Retire at MRA or Wait Until 62?
The 5% penalty math, with real numbers. For non-SCE (standard FERS) employees only.
How the Penalty Works
If you retire under the MRA+10 provision (Minimum Retirement Age with 10-29 years of service), your annuity is reduced by 5% for each year you're under age 62.
This reduction is permanent. It doesn't go away when you turn 62. It doesn't go away ever. Every monthly payment for the rest of your life is reduced.
Penalty Table
Based on a $2,000/month unreduced annuity:
What You Gain by Waiting to 62
No penalty. Your full annuity, unreduced.
More years of service. Each year adds 1% to your multiplier. Five more years on a $100,000 high-3 is $5,000 more per year.
The 1.1% bonus rate. Retire at 62+ with 20+ years and your rate jumps from 1.0% to 1.1% per year — applied to every year of service.
Higher high-3 salary. More years means more raises factored into your top three earning years.
More TSP match + growth. Five more years of government match contributions compounding in your account.
What You Give Up by Waiting
The biggest cost of waiting is years of pension payments you never collect.
Example: If your reduced payment at 57 is $1,500/month, retiring at 57 instead of 62 means 5 years of payments: 60 months x $1,500 = $90,000 in pension income you collect that a 62-retiree doesn't.
Plus you're free to earn other income during those years — though the reduced pension lasts forever.
Breakeven Example
Consider two employees with the same career, choosing different retirement dates:
Retire at 57 (reduced): $1,500/month. Starts collecting immediately. By age 62, has collected $90,000.
Retire at 62 (unreduced): $2,500/month (no penalty + 5 more years of service + 1.1% bonus). Starts at $0 but gains $1,000/month faster.
The crossover: The 62-retiree earns $1,000/month more ($2,500 vs $1,500). To make up the $90,000 head start: $90,000 / $1,000 = 90 months = 7.5 years after age 62. The 62-retiree breaks even at age 69.5.
After age 69.5, the person who waited comes out ahead every month, forever. Before that, the early retiree was winning.
Who This Applies To
Non-SCE employees with MRA + 10-29 years of service. This is the only group that faces the 5% penalty.
SCE employees don't face this penalty. Law enforcement, firefighters, and CBP officers have their own eligibility rules with no MRA+10 reduction.
30+ years at MRA = no penalty. If you have 30 or more years of service at your MRA, you qualify for an immediate unreduced pension — no penalty applies.