Second Thoughts on Retiring This Year

I’ve always enjoyed reading advice columns like “Dear Abby” and “Ann Landers.” So I thought I’d continue my recent trend of answering reader queries by trying to provide some advice to a person who is preparing to retire, but is having second thoughts due to the economic situation in the country. I’m sure she’s not the only one in this position. 

Dear Tammy:

I am 63 years old with a service computation date of 6/2/1991. I have just under $1.3 million in my Thrift Savings Plan (it was almost $1.5 million at the start of the year) and about $50K in savings. I had planned for a long time and hoped to retire at the end of this calendar year. I have taken no leave this year in order to boost my savings. I keep reading about the huge cost of living adjustment and pay raise coming, of which I would receive neither if I retire at the end of this year, and racking my brain about what to do! Taking my annuity at the current rate next year, along with my deceased ex-spouse’s Social Security benefit (I plan to do that until age 70), I would still need to withdraw about $3,000 monthly out of my TSP in order to have the same income I currently net monthly. I don’t know if taking anything out of my TSP right now would be wise, given that I will be locking in the losses, but I am also tired of working.

With things so uncertain right now, I feel like the deer in headlights not knowing what to do. I like the people I work with and the work is somewhat interesting, but my heart was set on retiring. Is there advice you could give me that might help me make this decision?

Dear Deer:

Let's look at the bright side of going ahead with your plan to retire on Dec. 31, 2022. First, your  lump sum leave payout at the end of the year could be worth quite a lot. If you follow through with your plan to forego annual leave this year, you could have 448 hours of leave saved up. When that’s multiplied by your hourly pay rate, you could end up with a nice chunk of change, even after deductions. Remember, the value of this payment for a retirement that begins on Jan. 1, 2023, will include the 2023 annual pay adjustment for General Schedule employees. The White House has proposed a 4.6% increase for 2023. Some lawmakers are proposing an even higher amount. 

Then there’s your Federal Employees Retirement System benefit, which will replace more than a third of your high-three average salary, since you will have more than 31 and a half years of service by the end of this year. The calculation will be: 1.1% x years and months of service x high-three average salary. You qualify for the 1.1% factor since you are retiring past age 62 with more than 20 years of service under FERS. You didn’t mention your balance of sick leave hours, but these will also increase your length of service for this calculation.

Your first COLA on this benefit will be effective Dec. 1, 2023, and payable in your January 2024 FERS payment. COLA effective dates aren’t that important when choosing your retirement date. But getting a COLA, even a partial one like FERS provides, will ensure that income from your FERS basic benefit will come close to maintaining its buying power for many years to come.

Social Security rules allow you to claim your widow’s benefit from your late ex-spouse while delaying your own earned Social Security retirement benefit. This is a huge benefit for you that will give you a much higher earned Social Security benefit if you delay claiming your own benefit until age 70. Once you begin receiving the larger earned Social Security benefit, you could decrease withdrawals from your retirement savings. 

One of the best things you’ve done to prepare was to accumulate such a large amount of money in your TSP account. If you use the 3%-4% rule for withdrawing from your retirement investments, you should be able to safely withdraw around $3,000 to $4,000 a month from your TSP balance without running out of money any time soon. 

In your case, it might be a matter of gaining confidence to retire by understanding how your sources of income, taken together, will be enough to support you in retirement. 

In my humble opinion, you have prepared as well as you could have for your retirement, and you should be commended.

This year’s economic problems are not unique in our history and may provide a good lesson for us all: Retirement, which can last for decades, will have ups and downs as well as twists and turns, just like any long journey. The question is: Are you ready for the ride?