Top paid, long-service federal workers will be able to boost their lifetime pensions nearly $5,000 a year if they move quickly and retire before March 1. On the other hand, high level civil servants who retire later this year could "lose" hundreds of dollars a month in their annuities.
The pension advantage that will come for many February retirees could trigger an exodus of longtime, senior level aides unmatched since June 30, 1973. That is when a record 50,000 people retired from the government -- all in one day. Usually about 8,000 people retire monthly.
The annuity bonanza is the result of frozen pay levels for senior bureaucrats, combined with increasingly valuable, rapid-fire cost-of-living increases for federal and military retirees. Those raises come every six months and are linked to increases in living costs.
Under a system that freezes executive pay and gives retirees raises every six months, there comes a point when those executives would be better off financially if they stopped working. That point is a few weeks away for many.
Take the example of a top level civil servant earning the maximum $50,100 salary. Pay at this level has been frozen for several years, or moved up slower than for lower grade workers or pensions paid lower grade retirees.
Federal pensions are based on service time and on the average of the three highest salary years. Once an employe has worked over 40 years -- and many do -- he or she is at the maximum 80 percent level. That is, the pension will be 80 percent of the average of the highest three years of pay. If one's salary has been frozen for some time, the high three isn't going to go up. Neither is the maximum (80 percent) annuity one can get.
An employe who meets those age, service and salary qualifications could retire now and get a pension of about $3,300 a month, according to Office of Personnel Management statisticians.
If that employe retired before March 1 (when a new cost-of-living raise goes into effect) he or she will be able to get that raise, and be able to pick up most benefits of the last cost-of-living raise. It went into effect in September 1979 and was for a record 6.9 percent. The coming March raise is expected to be around 6 percent.
By quitting in time to qualify for the last increase, and the forthcoming raise, such a federal worker could qualify for an annuity of slightly more than $3,700 a month. If that individual waits until mid-March to retire he or she could "lose" several hundred dollars a month by missing out on the September 1979 raise.
The difference between a February retirement and a March retirement is nearly $5,000 a year. A top worker going out in February could get an annuity of around $44,400, whereas the same employe waiting until March to retire would get less than $40,000.
For the more typical federal worker, the one who doesn't have a high salary or 40-plus years' service, the February advantage will be less. But there is still a significant lifetime financial benefit there for anybody eligible to retire, particularly those people who don't plan to work much longer.
Retirement is a very personal thing, so don't make a decision based on just this column. Check out the numbers with your retirement office. If this is the right time, it could mean more money in the bank to do it now.