financial planner Stephen Zelcer

MRA+10 Retirement
Should you postpone your FERS pension? (w/video)

Read the video transcript:

FERS employees, you have the ability to retire early with something known as the MRA plus 10 retirement. Now let’s define that. MRA, Minimum Retirement Age, for most FERS Employees, is 57. So MRA, 57, plus 10, what does that mean? 67? And you call that early retirement? No, so the plus 10 is not 10 years of age, it’s 10 years of service.

If you are MRA, and you have at least 10 years of service, you can retire. Now, some of you may remember from a previous video, we spoke about retiring at MRA. You needed to have 30 years of service and now all of a sudden I’m saying you can have with just 10 years of service? What’s the difference between MRA in 30 versus MRA plus 10?

The difference is as follows with MRA in 30 You get the full pension immediately. No questions asked However, if you are MRA plus 10, which means MRA minimum retirement age with at least 10 years But less than 30 Well, we’re going to ask you questions. The question we’re going to ask you is, Would you like your pension to start immediately, or would you like to postpone your pension?

If you start your pension immediately, there’s going to be a penalty, a permanent reduction. The reduction is 5% for each year that you are below the age of 62. If you don’t want that penalty, if you don’t want that permanent reduction, you could postpone your pension to a regular retirement qualification.
So when I say regular retirement qualification, if somebody has just 10 years of service, then a regular retirement with just 10 would be age 62. If somebody had 20 years of service, a regular retirement qualification would be age 60. So if you are retiring with MRA, And at least 10 years of service, you could choose to take your pension immediately.

It will come with a penalty, a permanent reduction. Or you could choose to avoid that penalty and postpone to a regular retirement qualification.

Now, this choice, whether you should take your pension immediately with a penalty of permanent reduction, or whether you should postpone to avoid the reduction, if you think about it, That’s very similar to the social security decision .With social security you have a choice you could take it early with a reduction or you could postpone and avoid the reduction and just as I said by social security I’m gonna tell you the same thing here by MRA plus 10 . By social security You’re right If you postpone you’ll get more money and if you take it immediately you’ll get less money But it’s less money for more time.

And, if you run the math like we’ve done by Social Security, that less money for more time is actually very, very valuable. Delaying it is not hard to make up for the benefits that you walked away from. So, by Social Security, I tell people not to postpone, but to take it early.

Now, I do have some exceptions by Social Security, so you should definitely watch that video for the explanation of the exceptions.

But just as by Social Security, my general recommendation is. Not to postpone, but to take the reduction early, so too by MRA plus 10, you have the choice. You could take it early with a reduction, or you could postpone and avoid that reduction. My general recommendation is to take it early with the reduction.

And by Emory plus 10, there’s yet another consideration, another justification for taking it early as opposed to postponing, because with MRA plus 10, if you take it immediately, you will be able to continue the FEHB the health insurance coverage immediately, as opposed to if you decide to postpone, well, you could get the FEHB coverage when your pension kicks in the future.

But during those few years that you were postponing, you are not going to have FEHB coverage, which means you’re going to have to buy your own health insurance. Have you seen the cost of health insurance? You’re paying for FEHB, but I’m sure you realize that the federal government is making a massive contribution towards your FEHB premiums.

You guys are only paying roughly 30% of the FEHB premium. The other 70% is made up by federal government contributions. So, if you decide to postpone your pension, during that period of time of postponement, you’re not going to have FEHB. You’re going to have to buy your own health insurance, which means you’re not having the government pay 70% of your premiums.

You’re going to have to pay the entire premium yourself. That’s very, very expensive. So not only are you postponing the money that you could have had, but you’re also incurring a health insurance cost to yourself during those years that you’re postponing. Combine those two, and you will see that the cost to you for postponing is going to take you decades.

When I say decades, I mean 30 plus years to recover what you lost. So with MRA Plus 10, You have a choice. You could take a reduced benefit immediately, or you could postpone and avoid the reduction. My general recommendation, just like I said by Social Security, take the money and run. I hope you enjoyed this video.

If you did, please share, subscribe, like. I’ll see you in the future with more content.

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