Hey Everyone! This one is for all the harried federal government workers out there. Most civil servants are dedicated and hardworking people. It’s a travesty they are treated like unwanted leeches by the president and his supporters. Thousands of workers have been fired and then rehired because the process was illegal. It’s a ridiculous mess. Anyway, the effort to purge the federal workforce continues. Next week, the plan to legally reduce the workforce is due from all agencies. I’m pretty sure they’ll turn on VERA (Voluntary Early Retirement Authority) for almost everyone. This will let many older government employees leave without a lot of problems. They should have done this from the beginning instead of trying to fire people with no cause. Today, I want to help those eligible Fed workers figure out if they should take the VERA. Read on…
VERA
Here is the eligibility to retire early.
Meet the minimum age and service requirements –
- At least age 50 with at least 20 years creditable Federal service, OR
- Any age with at least 25 years creditable Federal service.
Thousands of workers are eligible. This is a great way to reduce the fed workforce without all the drama. I think it’s a great opportunity to GTFO if you qualify. DOGE will continue to harass workers and try to force them out. Why stay in a hostile workplace when you don’t have to? Well, hold your horses. Can you really retire early? Two months ago, most of these civil servants planned to continue working for many more years. They aren’t prepared for early retirement. I’m here to help. Today, let’s figure out if you can retire early.
Cash Flow is King
In retirement, cash flow is king. Cash flow is how much money comes in and out every month. It will show if you can pay your expenses after retirement. We can use the RB40 household cash flow from 2024 as an example.
Spending
First of all, take out your cash flow spreadsheet from 2024. What? You haven’t been tracking your income and expenses! How do you know where your money is going? I guess that’s okay. Most households don’t track their cash flow very closely. However, your finances will change drastically after retirement. You need to put in the hard work and get a solid grasp of your cash flow before retirement.
Fixed costs
First, add up all your fixed costs. These are all the things you need to survive.
- Housing – Rent, mortgage, property tax, utilities, insurance, HOA, maintenance, and repair.
- Food – Groceries.
- Transportation – Car payment, gas, insurance, and repair.
- Healthcare – Health insurance, meds, copay, band aids, etc…
- Other bills – Cell phone, internet, etc…
- Tax – This one is tricky because retirement will cause a big change with your taxes. We can skip this one for now.
You can start by going over all the bills and account statements from last month. This will give you an idea of where you are. It’s better if you have a record from the previous year because some expenses are lumpy. For example, our transportation spending is usually around $200/month. But it ratcheted up to $1,600 in May 2024. We had to replace the spark plugs and engine cover. If I didn’t track my expenses every month, I wouldn’t see that. Anyway, last month is a good place to start.
Here is the RB40 household’s fixed cost from 2024.
This is the barebones living expenses for us, about $2,500/month.
Flexible spending
Next, add up the rest and put it in the flexible spending category.
- Kid – Sports, activities, school trips, gifts, and various other kid related spending.
- Entertainment – Eating out and a few shows.
- Travel – Our biggest discretionary spending.
- Personal – Haircut, clothes, and other personal spending.
- Parents – I sent a little money to my dad last year.
- Misc – Everything else.
Our flexible spending was $33,177 or about $2,800/month. Surprisingly, this was higher than our fixed cost. We could cut most of this out if we really need to. But discretionary spending is what makes life worth living. You don’t want to cut all of it out.
Alright, now we have an idea of the costs to live a survival lifestyle vs a comfortable lifestyle. Every family is different. You need to sit down and figure out your family’s cash flow. Now, let’s look at the other side of the equation.
Income
The income part is easier for most families. Most households only have one source of income. That’s work. If you retire early, you’ll need income from other sources to pay your expenses. We can look at the RB40 household income to see what that looks like.
Here is our cash flow from last year again.
I had income from many different sources. They are almost enough to pay for our annual spending. However, I had to draw $1,086 from savings to help out. This is perfectly fine. That’s why we save for retirement.
For the Fed workers who qualify for VERA, you’ll have a pension. Check the online retirement calculator for an estimate of how much you’ll receive each month. The bad thing about early retirement is that your pension will be smaller than if you work longer. That’s okay as long as the cash flow works out.
Build your cash flow chart
Now, assemble your retirement cash flow puzzle. It should look something like this.
You can use SankeyMatic to generate these charts, but a spreadsheet is all you really need.
This is just a guideline because your expenses can be fluid. If your pension can cover the fixed cost, you’re pretty solid. You should be able to reduce your discretionary spending significantly after retirement. You won’t have to drive as much, dress up, or get a haircut. However, let’s aim to maintain the same lifestyle.
If you need more income than just the pension, you can draw from savings. In the estimate above, our early retiree will need to withdraw about $32,000 from their savings to maintain the same lifestyle. We can use the 4% rule as a guideline, but I think that is a little dicey here. The Fed pension won’t receive any cost of living adjustment (COLA) until you’re 62. If you retire at 52, that’s 10 years of inflation eating away at your pension. You will need to withdraw more and more from savings every year.
I think 3% is a safer withdrawal rate in this case. For $32,000, you’d need about $1 million in retirement savings. A good chunk of this should be in a taxable account, maybe $300,000. You can access that without penalty before 59 ½.
You’ll need to monitor your cash flow every year. If the savings withdrawal goes above 4% for a couple of years, then you will need to make some adjustments. You can try to spend less or work part-time to increase your income. Once you hit 62, things should improve. At that point, your pension will get COLA and Social Security Benefits will kick in.
Should you take the VERA?
Alright, if the cash flow looks good, then VERA might be a good option for you. Many Fed workers didn’t plan to retire this soon, but the workplace will keep getting worse. DOGE is making work miserable by sending out multiple confusing directives every week. They are generating a lot of busy work for everyone to push people out. That kind of workplace is demoralizing. The workers that survive the next round will have to work harder to cover for the people who are gone. In short, work will be miserable for a long time. If you can retire, why stick around?
Even if the cash flow looks tight, early retirement can be a good option. You can take a break for a few months and look for a job in the private sector. Another alternative is to move to a lower-cost-of-living location. That can help reduce your monthly expenses tremendously.
All in all, I think VERA is a great option if you qualify. Even if you are not ready to retire yet, you can take a break to explore other options. However, early retirement isn’t a good fit for everyone. Try it out for a while and see if you like it.
Would you take the early retirement option if you’re eligible? Or would you stick it out and try to survive a few more rounds of layoffs? Good luck everyone!
Image credit: Xavi Cabrera
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