How to Retire Early as a Federal Employee

Ahh, retirement.

The light at the end of the tunnel that we are all chasing. For most, this is a far off concept that always seems distant until your 62, and it’s staring you in the face.

Unfortunately, I’ve found that this is the reality for most people. The thought of retirement and preparation for it is absolutely overwhelming, and rather than do something about it, they just avoid thinking about it at all costs.But, as readers of this blog, you’re not that type. You’re a go-getter and are willing to put in the time and effort in preparation for that glorious day.

But, what if I told you, you didn’t have to wait until 62 to retire. What if I said that as a federal employee, you could retire in your 40’s and do so comfortably?

Today I’d like to introduce you to a concept called “Financial Independence.

I am admittedly a financial independence nerd. My wife loves to rag on me when I geek out over numbers, and how making slight changes can allow me and others to retire much earlier than expected. But then again, I guess that’s why I decided to become a financial advisor (surprisingly, there are some of us who enjoy helping more than selling–we’re called fiduciaries.)

A job with the federal government is quite possibly the PERFECT career for someone who is focused on gaining financial independence.

At this point, you may be asking, “Cooper, that sounds great, but what is financial independence and why does it matter to me, a federal employee?”

Well, let’s me tell you.

What is Financial Independence?

Financial independence is a phrase that has become quite popular in recent years, thanks in large part to many financial bloggers like myself. Now, before I detail what financial independence is, and how a federal employee can obtain it, let me first speak on what it isn’t.

Financial DEpendence is what nearly everyone on this planet is experiencing, as well as 99% of you reading this.

Here’s what many of your lives look like:

  • Wake up on Monday Morning around 6 to 7 AM, jump in the shower, change your clothes, grab your coffee and run off to your place of employment.
  • You leave work around 5 to 6 PM, relax for the evening.
  • Wake up the next morning and do it all over again.
  • Repeat until Friday evening comes and you are free from your bonds of slavery until Monday morning.

Do this over and over for 30 some odd years, and finally, you’ll get to retirement with hopefully enough money saved to live without working. This sounds kind of depressing doesn’t it?

I’m not saying that there’s necessarily something wrong with this, but for some reason, we’ve gotten the idea into our heads that this is the ONLY way to approach retirement. That no matter what, you have to work until you’re in your sixties and still have a difficult time paying the bills in retirement.

This is particularly the case for federal employees. Not all, but many of the federal employees I meet are scraping by living paycheck to paycheck with little to show for it. They don’t necessarily want to live like this, but they don’t see another way. Especially because everyone around them seems to be doing the same as they are.

This is where financial independence comes in.

Financial independence is the state of having sufficient personal wealth to live, without having to work actively for basic necessities. What this means in more simplified terms is:

You no longer have to work to get by.

I can picture your faces now. “But Cooper, how can somebody get by without working?”

Well, I’ll tell you how. I’ll also tell you how you can do it before you turn 40 if you start early enough.

How can a federal employee become financially independent?

Financial independence is a rabbit hole that you can spend days of your life researching (trust me, I’ve spent years.) There’s lots of information out there, and I suggest doing so (I’ll link additional resources at the end of this article.)

But, I’d like to distil the finer points for you as a federal employee here.

First off, throw out the idea that you don’t make enough money to become financially independent, or retire in your 40’s. I’ve personally met federal employees who have retired in their 40’s and even interviewed one here.

The biggest hurdle for you to overcome is getting past your limiting beliefs that tell you, YOU MUST DO IT THIS WAY. If nobody has told you up to this point, let me be the first: you don’t have to live like everyone else. In fact, I’ll quote Dave Ramsey and say, if you WILL live like no one else today, later you CAN live like no one else.

Also, throw out the idea that you’re too old to start on the road to financial independence. When I say retire in your 40’s, this is mostly speaking to those who are in their 20’s and early 30’s. But, that doesn’t mean that those of you reading who are older, can’t retire sooner than you expect.

3 Steps to Retiring Early

1. Create a plan of attack

“Here we go again, the financial planner telling us we need a plan…”

Listen, I became a financial planner because I know how effective planning for the future is. Until everyone who reads this blog has a financial plan of some sort, I will not stop berating you with the fact that you need a plan (and that will never happen because it’s impossible, so buckle up.)

You need a plan, and if you don’t know why, I give you TEN reasons specifically for you as a federal employee here.

2. Spend less than you make, a lot less

For some of you, this is where you stop reading.

“Spend less than I earn? Cooper, are you crazy?” If this suggestion makes me crazy, then yes, I’m absolutely nuts.

