Strategies for MRA+10 & Postponing the Pension until 62?

[TresBelle65]

I am a federal employee and have been planning to retire at 59.5 under MRA+10 (in the first quarter of 2020).

I will reach 62, in July of 2022.

I have started to consider going out at MRA+10 and deferring (or postponing?) the annuity until age 62, at which point I would get an unreduced annuity and can resume FEHB, since I will be eligible upon separation.

The intervening years could be spent, I think, making aggressive Roth conversions.

Just looking to see if others have done this, what might have tripped them up, any tips to share from the experience??

Thanks

[MikeWillRetire]

Do you have 20 years? If so, you can postpone the annuity to age 60.

[TresBelle65]

No, as of right now, I am just over 10 years.

Thank you though.

[TresBelle65]

I just thought of something...if I could possibly stand to work until age 60.5 (January 2021), I could possibly keep my FEHB under Cobra, (18 months) and thereby avoid a reduced pension.

On the other hand, reduced pensions are a much bigger deal for long time feds, since the pension is such a significant portion of their retirement income.

For me, the federal pension does not represent a large percentage of my retirement income, since relatively speaking, 10 years is considered a short time in federal employment.

[grabiner]

No, as of right now, I am just over 10 years.

In that case, your pension will be fairly small, so letting it be reduced and taking the FEHB benefit from the day you retire may be a better deal. You may get fewer pension dollars in retirement, but the combined value of the pension and health benefits is likely to be greater.

(This does not apply if you retire from your federal job and start another job which offers health insurance. However, if you retire from your federal job and stop working entirely, or become self--employed, getting FEHB from ages 57-61 will save you a lot.)

[delamer]

No, as of right now, I am just over 10 years.

In that case, your pension will be fairly small, so letting it be reduced and taking the FEHB benefit from the day you retire may be a better deal. You may get fewer pension dollars in retirement, but the combined value of the pension and health benefits is likely to be greater.

(This does not apply if you retire from your federal job and start another job which offers health insurance. However, if you retire from your federal job and stop working entirely, or become self--employed, getting FEHB from ages 57-61 will save you a lot.)

Excellent point, and it shouldn’t be difficult to figure out the savings on FEHB v. the reduced/lost pension.

[TresBelle65]

I just checked the rules of TCC, if I were stay another year to bridge me to age 62.

In addition to my own portion of the premium, I would also have to pay the government's portion... in exchange for roughly an additional couple hundred bucks/month in retirement...does not seem worth it, overall.

[delamer]

I just checked the rules of TCC, if I were stay another year to bridge me to age 62.

In addition to my own portion of the premium, I would also have to pay the government's portion... in exchange for roughly an additional couple hundred bucks/month in retirement...does not seem worth it, overall.

It would be simple to do the math, though.

For instance, if paying $6,000 in premiums and forgoing $10,000 in annuity payments ($16,000 total) for one year would get you $200/month more in your annuity for 30 years ($72,000 plus inflation adjustment) that’s a good tradeoff.

(Obviously, I don’t know your real numbers. Just an example.)

[sandramjet]

Pardon my ignorance, but what does MRA, FEHB, TCC stand for?

[MarginalUtility]

If you pursue your plan, you should apply for a postponed immediate FERS annuity, not a deferred annuity. Postponed immediate annuitants, who are eligible for immediate retirement benefits when they leave government service, may restore any FEHB eligibility when their annuities commence. Deferred annuitants, who do not meet the requirements for immediate benefits, may not restore FEHB eligibility.

I would recommend not submitting your application more than 90 days before you want your annuity to commence. OPM's application form allows you to begin your annuity on the first day of any month before age 62. However, OPM's regulations bar the submission of applications more than 90 days in advance.

[grabiner]

Pardon my ignorance, but what does MRA, FEHB, TCC stand for?

MRA=Minimum Retirement Age. For Federal Government employees, this is the minimum age you must have to get a pension upon retirement, if you have at least 10 years of government service. (It used to be 55, but it is moving up gradually to 57 for later birth years, just as Social Security is moving up from 65 to 67.)

FEHB=Federal Employees Health Benefits. This is the Government's health insurance program, with multiple plans available.

TCC=Temporary Continuation of Coverage. This is usually known as COBRA; it allows you to keep coverage on your employer plan for 18 months after leaving the employer.