If you’re a federal employee eligible for retirement, you’ve probably spent some time running the numbers, and wondering if this is the year to hang it up. But before you turn in your badge, I want to walk you through the impact of working just one more year and the effect it can have on your FERS retirement.
One phrase that gets tossed around a lot is that a person is working for nothing, or next to nothing because their FERS annuity is only increasing by 1% for that extra year of employment. I disagree with that statement and would like to look at what one extra year of employment can add to retirement benefits.
Your FERS Annuity Gets a Boost
The formula for your FERS annuity is straightforward:
High-3 Salary × Years of Service × Multiplier (1% or 1.1%)
Adding one more year increases both your years of service and potentially your high-3 average salary. If you’re still receiving step increases or promotions that high-3 number could inch higher.
Let’s say your high-3 is $100,000 and you’re looking at 30 years of service (under age 62). The calculation is:
30 × $100,000 × 1% = $30,000/year
One more year of service with a small high-3 increase?
31 × $102,000 × 1% = $31,620/year
That’s an increase of $1,620 every year for life, plus COLAs in retirement. That isn’t a ton of money but is an extra $135 a month.
There is one exception to the small 1% increase which can a HUGE difference – if you retire at age 62 or later with at least 20 years of service, the multiplier jumps to 1.1% for all years of FERS service! Looking at the scenario above, an extra year would increase your FERS annuity to:
31 × $102,000 × 1.1% = $34,100/year
That’s an increase of $4,100 every year for life, plus COLAs in retirement.
The other consideration in regard to your FERS annuity is the calculation of your high-3. If you have received a significant salary increase in the past 3 years then an extra year of service could have an impact on your high-3. A high-3 increase of $10,000 (would take a BIG salary increase for one year to make a 10k difference) it will increase your FERS annuity by $3,000 a year if you have 30 years of service.
Another Year of TSP Contributions and Investment Growth
Staying on the job gives you 12 more months to contribute to your Thrift Savings Plan (TSP). That’s not just one year of saving—it’s one more year of tax-deferred (or Roth) growth, employer matching, and compound interest.
In 2025, the TSP contribution limit is $23,000, with an additional $7,500 catch-up if you’re 50 or older. That means someone 50+ could add $30,500 to their TSP in one more working year—not including the agency 5% match. In the example of a $100,000 salary, you would miss out on a $5,000 agency contribution.
Not only do you get matching and your deferral to TSP but you would get another year of investment growth. We all know the market doesn’t go up every year but on average it goes up about 7 out of 10 years. If you make 6% on investments of $1,000,000 then you would have another $60,000 going into retirement.
Access to Thrift Savings Plan
This is one that could be vital to those considering accepting a VERA. Federal employees have access to TSP with no penalty as long as they meet the rule of 55 which says that as long as you separate from service in the year that you turn age 55 then you have penalty free access to TSP. If you separate from service prior to the year you turn 55 then you will have to wait until age 591/2 to have access to TSP.
Don’t get traditional TSP confused with Roth TSP. Regardless of the year that you leave federal service you will still have to wait until age 591/2 to access Roth TSP with no income taxes or penalty.
Increased Sick Leave Credit
Under FERS retirement, unused sick leave gets converted to additional service time—helping boost your pension.
Is this a big deal? A fed with 20 years of service or more accrues 4 hours per pay period adding up to 104 hours a year, or 13 days. Those 13 days could help you get to another month that gets added to your annuity but that’s still only .083% of an increase in your FERS annuity.
Social Security Implications
Delaying retirement by one year may also help you delay claiming Social Security, which can increase your benefit by 5-8% per year depending on your age (up to age 70).
Even if you don’t wait until 70, working longer might mean you replace a lower-earning year with a higher one in your 35-year Social Security earnings record—especially if you had years of part-time or lower GS-grade work early on. This impact could amount to somewhere between $20-$60 a month.
Other Factors
Here are a few other things that one more year of work could do:
- Pay off debt
- Get home repairs done
- Save to buy newer vehicles
- Forgive my morbid thought here, but one more year of work is one year less of living off of your savings in retirement
So, Is One More Year Worth It?
In any scenario I can think of, working another year will provide additional financial benefits in retirement. But are finances your main priority when setting a retirement date? Do you really want to work another year? Is the stress getting to be too much? Is work taking a physical toll on your body? Are you already financially independent?
These are questions that every soon to be retiree will need to contemplate. There are definite financial benefits to working another year but there are other aspects of life that can be more important. If you need help making these decisions, that is exactly what I do at Bobb Financial. You are welcome to schedule an initial consultation to see how we can help.
Brad Bobb, CFP® is the founder of Bobb Financial and a leading expert in federal retirement planning. For more insights, visit bobbfinancial.com.