Here’s why: if you have a surplus at the end of the year, you can contribute that towards your retirement. Unless you spend less than you earn than becoming financial independent is not going to be possible for you.

In order to retire early, you’re going to need to make some serious expense cuts.

Here are some ideas that I put into practice myself and recommend to my clients:

  1. Bike to work (you wouldn’t believe how much you spend driving.)
  2. Bring your lunch to the office
  3. Eat out only once a week or even less
  4. Purchase long-lasting, durable goods
  5. Learn how to repair things yourself
  6. Get rid of cable television
  7. Entertain yourself with free things like going on walks, playing sports, etc.

This is only a very short part of a super long list that I can come up with. The key is, do things that don’t cost money, reduce your expenditures, or make you money.

Another benefit of these ideas is not only will they increase your wealth, but also your health.

3. Max out your TSP, and then some

If you’re wanting to retire early, you’re going to need to do some serious saving. Thankfully, because you followed my second recommendation you now have a lot of surplus money ready to be used.

I like to think of retirement dollars as little employees that if invested right, should make you about 7% annually. The more workers you have, the more money you make. It’s a beautifully simple concept.

And, being a federal employee, you’ve got one of the greatest benefits anywhere, a 5% match into the ultra-low cost TSP.

If you want to retire early, for some of you that being in your 40’s, you’ll also need to contribute even more! Accounts like IRA’s should help achieve that goal.

The idea is this, the more you sock away for retirement, the earlier you’ll be able to retire. This may be daunting, but this is merely a season. Eventually, you’ll get used to it, and you’ll wonder why everyone else tortures themselves in the rat race.

The Elephant in the Room

I hope you are as excited as I am at the prospect of being able to retire early. It is possible, and once you realize it for yourself, you’ll be more motivated than ever before.

But, in an attempt to show you the reality of the situation without completely bursting your bubble, I must share with you the reality of retiring early as a federal employee.

As many of you know, to receive retirement benefits, you MUST meet your Minimum Retirement Age, also known as the MRA. For the majority of Federal Employees reading this, that will be 57.

Here’s a chart to determine where you lie:

So, many of you will have to wait until your mid-50’s in order to retire, WHICH is still earlier than most.

However, some of you will be able to retire even earlier, and the word you need to remember is:

Deferred Retirement

Deferred retirement refers to delaying your benefits until you meet you MRA. Deferred Retirement is made specifically for federal employees who leave federal service before they meet the age and service requirements for an immediate retirement benefit.

In order to be eligible, you simply need at least 5 years of creditable civilian service. You can then receive benefits when you reach one of the following ages:

Putting It All Together

Now, that I’ve thrown out a bunch of ideas on how to retirement, I want to show how to put it all together.

First off, this is far from definitive. This is something I help federal employees with on a 1-on-1 basis as a financial planner, but I do want to provide some sort of starting point for those of you who refuse to pay for services.

  1. Lower your expenses to a minimum without going so low that you don’t enjoy life. Simply put, try to find happiness in things that don’t require money. Trust me, it’s possible, my family and I do it every single day.
  2. Contribute all of your excess money to paying down any “bad debt” like credit cards and the like.
  3. Max out contributions to TSP.
  4. Open up additional retirement accounts and contribute excess funds to those.
  5. Work diligently, taking every promotion opportunity available.
  6. Retire after planning has taken place under deferred retirement.
  7. Get a part-time job, not for the money, but for the fulfillment.
  8. Live off funds in retirement accounts using the 4% rule (more to be written on this later.)
  9. When you reach MRA, begin living off the pension, without increasing your spending to match your income.

This is the most basic plan I can give you, but it’s a starting point.

I honestly believe that there will be federal employees who read this article that will be able to retire early. Stop spending and start saving and see if I’m not right that you’ll be able to retire much sooner than you ever thought possible.

Additional Resources

Here are a few resources to help you retire early. These are all resources I use or have used myself:

Photo Credit: Cafe Credit via Flickr, under the Creative Commons License

Author Cooper Mitchell

Hello, I'm Cooper. I am the President of and an Investment Advisor Representative for Dane Financial, LLC. I specialize in helping Federal Employees better understand their benefits and prepare for retirement through Comprehensive Financial Planning and Investment Management. When I'm not helping federal employees, you can find me focusing on other entrepreneurial pursuits, spending time with my beautiful Wife, worshipping Christ, blogging, lifting (somewhat) heavy weights, and reading non-fiction.

More posts by Cooper Mitchell