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Should You Retire At Age 62?
One of the most frequent questions we’re asked is “what’s the right age for me to retire?”
Unfortunately, there’s not a one size fits all answer to this question.
There are many factors you should take into consideration when making this decision.
In today’s blog, we’ll discuss why many federal employees use 62 as the age that makes the most sense for them.
Age 62 is huge milestone as it relates to the FERS retirement calculation (assuming you have at least 20 years of service).
This calculation determines your annual FERS pension amount in retirement.
Prior to turning age 62, the pension formula is below.
High-3 Average Salary x 1% x Years of Service
However, when an employee turns 62 and has 20 years of service, the factor used in the calculation changes from 1% to 1.1%.
High-3 Average Salary x 1.1% x Years of Service
It might not look like a huge deal at first, but it makes quite a difference.
Essentially, it’s a 10% raise — for the rest of your life!
Most federal employees are eligible to receive Social Security benefits at age 62.
There are important planning considerations when deciding to receive Social Security distributions.
Start too soon, and you receive a smaller benefit for the rest of your life.
Start too late, and you receive a larger benefit for a shorter time span.
An important side: if you retire from federal service at 62, or any age, you are not obligated to begin receiving Social Security at the same time. They are separate programs.
You can wait all the way until age 70.
And each year you wait, your benefit amount increases.
According to SSA.gov, in 2021, if you start receiving benefits at 62, your benefit will be around 29% lower than your full retirement age amount.
It makes sense to work with a financial professional and run a break-even analysis for your benefits.
Also be sure to take into consideration your spouse and their benefits.
A COLA stands for “Cost of Living Adjustment” in retirement.
Over time, the prices of goods and services tend to rise.
The COLA attempts to keep pace with these rising costs by increasing your pension amount each year.
FERS and CSRS employees receive these adjustments each year — once they hit age 62.
For example, if you retired at age 59, you wouldn’t receive a COLA for the 3 years (ages 59, 60 and 61).
You would start receiving any COLA adjustment once age 62 is reached and every year thereafter.
At 62 and moving forward, your pension would be increased with each annual COLA adjustment, assuming the COLA for the year is not “0”.
Each year you continue working, you keep receiving your annual salary and bi-weekly paycheck.
As a result, this will increase your Social Security benefit and often your FERS pension amount.
Typically, your highest earnings year are at the end of your career.
If you remember the formula from earlier (High-3 Average Salary x 1% or 1.1% x Years of Service) your High-3 will go up and you’ll receive an additional year of service.
All these contribute to a higher FERS pension — for life.
Like mentioned previously, everyone’s situation is unique.
We encourage you to sit down with a financial professional and go through your numbers.
The more you know, the more educated and informed decisions you can make.
Schedule your complimentary federal benefits review and retirement analysis here with a licensed insurance professional.
For additional information, you can also contact your friends at GPIS by calling 866-201-7829 or by sending an e-mail to firstname.lastname@example.org.
-Sam Wiss, RICP
By responding to this offer, you may be contacted by a licensed insurance and financial professional regarding life insurance and/or annuity products. Not affiliated with, or endorsed by, the federal government or any government agency.
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