Leave Fed? Help me with the math?

[Anonymous]

Anonymous wrote:You are not eligible for pension yet.

she knows she won't get it at 50 but will get it at 62. she is eligible.

[Anonymous]

Anonymous wrote:

Anonymous wrote:GS15
Lawyer
$175k now
50 years old
15 years in gov

Ballpark pension if stay: 175k x 30 (years) x 1.1% = ~$58k
Ballpark pension if leave: 175k x 15 (years) x 1%= ~$26k
(I realize salary will grow so Est pension isn’t 100% correct)

Given the above, what is the min salary you would accept from private sector to leave?

Don't forget the effects of inflation, OP.

If you stay with the feds another 12 years (you could actually retire at 62 with 27 years of service), the pension would be ~$52k, adjusted for inflation. Assume 4% inflation per year for the next 15 years, and that would be abut $83k in 2034 dollars. If you left now and took deferred retirement, you could get $26k/year when you hit 62—but that, too, is in 2034 dollars.

Retire at 65, and those numbers become about $104k in 2027 dollars if you stay a fed...and still $26k if you take deferred retirement.

Hang on until you're 68, and those numbers become $129k (and $26k) in 2030 dollars.

Of course, all that assumes that federal salaries will keep up with inflation, and they don't (especially the cap). So the actual inflation-adjusted numbers will be lower if you stay. But I assume you get the idea: over the next 12-18 years, inflation will make a much bigger difference than your numbers suggest.

Also, don't forget that if you do leave, you can cash out your FERS contributions and and invest it. You've been a fed long enough that your contributions are still only 0.8%, so even over 15 years I don't think cashing out will get you enough money that you can do better than the pension by investing it, but it may at least be worth running the numbers.

These calculations confuse me. What’s with the inflation adjustment? Fed salaries aren’t being adjusted for inflation at all. We might get some minor 1-2 percent increases.

[Anonymous]

close to 5% increase is expected for 2023 so that's not nothing.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I just realized that it may make more sense to think about the numbers in terms of 2022 dollars.

Again, for simplicity assuming 4% annual inflation and that fed salaries and inflation keep pace:

Retiring at 62 as a fed: ~$52,000 in 2022 dollars
Retiring at 65 as a fed: ~$57,500 in 2022 dollars
Retiring at 68 as a fed: ~$63,500 in 2022 dollars
Deferred retirement at 62: $16,400 in 2022 dollars

Right so that’s about $30k more pension, which represents about $750k in capital assuming 4% withdrawal rate to save that over next 15 years she would need probably about $40k/year assuming investing in low risk/slow growth assets.

So basically any job paying $30k-$50k more salary simply replaces the pensions — assuming she even can make it 15 years in that private sector job (depends on how ageist your industry is). To be worthwhile You would like for a boost of $75k or maybe $100k to a) make it after tax dollars you are saving and b) boost savings to hedge against being laid off prior to 62 or so.

Is that salary dollars or cash?

If fed retirement at 62 at 52k pension, taxed at 22%, take home monthly = ~40.5k cash * 20 yrs (dead at 82?) = 812k cash

vs

50 at income 250k taxed at 35% = 162500 cash per year.

So to have 812k at 62 (~12 yrs), would need to put away 67666 cash a year or 91k in salary.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I just realized that it may make more sense to think about the numbers in terms of 2022 dollars.

Again, for simplicity assuming 4% annual inflation and that fed salaries and inflation keep pace:

Retiring at 62 as a fed: ~$52,000 in 2022 dollars
Retiring at 65 as a fed: ~$57,500 in 2022 dollars
Retiring at 68 as a fed: ~$63,500 in 2022 dollars
Deferred retirement at 62: $16,400 in 2022 dollars

Right so that’s about $30k more pension, which represents about $750k in capital assuming 4% withdrawal rate to save that over next 15 years she would need probably about $40k/year assuming investing in low risk/slow growth assets.

So basically any job paying $30k-$50k more salary simply replaces the pensions — assuming she even can make it 15 years in that private sector job (depends on how ageist your industry is). To be worthwhile You would like for a boost of $75k or maybe $100k to a) make it after tax dollars you are saving and b) boost savings to hedge against being laid off prior to 62 or so.

Is that salary dollars or cash?

If fed retirement at 62 at 52k pension, taxed at 22%, take home monthly = ~40.5k cash * 20 yrs (dead at 82?) = 812k cash

vs

50 at income 250k taxed at 35% = 162500 cash per year.

So to have 812k at 62 (~12 yrs), would need to put away 67666 cash a year or 91k in salary.

