Leaving just a day before your ARM could cost you over a million dollars in retirement benefits. Image: Lemau Studio/Shutterstock.com
By Sam Zelinka, Fi Government Employee
I want to challenge your ideas about retirement and ask you if you could possibly retire at 50 or even 40.
Does that sound crazy to you?
If so, you’re probably used to standard retirement content on federal employee news sites.
I can’t tell you how many articles I’ve read cutting hair on whether it’s possible to retire at the minimum retirement age (MRA) or whether to hold on instead up to 62 years old.
But what if all those articles on federal retirement details miss the point?
In the rest of this article, I’ll help you zoom out and ask the important questions you should be asking yourself about retirement.
The FIRE movement
If you’ve been on the internet in the past 5 years, you’ve probably read many stories about “the FIRE movement”. No, they are not arsonists. Instead, FIRE is an acronym for financial independence and early retirement. Members of the FIRE movement save a large portion of their income early in their careers, then reach a “crossing point” where their savings can sustain them for the rest of their lives.
And although there are many exaggerated sensationalist stories on internet news sites. In fact, I’ve met a lot of people who have FIRE and they’re normal, ordinary people, like you and me.
your money or your life
I fell in love with the FIRE movement a few years ago when Vicki Robin republished her book “Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence”.
The book begins with a dramatic scene. You meet a man with a gun on the street and he says, “Your money or your life.” Obviously, if that happened to you, you would give him your wallet.
But in reality, we face the same question every day as we trade (a part of) our lives for money. Not only does work take hours away from loved ones and hobbies, but the modern workplace is the perfect incubator for cardiovascular disease and metabolic disorders.
Is a paycheck really worth destroying our health, happiness, and relationships?
Your Money or Your Life features tools that help you calculate how much of your life’s energy you’ve spent (or wasted) on things like your car, your house, or your last iPhone. If you’re like me, once you start looking at possessions in terms of how much of your life you’ve traded for them, you might find that you want less stuff.
Finally, the book helps you calculate your crossover point where your assets will cover your expenses.
Without going into too much detail, the crossover point is around 25 times your annual expenses. So if you spend $50,000 a year, you can sustain yourself indefinitely on $1.25 million.
Can federal employees take early retirement?
While the ‘Incredibly simple’ math behind early retirement isn’t specific to a job or income level, there are a few wrinkles that make it difficult for federal employees to retire before their ARM.
In fact, once I got the early retirement itch, I started scouring the internet for resources for federal employees who wanted to retire early. And unfortunately, I didn’t find many answers to important questions. So I had to sift through the OPM’s incomprehensible legal jargon and piece together what early retirement looks like for federal employees.
What I learned is that there is good news and bad news. The good news is that federal pre-retirees are always better off than private sector pre-retirees because they can tap into their deferred retirement (sometimes between 57 and 62 years old depending on your years of service). The bad news is that by leaving the federal government early, they leave a lot of money on the table.
How much money could you ask?
I estimate that if I leave just a day before my ARM, I will lose over a million dollars in retirement benefits.
The Million Dollar Workday
How can a day’s work be worth a million dollars? Especially in a place like the federal government known for chronically underpaying highly skilled workers?
When I did the math, I have found that getting to the point where you are eligible for full and immediate retirement (30 years of service + MRA) gives you a plethora of retirement benefits. At this point you can:
• Continue your FEHB, paying only the employee portion of your lifetime premium (calculated value of $406,000 for my scenario)
• Receive your full FERS pension ($440,000 more than my reduced pension)
• Benefit from the FERS social security supplement from 57 to 62 years old. ($202,000 for me)
Of course, if you could choose between retiring at age 56 and 364 days or working until age 57 for a million dollars more, you would only be working one day longer.
But in almost every early retirement scenario you run, you’ll find you’re leaving more than seven figures of benefits on the table by checking a day, a year, or a decade before your ARM.
Who would leave a million dollars on the table?
This is the point where a normal FEDweek article would convince you to stick with your ARM to ensure you get that extra million in retirement benefits.
But I’m here to tell you that it’s okay to leave money on the table.
In a way, we are all answering the same question as the assaulted man. Every day we show up to work, we choose between our money and our lives…and we choose our wallets over our health.
Even though it’s not pleasant to think about it, we don’t live forever. This graph shows beautifully that we lose about half of our physical condition between the ages of 35 and 80 and all but the fittest lose the ability to perform fairly basic mobility tasks at this age.
If you’re 40 and dream of climbing the Spanish Steps in Rome on your retirement vacation once you’ve got “enough to be really safe” in retirement, you might find that you’ve worked all those extra years just to be too frail to walk. at the top.
Working an extra decade for millions more in retirement is not without cost. As humans, we’re good at plugging dollar signs into compound interest calculators, but bad at calculating how many of our lives we’re trading for that money.
What to do if you want to explore the FIRE movement
In this article, I just wanted to give you a taste of what FIRE is and why federal employees should consider it (even at potentially significant opportunity cost).
Of course, there are a lot of very important technical issues you need to resolve about early retirement.
• Where will I get my health insurance?
• What is the best way to know how much money I am spending in a year?
• How will I know if my portfolio will be depleted in retirement?
• How big of a safety factor should I put into my retirement plans? (etc)
Fortunately, there are many good books, bloggingand podcasts that answer these questions and show you how to build your own retirement plan. I’ve linked a couple above, but if they don’t speak to you, there are enough voices from the FIRE movement that you can find one that works for you.
If you have specific questions about early retirement, I have tried to answer them on my blog. And if there’s a question about Fed-specific early retirement that I missed, you can always email me.
Sam Zelinka started working for the government at 18 and loved it so much he never left. He created a blog to help federal employees navigate the unique workplace issues they find themselves in, especially as they relate to retirement and benefits. You can find it at https://www.governmentworkerfi.com or on YouTube at https://www.youtube.com/c/governmentworkerfi.
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