Wage raises are not the same as cost-of-living changes — there is a significant difference between the two. Both are wholly separate. And this distinction can be important in a time like the present when hyperinflation has gotten out of control, expenses are increasing, and the long-term prospects are bleak. Is it a suitable time for retirement if you are still employed but have reached the age when you can do so? A lengthy period of rising prices can take its toll on the purchasing power of annuities for FERS retirees, thanks to the COLA provision included in their benefits. And if you are close to retirement, you must do some research before you retire.
In January 2023, most government employees will be eligible for a wage increase of at least 4.6 percent. Congress may even raise it to 5.1 percent. Several outcomes are possible based on how the current situation shifts between now and November.
The exact amount of the cost-of-living adjustment (COLA) for retirees has not yet been decided, although preliminary estimates put it at least 8.6 percent. However, this figure may be higher or lower based on how inflation travels from now until September. That would entail a rise of 8.6 percent in benefits for seniors receiving Social Security and CSRS, but “just” 7.6 percent for those receiving FERS. That’s quite a bit. It will be the most significant such event in recent memory. However, this is happening because prices are also increasing. The method used to estimate inflation also does not consider several additional costs associated with retired senior citizens. The way to solve this issue is to postpone your retirement for a few years.
According to benefits expert Tammy Flanagan, a person making $80,000 per year can increase the starting annuity they receive by $30,000 by working just two more years after reaching their retirement age. If you despise your job, your boss, your co-workers, or the place you live, that prospect will give you nightmares. If you pass it on, it will put money in your pocket for the rest of your life. Also, it is connected to inflation.
The following illustrates how postponing retirement can be beneficial, particularly during periods of surging inflation.
At the age of 60, the length of service is 19 years. And 19 times $80,000 times one percent equals $15,200, multiplied by 0.9 equals $13,680 (10 percent reduction under the MRA plus ten years of retiring since the worker did not have 20 years on the job at age 60 to apply for an unspecified amount of pension)
At the age of 61, the duration is 20 years. The additional $12,000 reflects a FERS addition of $1,000 a month paid till age 62, when the retiree might file for SSA and obtain an even higher SSA pension based on their career of FICA taxable salary. This addition is available to the retiree until age 62.
At the age of 62, the length of service is 21 years. And 21 times $80,000 multiplied by 1.1 percent equals $18,400 plus $24,000, which equals a total of $42,480.
If they stayed at work for just two more years, this individual would have earned over $30,000 more each year, allowing them to retire at 60 rather than 62. Individuals who quit their job at age 60 might collect their Social Security Administration benefits at age 62. However, the difference in their FERS basic pension savings would still be approximately $5,000 annually or $600 monthly for the rest of their lives! Additionally, they would have enjoyed having two more years of their supposedly top paid years recorded to their SSA account.
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Bio:
My name is Kevin Wirth and I have worked in the financial services industry for many years and I specialize in life insurance and retirement planning for individuals and small business owners, with a specialty in working with Federal Employees. I am also AHIP certified to work with individuals on their Medicare planning. You can contact me by e-mail or phone. I look forward to the opportunity of working with you on these most relevant areas of financial planning.
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Disclosure:
These articles are intended for educational purposes only. Please contact your advisors for legal, accounting or investment advice.
