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Incentives to Retire Early: Are They Worth Taking?
Brandon S. Christy, CPA, PFS



Recently, many federal agencies have been announcing early out (VERA) and

incentive (VSIP) offers to retire. All offers are not the same, please read

agency documents carefully before applying or accepting an offer. 

(For a brief overview on the VERA and VSIP programs, href="http://www.retireinstitute.com/newsletter/VERA-VSIP.pdf"

target=_blank>click here.)

If you apply for VERA/VSIP there is usually a very limited time period

between learning that the agency has approved your application and deciding if

you will accept the offer. You should have your decision made prior to an offer,

so you can be sure to consider all factors.

The decision to retire should encompass more than financial considerations,

but for the moment, let us look at the numbers.

If we assume you have a planned retirement date but take the VERA/VSIP offer,

how many years will it take for the lump sum payout to benefit you?

Below are two scenarios laying out this piece of the decision.

Scenario 1:


55 year old CSRS employee with 30 years of service.



Years to breakeven: 8.6

face="arial, helvetica, sans-serif">Scenario 2:
60 year old FERS employee

with 25 years of service.




Years to breakeven: 10.9

Considerations:

  • FERS employees retiring in 2014 or later will receive credit for all sick

    leave hours towards their creditable service for annuity calculation. For those

    retiring sooner than 2014, half of sick leave is creditable.

  • The FERS Special Retirement Supplement is not available under early

    retirement until you reach your Minimum Retirement Age (MRA).

  • Simplified breakeven calculation: incentive ÷ annual difference in

    annuity  (Items not considered in this estimate: taxes, COLAs, additional

    pay while working, Special Retirement Supplement, Social Security,

    etc.)

While there may be a large tax withholding on this incentive, it will "wash

through" your tax return; any overpayment will be returned to you.

About the Author

     Brandon S. Christy, CPA, PFS, is president of

Christy Capital Management (CCM) and founder of the Retirement Benefits

Institute (RBI).  RBI has provided benefits and retirement training

sessions to thousands of federal employees. For a schedule of upcoming

no-cost training, target=_blank>click here.  CCM offers retirement analyses for

federal employees. For a no-cost consultation or other planning needs, call

866-331-7749 or click

here.

Disclaimer
The information contained in this

article should not be used in any actual transaction without the advice and

guidance of a tax or financial professional who is familiar with all the

relevant facts. The information contained here is general in nature and is not

intended as legal, tax or investment advice. Furthermore, the information

contained herein may not be applicable to or suitable for the individuals'

specific circumstances or needs and may require consideration of other

matters.

Posted: 05/21/2012

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