Many agencies are now either considering or have already applied to OPM for approval to offer Voluntary Early Retirements (VERAs) and possibly Voluntary Separation Incentive Payments (VSIPs) as well. Now is the time to assess whether or not a VERA, if offered, would be the right thing for you to do based on your circumstances and desire to leave early.
Currently, at least three agencies plan to offer early retirement incentives, the Department of the Interior, EPA, and the State Department. The Office of Management and Budget (OMB) requires all agencies to develop plans to reduce their workforce based on the President’s proposed cuts including a 12 percent reduction in the Interior Department’s budget. These cuts are predicated on the final budget enacted by Congress and there will likely be significant changes as it works its way through the process.
Most agencies try to accomplish reductions through attrition first, before initiating other actions which are more disruptive, costly and difficult to implement. Agencies may also offer a Voluntary Separation Incentive Payment (VSIP)of up to $25,000 for select positions to encourage more to leave. If all else fails agencies may have to use Reduction in Force (RIF) procedures to meet their targets and stay within their allocated budgets and still provide essential services.
The vast majority of an agency’s budget, up to 90% in many cases, is used for payroll, compensation, and benefits (PC&B). When I was with the FAA I recall that PC&B consumed over 80% of the entire agency budget. When agencies need funds they often delay hiring until the end of the fiscal year to use the money saved from PC&B to cover needed services, fund lower priority projects, and to purchase supplies that were put on hold. That’s why at the end of the year many agencies have excess funds that they allocate to the field to purchase a laundry list of projects and purchases. One of my managerial tasks was to compile annually a comprehensive list of projects and supplies and to be ready to spend the funds before September 30th. Hiring was the same way, at the end of the fiscal year we pushed to fill critical vacancies in fear of losing those funds next year if we didn’t fill the positions.
The high PC&B costs agencies naturally incur narrow their options when it comes time to cut. If only 10 to 20 percent of your entire budget funds operations, staffing reductions are often their only option to reduce costs and still provide required services.
If an offer comes your way are you prepared to take it? It takes time and planning to evaluate where you are at now, what your expenses and income is currently and will be if you take a drastic pay cut, and are you ready to change your life dramatically. Many dream of an early retirement but can you and your loved ones afford to make that move. It isn’t as big of an issue if for example you just have three years invested in federal employment and they offer you a $25,000 VSIP payment to leave and you are young enough and talented enough to find another job in the near future. However, if you are 45 or 50, in your high earning years, with 20 to 30 years service can you afford to make this change? Are your skills and resume ready to find another job to make up lost wages? The last 10 years of service racks up the biggest benefits; higher wages, annual pay increases, a bigger federal pension plus the potential to significantly grow your TSP account!
Do you know what you would do if you leave? Start out by reading these two free reports:
- How to be Financially Prepared When You Retire 
- How to be Emotionally and Physically Prepared When You Retire 
My agency offered early outs in the mid 1990s for selected occupations and I applied. Prior to receiving feedback that my position was not included in the offer I had already determined I could not afford to take advantage of it. My annuity would have only been about 20% of my salary and I had two children still living at home. I was 45 at the time and ended up working another 10 years before retiring at 55 with 36 year’s service and a nice CSRS pension. I’m glad that I didn’t get the opportunity to seriously consider an early out offer and I can tell you that 5 to 10 years is a cake walk and that time FLYS by. I’ve been retired for 13 years now! More than a decade just past me by and I find it difficult to comprehend just how fast the next 10 years will evaporate before me.
I did have other employment options when I applied for a VERA in the 1990s. I owned a part time business that I wanted to grow into fulltime employment when I did decide to retire. However, at age 45 I was uncertain about my business prospects and didn’t envision how dramatically the business would grow after I retired in 2005.
The long and short of it is that anyone considering a major move such as accepting an early out needs to investigate the opportunity from all perspectives. If you think early retirements will be offered in your agency the earlier you start your research the more prepared you will be when the offer comes. Plus, this early look at your finances and prospects will help you with your overall retirement plans down the road. Perform a Retirement Cost Analysis  and use our free downloadable spreadsheet  to help with your personal review.
Here is a list of information and articles that will help you better understand the VERA and VSIP programs so that you will be able to make an informed decision if one comes your way. The grass always looks greening on the other side of the mountain. Until you actually get there your view is distorted with oft unrealistic expectations and obstacles that you may find along the way.
VERA & VSIP Information
- Voluntary Early Retirement Authority (VERA) 
- Is a Voluntary Early Retirement (VERA) in Your Future? 
- VSIP – Voluntary Separation Incentive Payments 
- OPM’s Guide to Early Retirement Regulations 
The sage saying “look before you leap” applies here. Take your time to evaluate your situation, discuss the options with your significant others, and obtain needed support and clarifications from your agency’s human resource specialists. They will be able to provide early retirement annuity estimates and clarify benefits issues that you may have. Be open to your spouse’s and significant others input and try not to be defensive, they too have to live with your decision.
Helpful Retirement Planning Tools
Request a Federal Retirement Report™  today to review your projected annuity payments, income verses expenses, FEGLI, and TSP projections.
Distribute these FREE tools to others that are planning their retirement
- Retirement Planning Guide 
- Master Retiree Contact List  (Important contact numbers and information)
- 2017 Leave and Schedule Chart  (Excel chart tracks all leave balances. Use this chart to set target retirement dates.)
- 2017 Annuity Calculator (FREE Excel chart estimates annuity growth)
Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.
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