So what vehicles are available that have the same risk level of a government pension?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I just realized that it may make more sense to think about the numbers in terms of 2022 dollars.

Again, for simplicity assuming 4% annual inflation and that fed salaries and inflation keep pace:

Retiring at 62 as a fed: ~$52,000 in 2022 dollars
Retiring at 65 as a fed: ~$57,500 in 2022 dollars
Retiring at 68 as a fed: ~$63,500 in 2022 dollars
Deferred retirement at 62: $16,400 in 2022 dollars

Right so that’s about $30k more pension, which represents about $750k in capital assuming 4% withdrawal rate to save that over next 15 years she would need probably about $40k/year assuming investing in low risk/slow growth assets.

So basically any job paying $30k-$50k more salary simply replaces the pensions — assuming she even can make it 15 years in that private sector job (depends on how ageist your industry is). To be worthwhile You would like for a boost of $75k or maybe $100k to a) make it after tax dollars you are saving and b) boost savings to hedge against being laid off prior to 62 or so.

Is that salary dollars or cash?

If fed retirement at 62 at 52k pension, taxed at 22%, take home monthly = ~40.5k cash * 20 yrs (dead at 82?) = 812k cash

vs

50 at income 250k taxed at 35% = 162500 cash per year.

So to have 812k at 62 (~12 yrs), would need to put away 67666 cash a year or 91k in salary.

I don't follow this math at all. What are you trying to prove?

[Anonymous]

I think the above is saying that OP would need to make a salary of $90k more to have same amount in retirement?

[Anonymous]

OP, This is how I calculated it. I think the term is present value of future benefits. Feedback is welcome.

The gov basically wants you to take your pension starting at age 62. Let’s say you’re a fed for 20 years by the time you hit 62 (either immediate or deferred retirement).

And let’s assume your high 3 average is $200k (this is obviously for high GS/SL/SES).

That’ll give you about $44k/year in pension income, more or less.

Now, let’s assume you live another 25 years after that. Your question is basically “How much money would you need to give you $44k/year for 25 years?” In other words, what kind of investment do you need to have at retirement in order to match what the pension will give you?

Using a retirement calculator (google “how long will my retirement fund last”), you’d need about $950k.

So now you calculate what you need to save monthly for the next 20 years in order to accumulate $950k. At a 5% rate of return, I need to save $2300/month (after tax).

Now, if you’re a recent hire, you are contributing 4.4% of your pre-tax salary to the pension – about $7k/year (again, assuming DC-local GS-15), or probably something like $4k after taxes you’ll be missing.

So the delta in after-tax savings between pension and non-pension is about $23,600. And $23,600 after taxes equals probably about $35,000 in salary per year in today’s dollars.

So, a lot of variable you’ll need to fill out for yourself. At what age will be begin to draw a pension, how many years of service will you have, what will be your high 3, and what’s your pension contribution rate? Let alone rate of return and how long you’ll live after you retire. And this doesn’t factor for surviving spouse.

But if you follow this logic, you should be able to get a rough estimate on how much salary you’d need to make up for the value of a pension.

You should note that I didn't account for the pre-tax status of the pension vs the post-tax status of the investment account. There are a ton of moving parts to just the pension alone.

But in my mind, if you need a super-precise calculation to make the decision for you, you're better off staying with the sure bet (federal employment). But knowing that a pension is worth roughly 20% of your base is a good factor to feed into your calculus.



OP - your numbers will vary a bit, but the process is repeatable and the overall percentage of your salary that you need as a raise to replace should be roughly the same percentage.

[Anonymous]

How do you estimate the amount of money you lose by not getting COLA until 62 in OP's case?

[Anonymous]

Don't forget the 6k 401k contribution provided by feds and the cost savings of the 20-25 years before death at the reduced cost of keeping medical insurance. How much is saved keeping bluecross or some other premium insurance over the 20-25 years?

[Anonymous]

What is the cost of federal blue cross vs another?

[Anonymous]

Anonymous wrote:What is the cost of federal blue cross vs another?

It seems feds can maintain medical premiums at ~200-400 a month for a couple. Whereas private equivalents can pay anywhere between 2000-4000 a month.

[Anonymous]

Anonymous wrote:

Anonymous wrote:What is the cost of federal blue cross vs another?

It seems feds can maintain medical premiums at ~200-400 a month for a couple. Whereas private equivalents can pay anywhere between 2000-4000 a month.

that sounds about right even though range is pretty wide. only difference is that while working deduction is pretax, after retirement deduction is post tax.