Unlocking the Secrets to Early Retirement for Washington's Public Servants

Picture this: It's Monday morning, but instead of rushing to beat traffic, you're sipping your coffee and planning your next adventure. No more alarm clocks, no more cubicles. Sound like a dream? It doesn't have to be. As a public employee in Washington, you have a unique opportunity to make early retirement a reality.
But here's the catch: Early retirement isn't just about having enough money in the bank. It's like a puzzle, and the whole picture falls apart if you're missing a piece. That's where I come in. As a financial advisor specializing in helping Washington public employees navigate their retirement options, I've seen it all. And today, I'm sharing my top strategies for bridging the gap between your dreams and your reality.
The Early Retirement Puzzle
Before we dive into the strategies, let's talk about the four critical pieces of the early retirement puzzle for Washington public employees:

1. Reduced pension benefits: Retiring early means your pension may take a hit. PERS 2 and 3 members can retire as early as 55, but benefits can be reduced depending on your total years of service. For PERS members, the full retirement age is 65. LEOFF 2 members can retire at 53 but face reductions if under the full retirement age of 53.
2. The Social Security gap: If you retire before 62, you'll need to bridge the gap until Social Security kicks in. And even then, waiting until your full retirement age (66-67 for most) will give you a higher benefit.
3. Healthcare costs: One of the most significant expenses in early retirement, especially pre-Medicare at 65. As a public employee, you have options, but they come at a cost.
4. Funding a longer retirement: Retiring early means your savings must stretch further. It's not just about having enough but also about making it last.

Feeling overwhelmed? Don't be. With the right strategies, you can make early retirement a reality. Let's break it down.
Strategy #1: Know Your Numbers
The first step is to get a clear picture of your retirement benefits. Use the DRS benefit estimator through your DRS account to see how much your pension would be at different retirement ages. Remember, knowledge is power. Don't forget to consider how different survivorship options will impact your total benefit.
Strategy #2: Bridge the Social Security Gap
If you retire before your full Social Security age, consider using your savings to create a "Social Security bridge." Set aside enough to replace your estimated benefit until you reach full retirement age, allowing your actual benefit to grow. The Deferred Compensation Program can be an invaluable tool in bridging the gap.
Strategy #3: Don't Let Healthcare Derail Your Dreams
As a retired public employee, you may be eligible for health insurance through the PEBB Program. While not cheap, it may be more affordable than marketplace options. Also consider your spouse's insurance if they're still working and maximize your HSA contributions if eligible.
Strategy #4: Make Your Money Last
To stretch your savings, consider a dynamic withdrawal strategy that adjusts based on market conditions and your expenses. Don't rely solely on your pension - diversify with rental income, part-time work, or dividend-paying investments.
Strategy #5: Leverage Your Deferred Compensation Plan
As a state employee, you have a powerful tool in your DCP. Max out your contributions leading up to retirement. If you are 50 or older, you're allowed to contribute a maximum of $30,500 ($23,000 if under 50).
DCP has an advantage over other retirement accounts in that funds can be withdrawn penalty free before age 59 ½. This flexibility is incredibly important in bridging the gap to full retirement age.
Strategy #6: Phase into Retirement
Retirement doesn't have to be all or nothing. Phased retirement, whether part-time work or retire-rehire arrangements, can help you transition while boosting your financial security. Just be aware of the rules to avoid impacting your pension.
For PERS 2 retirees, if you work less than 867 hours in a calendar year, your benefit won't be affected.
You can also work for an employer not covered by a Washington state retirement system without affecting your monthly benefit unless you've been approved for a disability retirement.
Strategy #7: Enjoy Your Retirement While Being Mindful
Early retirement is about enjoying the freedom you've worked so hard for. While it's important to be mindful of your spending, don't forget to invest in experiences that bring you joy. Consider travel, hobbies, or quality time with loved ones. The key is finding a balance between living your best life and maintaining financial security.
Strategy #8: Stay Flexible
The reality is, even the best laid plans can change. Be prepared to adjust based on market conditions, health needs, or shifting priorities. Flexibility is key to a successful early retirement.
Strategy #9: Plan for Taxes
Your tax situation can change a lot in retirement. Consider Roth conversions in low-income years, and use your tax-advantaged accounts strategically to manage your tax bracket.
Your Early Retirement Action Plan
Alright, let's bring it all together. Here's your step-by-step early retirement action plan, also be sure to check out the ​DRS Retirement Planning Checklist​​:

1. Crunch the numbers: Use the DRS benefit estimator and other calculators to know your numbers inside and out.
2. Bridge the gaps: Have a plan to cover reduced pension benefits and the years before Social Security.
3. Don't neglect healthcare: Research your options and budget for costs.
4. Diversify your income: Your pension is just one piece. Explore other income streams to boost security.
5. Maximize your savings: Take full advantage of your DCP and other retirement accounts.
6. Consider phasing: Explore options to gradually transition out of full-time work.
7. Be tax-savvy: Develop a tax-efficient withdrawal strategy to stretch your dollars.
8. Stay nimble: Be ready to pivot as life unfolds.
9. Consult the pros: Meet with a DRS retirement specialist to understand your options, and consider working with a financial advisor who gets public employee retirement planning.

At the end of the day, early retirement is a big decision that requires careful planning. But here's the great news: As a Washington state public employee, you have unique tools and options to make your dream a reality. With the strategies we've covered today, you can bridge the gaps and unlock a retirement that's truly worth celebrating.
So here's to you, to your years of dedicated public service, and to the adventure ahead. With smart planning and a little flexibility, your early retirement dreams are within reach.
If you’d like to meet with me to get your questions answered in a one-on-one setting, here’s a link to request a time to meet.

-Seth Deal