“It doesn’t make sense financially to work another year.”

I hear this line all the time. I see federal employees post it on social media. I’ve had people tell me it to my face, or tell me someone else told them. I’ve even heard it from people who advise federal employees for a living.

I want to put this one to bed. I’ve worked with federal employees for about two decades now, and every single time I’ve come across this situation, that person would have been better off financially by working another year. Ten times out of ten.

Now, I’m not saying they should have worked another year. That’s a different question, and I’ll get to it. I’m saying that strictly by the numbers, one more year leaves you better off. But don’t take my word for it. Let’s look at the numbers.

Your FERS pension goes up two ways

One more year raises your pension by roughly $2,300 a year in this example, for life. Many of the people I work with retire with salaries well over $120,000, and some under, but let’s use $120,000 as our example.

Say your last three years of salary were $108,000, $111,000 and $116,000. Your high-3 average is $111,667. Now you work one more year at $120,000. The $108,000 year falls off, and your new high-3 is $115,667. That’s $4,000 higher.

You also get another year of service. Let’s say you’re at 30 years and looking to retire around your MRA.

	Years of service	High-3	FERS pension
Retire now	30 (30%)	$111,667	$33,500
Work one more year	31 (31%)	$115,667	$35,857

That’s an extra $2,357 a year, or almost $200 a month. Not a ton of money, I’ll grant you. But it’s $200 every month for the rest of your life.

And it doesn’t stay $200. Once you qualify for cost-of-living adjustments, that extra amount gets COLAs too. Ten years from now, it’s likely to be quite a bit more than $200 a month.

What about people up against the federal pay cap? There aren’t a ton of them, and their high-3 might barely move. They still get the extra 1% for another year of service, so their pension still goes up.

Another year of saving, and not spending, your TSP

One more year can add over $118,000 to a $1 million TSP. Working another year gives you another year of investing, and just as important, another year of not taking distributions.

Take a $1 million TSP balance earning an average 8% return. In a year, that’s $1,080,000. But that’s not all. At the end of your career, you’re probably maxing out your TSP:

	Amount
Starting balance	$1,000,000
8% growth	+$80,000
Agency match (5% of $120,000)	+$6,000
Your contributions (max with catch-up)	+$32,500
Balance after one more year	$1,118,500

Now compare that to being retired. You’d probably be pulling $30,000, $40,000, maybe $60,000 a year out of that same million. A year from now, it could be less than a million. That’s a pretty big difference for something that supposedly “makes no sense financially.”

“But Brad, what if the market goes down?”

Even in a down market, you’re still better off working another year. Good question, and I’m glad you asked it. Yes, if the market drops, your TSP and other investments may drop too.

But think about the alternative. If you’re retired during that down year, your investments are falling and you’re pulling money out to cover your living expenses. That’s the worst combination there is.

If you’re still working, you’re adding money while prices are down, and you’re not withdrawing anything. On top of that, every year you work is one less year you need that money to last. All of that is in your favor.

Another year of your highest income

One more year at your peak salary also means another year of paying down debt. Most people are in their highest-earning years right before they retire. That’s when they’re investing the most and paying the most toward things like a mortgage or a car loan.

A lot of people retire still carrying that mortgage or auto loan. Working another year means another year of payments made from a full paycheck, not from your retirement savings.

Ready to retire is a different conversation

None of this means you have to keep working. Are you ready to retire? Do you have plenty of money and you’re ready to go? That’s a whole different conversation.

If you’ve done your due diligence and your planning, and you’ve confirmed you have enough income from your FERS annuity, Social Security, your investments and maybe your spouse’s income, that’s great. You simply don’t need to work anymore, and you’re choosing to retire.

That’s very different from saying, “It doesn’t make sense for me financially to work another year.” In my twenty years, I haven’t found a situation where someone wasn’t better off financially by working one more year.

I’d love to hear your thoughts and questions. Does anything here look wrong to you? And if you want help figuring out whether you’re truly ready, reach out to us at bobbfinancial.com.

Brad Bobb, CFP®, Bobb Financial, is an expert in federal benefits and retirement planning for federal employees.

This article is for educational purposes only and is not individualized financial advice. Figures are illustrative.