their mirror. Now how is this possible? I just said, you cannot retire with full benefits if you did not satisfy one of those three criteria. So in this case, MRA plus 30 years of service have not yet hit 30 years of service. But what would they be eligible for? There is a provision out there called the MRA plus ten. And what is this? This means that you can retire voluntarily early if you have hit your minimum retirement age and have at least ten years of service like this person does. However, however, there is a warning because there is a reduction in benefits depending on the age at retirement at which time you leave, so you can leave as early as your minimum retirement age, as long as you have at least ten years of service.

Speaker1:
However, however, your benefits are reduced by 5% per year that you are under the age of 62. Now, in this case, though, there's a provision that says if you have at least 20 years of service, it's 5% per year under the age of 60, because this person would be generally eligible to retire with full benefits at age 60. So in this case, they would see a permanent reduction of five times three years, or 15% in their retirement benefits. So if you did their regular pension calculation, you can go back and see how that's done. They would be reducing it by 15% because they are three years earlier than age, 63 years earlier than their first full retirement age or retirement with full benefits. So that's the first option. Now should I the question is, should I retire at my MRA. You can. Yes you can. But should you do you want to go forward with a permanent 15% reduction in your retirement benefits? I don't know if that's the best option for this person. In fact, it's not something we normally recommend is using the Mirror plus ten provision. But if you've got a dream job lined up or you've hit the lottery, or there's other circumstances that would make the mirror plus ten desirable or beneficial for you, than it is an option, just not something we normally recommend.

Speaker1:
Now what is the minimum retirement for this person? Minimum retirement for this person? As I mentioned before, you have to satisfy one of those three criteria and based on them having at least 20 years of service and they're not going to hit 30 years prior to age 60, they're going to satisfy the age 60 with at least 20 years of service. I will say, if this person had 28 years of service instead of 26, they'd be able to retire when they hit 30 years of service at age 59. Then they would satisfy both the MRA. They would have at least their minimum retirement age and have at least 30 years of service. So if you can see that, it'd be a little bit different circumstance. But in this case, even if they wait till age 60, just the three years later, they're going to have 29 years of service. So they're going to satisfy the age 60 with at least 20 years of service. So their first eligibility for full retirement Unreduced retirement is at age 60 with about 29 years of service. So you can see the difference that they can use the MRA plus ten at age 57, but get a reduction of about 15% or get full retirement Unreduced benefits at age 60 with 29 years of service.

Speaker1:
Now, what is another detriment to the MRA plus ten? It's the Fers supplement. Why? Well, you may have gone back and you looked at our previous episodes or other material where we've talked about the first supplement, but what is it? I'm going to briefly describe what it is. It is a bridge. It is an entitlement. It is something that a Fers employee is eligible for only when they retire with full benefits prior to being Social Security eligible prior to age 62. So in this case, both MRA plus ten and minimum retirement are prior to age 62. However, those that retire under the MRA plus ten provision are not eligible for the first supplement. So not only would this person see a reduction if they retired at their MRA of 15%, they would not be eligible for the first supplement from age 57 to 62. But what if they waited till age 60 at age 60? They'll be eligible for full unreduced retirement benefits, and they will get the first supplement from age 60 to 62. So the first supplement is a gap. It's a gap filler or a bridge from whenever they retire, if they retire prior to being Social Security eligible. It's an entitled benefit that they would get from whenever they retire until they're age 62. So that would that would go the first supplement they would get at age 60 to 62.

Speaker1:
They would not get it. And the MRA plus ten provision retirement, no, no additional benefit. So not only would their retirement pension be reduced, they're going to miss out on this additional benefit until they're Social Security eligible. Lastly, what about waiting a little bit longer. So let's say somebody said, well, I don't want to take the MRA plus ten provision. I don't like the idea that I'm going to give my benefit reduced by 15%. I'm going to wait until age 60 and when I'm eligible for full retirement. Now, if you're familiar again with how that pension is calculated, I'm going to give you a brief overview here. But the general rule of thumb is you're going to get 1% of your high three for every year of service. So in this case, if they had 29 years of service at age 60, they're going to get 29% of their high three for every year of, well, 29% sorry, of their high three as their annual retirement pension, their annual retirement annuity. But there's a little extra caveat, right. So if you wait until age 62, it's not just 1% of your high three for every year it turns into 1.1% for every year. So waiting an extra two years could increase or will increase their pension calculation. Now, not that I've got a force everybody to work an extra two years or I'm recommending just a blanket strategy to say, hey, work until age 62.

