Earlier this week, Government Executive reported that federal employees in 2024 on average earned 24.72% less than their counterparts in similar jobs in the private sector, according to a new Federal Wage Council report based on data from the Bureau of Labor Statistics.

With that in mind, let’s say you’re a GS-13, Step 10 in the Washington, DC area, earning $153,354 per year in 2024. If this employee is 42 years old with 15 years of government service, that’s around “mid-career” of their federal career, and at mid-career some employees may consider moving to the private sector. Let’s compare their benefits if they remain employed in federal service until age 57, when they would have completed 30 years of service, with what they should earn in the private sector at a job that pays them 25% more more than they earned in their federal system. career.

Stay with the federal government until age 57 or older

Basic FERS Pension Benefit: By continuing federal employment until age 57, this employee would have a total of 30 years of federal service and would be eligible for an immediate, unreduced FERS retirement benefit with the right to the FERS Special Retirement Supplement. The amount of the basic FERS benefit would be equal to length of service multiplied by 1% of three times the average salary, or in this example, 30% of three times the average salary.

As this employee is “upgraded” to a GS 15/10, salary increases may include annual salary adjustments and the opportunity to advance to Senior Executive Service. In today’s dollars, this benefit would be worth about 30% x $153,354 = $46,006/year or $3,833.85/month. This benefit can be reduced by 10% to give the spouse a survivor benefit of 50% of the unreduced benefit.

Federal and state income tax can be withheld from this benefit, as well as health and life insurance premiums, if they are eligible to be maintained in retirement by meeting the test of being covered by those benefits for the five years immediately before retirement. Federal Employees Dental and Vision Insurance Program and Federal Employees Long Term Care Insurance Program* benefits may also be continued and/or added upon retirement.

If this employee continues his employment past age 57, he continues to accrue an additional 1% of the three until age 61, and if he remains until age 62, as he would have over 20 years of service , the retirement calculation factor changes. to 1.1%. Annual cost-of-living adjustments would also begin at age 62 (no COLA before age 62, unless retired under special provisions such as police retirement options or of firefighters or according to FERS provisions regarding disabled persons).

*Currently, the FLTCIP program is not open to new applicants under a suspension that is expected to last until 2026.

Special FERS Retirement Supplement: This benefit provides a bridge to qualifying for Social Security retirement benefits. The supplement is equal to the approximate amount of Social Security benefits an employee would have earned if they were eligible to receive them in retirement. The supplement ends at age 62 and is subject to an earnings cap if the retiree has earned income above a certain limit.

Economic savings plan: TSP contributions continue throughout the career, which are topped up by an automatic 1% agency contribution and dollar-for-dollar contributions up to 3% of the employee’s biweekly contributions and fifty cents on the dollar for the next 2% of contributions employees. No match after 5%, however, employees may continue to contribute up to annual elective deferral limits. For 2025, the limit is $23,500. Employees ages 50 to 59 can contribute an additional $7,500 next year, and employees ages 60 to 63 can contribute $11,250 each year. After age 63, these catch-up contributions revert to a limit of $7,500 for the following year.

Leave the federal government and go into the private sector

This employee is “eligible” for the FERS base pension benefit if they leave at age 42 with 15 years of service. This means they can apply for a deferred FERS benefit at age 62 of 15% (1% x years/months of creditable service). If the high three salary average is currently $146,000 (the average of the three highest base salary years), this benefit would be worth $21,900 at age 62. If they choose to receive it from the minimum retirement age (57 for employees). born in 1970 or later), this would be reduced by 25% (five% for each year under 62). There would be no allowance for reinstatement of insurance or unused sick leave credit. No FERS supplement would be paid in the event of a delayed retirement.

Retirement benefits available in the private sector:

• According to the Bureau of Labor Statistics, in March 2023, 15% of private industry workers had access to a defined benefit plan. The FERS Basic Pension Benefit is an example of a defined benefit plan. Among private industries, financial activities stood out, as 33 percent of workers had access to a defined benefit plan and 19 percent of workers chose to participate.

• For 401(k) plans, a common percentage for matching contributions in the private sector is between 4 percent and 6 percent of compensation, according to carry.com. Anything above 5% of compensation is considered a good employer.

• To offset the loss of the Basic FERS Benefit if the transition to the private sector does not prove a defined benefit plan, this employee would need to save enough to provide an annual income of approximately $24,000 (the difference between the deferred retirement that is currently granted to this employee and the value of the future benefit that is shown above in today’s dollars). Using the “4% rule,” this employee would need to save an additional $600,000 to withdraw $24,000 per year to offset the loss of the benefit paid at age 57. The 4% Rule is a retirement planning guide that suggests retirees can retire safely. 4% of their total retirement savings in the first year of retirement, then adjust that amount annually for inflation to maintain a steady stream of income throughout their retirement, typically targeting a 30-year period; this rule generally involves a balanced portfolio with a mix of stocks and bonds, often around a 50/50 split, to manage risk and potential market swings while aiming for long-term growth.

• In a private sector position without the benefit of a pension and the FERS Special Retirement Supplement, this employee may need to work until age 62 instead of having the option to retire at age 57.

• Comparing the value of the difference in retirement income at age 62, the FERS benefit would now be based on a potential 35 years of service. Using the 1.1% formula and the same cap of $153,354, this would work out to 38.5% x $153,354 or $59,041/year or $4,920/month, requiring a larger amount of savings to make up the difference deferred retirement benefit of $21,900. it has now increased to more than $37,000/year requiring additional savings of just under $1,000,000 to replace this income.

Employees who plan to move to the private sector will need to earn at least 25 percent more in wages to replace the loss of additional retirement benefits provided to federal employees who qualify for immediate retirement after a career in federal employment. This is in addition to the ability to maintain lifetime coverage under the FEHB, FEGLI, FEDVIP and FLTCIP insurance programs.