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According to a recent report from the Federal Salary Council featured in Government Executive, federal employees in 2024 are projected to earn, on average, 24.72% less than individuals in comparable positions within the private sector, relying on data from the Bureau of Labor Statistics.
For instance, consider a federal employee at the GS-13, Step 10 level located in Washington, D.C. With an annual salary of $153,354 and having completed 15 years of service at 42 years old, this employee finds themselves at a pivotal midcareer stage. At this point, many federal workers contemplate transitioning to the private sector. A deeper analysis offers a comparison of the benefits of remaining in federal service until age 57, after achieving 30 years of service, versus pursuing a private sector opportunity that offers a salary 25% above their current federal salary.
Benefits of Continuing with the Federal Government
FERS Basic Retirement Benefit: If the employee remains in federal service until age 57, they will qualify for a Federal Employees Retirement System (FERS) immediate, unreduced retirement annuity along with the FERS Special Retirement Supplement. The basic FERS pension amount is calculated based on the length of service—30% of the employee’s high-three average salary in this scenario, which would yield about $46,006 annually or approximately $3,833.85 monthly. This pension might be subject to a 10% reduction to provide a survivor benefit to a spouse.
Deductions for federal and state taxes will apply to this retirement benefit, alongside any applicable premiums for health and life insurance coverage, contingent upon eligibility based on having been covered for the preceding five years. Additionally, the connection to Federal Employees Dental and Vision Insurance and Long-Term Care Insurance may extend into retirement, although the latter program is currently not open to new applicants until further notice.
Moreover, if this employee continues beyond age 57, their retirement benefit will continue to accrue. Additional service beyond this age leads to a revised calculation factor for retirement benefits, yielding even higher post-retirement income, alongside annual cost-of-living adjustments beginning at age 62.
FERS Special Retirement Supplement:
This benefit acts as a bridge to Social Security retirement benefits, calculated to be approximately what the individual would expect to receive from Social Security if eligible upon retirement. This supplement concludes at age 62 and may be subject to earnings limits for any income earned beyond a specified threshold.
Thrift Savings Plan: Employees participate in the Thrift Savings Plan (TSP) throughout their careers, and contributions are bolstered by an automatic agency contribution and matching dollar-for-dollar up to 3% of their own contributions, with partial matching continuing for contributions beyond that. The contribution limits for 2025 are $23,500, with provisions for additional contributions for older employees further enhancing retirement savings potential.
Retirement Options in the Private Sector
If the employee opts to leave federal service at age 42, they become vested in the FERS Basic Retirement benefit, enabling deferred retirement application at age 62. At this stage, the anticipated benefit would total 15% of their average high-three salary, equating to about $21,900. Early withdrawal, prior to age 62, would incur a reduction of 25% for each year under the age limit, and they would forfeit eligibility for benefits such as insurance reinstatement and the FERS supplement.
According to the Bureau of Labor Statistics, as of March 2023, a mere 15% of private sector employees had access to defined benefit plans, which contrasts with the comprehensive benefits available under the FERS system. Particularly notable is that only 33% of those in financial activities have access to such plans, illustrating the limited scope within the private sector.
For 401(k) plans prevalent in the private sector, typical employers might offer matching contributions of around 4% to 6%. In replacing the retirement benefits lost by shifting away from federal service, the employee would need to save enough to generate an additional $24,000 annually to bridge the gap left by their pension and FERS benefits. Using the “4% rule,” achieving this would necessitate saving approximately $600,000, underscoring the considerable financial planning required when considering a change in government employment.
For those considering a private sector career path, it’s vital to note that a significant salary jump of at least 25% would be necessary to counterbalance the extensive retirement benefits granted to long-term federal employees. This consideration extends beyond mere salary differences and includes the broader advantages provided by federal employment, such as insurance coverage options that have long-lasting implications for personal financial security.
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