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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]I’m totally confused about determining what age you “retire” at. Say you worked for the government from age 31-35 (5 years total) then left for the private sector.  To make the math easy, say your high 3 average was $100,000. If you file for benefits when you are 62, what benefits, if any, are you entitled to?[/quote]

5% of 100k (which have been eroded by 27 years of inflation so probably won't cover 5% of your living expences)[/quote]

NP - So then wouldn't it be better to pull out the contributions when you leave the gov't at 35 and then invest them so they have some growth? At 100k over 5 yrs contributing 4.4%, you would have put in 22k, which would be a sizeable chunk to put into an IRA. In contrast the payouts from the annuity would be $5000/yr or about ~$400/month. Is the value of the annuity the fact that that $400/month would be in perpetuity? (Just figuring out how to compare these things against each other.)[/quote]

Very good question and astute analysis.  Employees classified as FERS-FRAE and FERS-RAE should have their pension contributions refunded in this scenario and invest them into an IRA.   Meanwhile, regular FERS employees should [i][b]not[/b][/i] have their pension contributions refunded and defer the pension until 62 no matter how far that is away because they paid a pittance for it (0.8% of salary).[/quote]

It's an interesting question.  Let's make some reasonable assumptions based on the above hypo -- someone who worked for fed. govt. for 5 years from 31-35 under FERS-FRAE, with a high-3 of $100k, and then leaves federal government and works until age 62 before retiring.

Scenario #1 -- they leave the money in the FERS system.  At age 62, they can start collecting a lifetime annuity of $5k/year.  Adjusting for 27 years of inflation, that's worth about $2.5k per year in [i]today's dollars[/i].

Scenario #2 -- they take out their contributions and invest in an IRA.  The contributions would be $22k.  If they invest that for 27 years, adjusting the return for inflation, a reasonable estimate is they will have between $50k and $100k in the IRA in [i]today's dollars[/i]when they turn 62.  That is enough to buy a lifetime annuity of $3k-$6k (again, in today's dollars).

So, I agree scenario #2 (taking out the FERS-FRAE contributions and investing them is likely the better option.

Of course, it also carries some risk -- if the real (inflation adjusted) return on the IRA is less than about 2.5%, they would have been better off keeping the money in the pension.  A long term REAL return of 2.5% is way lower than the historical average, but it's definitely a significant possibility.  You can't just assume that scenario #2 will always come out ahead.  There is some risk.  (That said, personally, I'll gladly take a bet that the stock market will beat 2.5% over the course of a 27 year period.)[/quote]

Tying this into the other discussion on this thread - the opportunity to buy into FEHB at age 62 may actually be the much bigger value in this. Yes, you may be sitting on those funds and passing up growth potential. However, the differential between private insurance and FEHB today is several thousand dollars a year - and may continue to increase. So it's another factor to consider. [/quote]

That's a different hypo.  We were talking about someone who left fed service in their 30s, whether to keep the money in FERS or withdraw it.  Such a person cannot buy into FEHB.  To do so, you have to hit retirement age with the feds (and have been in FEHB for 5+ years).  But, I agree, it's a great benefit.[/quote]

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