Q&A: Should I retire early via VERA from Federal Service?

Question

I may have the opportunity to retire early via VERA from federal service and am wondering if it would be a smart move financially?  

I’m 50 now and my MRA is 56yrs/8mos, therefore I would essentially be retiring 6 years early, thus losing 6% from my pension. I am maxed on the GS payscale as a GS-15, Step 9, thus remaining longer will only yield higher annual COLA and my high 3 is about maxed as well, only increasing a bit more if I remain another year, but would miss the VERA opportunity. 

I would not make the move unless I was able to get a contract job and continue working for several more years. Therefore, my intent would be to continue living of my new contract salary and invest 100% of my pension for the next 8-10 years. I’m basically wondering if in concept this is a good idea?

Answer

This concept is an excellent idea. Yes, you’d lose the possible 6 years in your pension but you can certainly make up for it by investing 100% of your pension.
Figure 100% of your pension is worth $40k. Working 6 more years may get you 6% of your $167k salary = ~$10k. So for every $40k of pension you invest, you’d be setting aside the equivalent of 4 years. If you do that for 8 years, you will have set aside 32 years, and that does not factor in investment growth.

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