Speaker1:
But there's a provision if you have, uh, at your at least 62 years old, have at least 20 years of service at the time of retirement, they're going to use a 1.1% factor instead of a 1% factor. When it comes to your pension calculation, this could be a significant bonus and a solid bump because it's a bigger starting point for the rest of your life. So working those extra two years are going to do a couple of things for you if you decide to do that. Now, this person again, the question is should I retire at my MRA? Okay. We're going through the different strategies that they can utilize. Certainly. Yes. We said they can retire at their MRA. Should they? In my opinion, probably not because they're going to see that 15% reduction their first eligible at age 60. But if they're thinking to enhance their retirement benefits, why not wait until 62? Not only would you get an extra two years of service from 60 to 62, but you're going to get that 1.1% factor in the calculation rather than just the 1%, a little extra 10% boost. So if you are eligible to retire at 60 and you can make it till 62 and you have at least 20 years of service at that time, which again, if you're eligible to retire at age 60 with full benefits, you will have at least 20 years of service.

Speaker1:
So that extra boost could be significant. Not only those extra two years, like I said, but now it's 1.1 instead of 1%. So back to the person's question should I retire my MRA? In my opinion, remember, this is just my opinion and it's this opinion is built after working with thousands of federal employees over my years of being specifically or exclusively in the federal market and speaking this language and being an expert in this industry, I do not, and I would not recommend somebody retiring in this case at their MRA if they have not hit the minimum requirements, if they're going to see a reduction in their benefits, like I said earlier, there are circumstances that it may make sense, but in my opinion, just as a general statement, I have not seen a place where recommending an MRA plus ten provision type of retirement a reduced retirement to be beneficial for the federal employee. Yeah, it might feel good to leave service a little bit early, but understand you're getting a permanent reduction in this case only 15% if they had less than 20 years of service, it would have been, uh, 25% reduction, right? 5% for every year under the age of 62. So it's not something we normally recommend. Now, should they retire at their full minimum retirement age, which is age 60? That's that's up to them, right? That's their first time they're going to get an unreduced immediate pension and they will get the first supplement, uh, for the time from age 60 to 62.

Speaker1:
But if they can stomach it, if they can do it, if they can keep going those extra two years to get the extra point 1% in that factor could be extremely beneficial. Again, not just those extra two years, but what else are you doing? You're going to be putting in a TSP for those extra two years, okay. You're going to be building up your Social Security for those extra two years. Um, you're going to be, uh, not not getting the first supplement, but the first supplement is going to be less than your Social Security benefit. So right when you're eligible to retire 62, you're going to get your you can get your Social Security, which is not less like the first supplement, but you get more years of service and a little bit of bump in that calculation. So all things are positive there. Now, I talked to a lot of federal employees who are like, no, I'm leaving right away. Leaving when I'm first eligible for full retirement. No problem. I don't fault you there. It's a personal preference. But just if you're looking at the numbers, the numbers make sense to me to wait an extra two years if it's between 60 and 62.

Speaker1:
Just our thoughts now. If you have different thoughts, reach out to us, right? If you agree, disagree. I love hearing the comments that we get. I love seeing the feedback that we get on this show. If you have questions, you have comments. You want to get your own benefits review. You want to compare these options. You want to see should I retire my MRA? Should I retire when I'm first eligible? Should I wait until 62? Um, if I could retire full benefits prior to 62, should I wait till 62 to get that enhanced benefit? That little extra 0.1%? We can run all those scenarios. You can compare contrast and see what's best for you and your family. So go to Federal Retirement show.com. Fill out the form for experts across the country. If it's not me personally, we'll be reaching out to you to schedule time to go over your entire situation. If you do have other comments, please reach out to us. Let us know how we can help you. Have questions again, fill out that form. We will be in touch. I really do appreciate, as I said earlier, you taking the time out of your schedule to view this content. It's been awesome. Uh, really like seeing everybody's attendance and being here, uh, enjoying the show. We get a lot of great feedback, so really thank you for that. Look forward to seeing you on a future episode.

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