Federal Retirement Questions for FERS Employees
Federal retirement involves much more than selecting a retirement date.
Your FERS pension, Thrift Savings Plan, Social Security, Federal Employees Health Benefits, Medicare, survivor elections and other benefits can interact and affect your financial position throughout retirement.
Here are important questions FERS employees should understand before leaving federal service.
FERS retirement eligibility generally depends upon both your age and your years of creditable service.
For a regular immediate voluntary retirement, common combinations are:
Age 62 with at least 5 years of service
Age 60 with at least 20 years of service
Minimum Retirement Age (MRA) with at least 30 years of service
MRA with at least 10 years of service
Under MRA+10, an age reduction can apply. The reduction is generally 5% for each year the employee is under age 62 when the annuity begins. An employee may be able to reduce or eliminate this reduction by postponing the starting date of the annuity.
For an employee with at least 20 years of service, the reduction can be eliminated if the annuity begins at age 60 or later.
Minimum Retirement Age depends upon year of birth and ranges from age 55 to age 57.
Different rules can apply to early retirement, disability retirement and employees covered by special retirement provisions.
For many regular FERS employees, the basic annual annuity is calculated using:
High-3 Average Salary × Years of Creditable Service × Applicable Percentage
For many employees, the percentage is 1%.
If an employee separates for retirement at age 62 or older with at least 20 years of service, the percentage is generally 1.1%.
For example, an employee age 62 with 20 years of creditable service and a $100,000 high-3 would have a basic calculation of:
$100,000 × 20 × 1.1% = $22,000 per year
The actual benefit can be affected by survivor elections, deposits or redeposits, special-category service and other circumstances.
That is why estimating a FERS pension is only one part of retirement planning.
These terms are important because they can affect more than when the pension begins.
Immediate Retirement
An immediate retirement benefit generally begins within 30 days after the employee stops working when the applicable age-and-service requirements have been satisfied.
Postponed MRA+10 Retirement
An employee who qualifies under the MRA+10 provision can separate and postpone the beginning of the annuity.
Postponing can reduce or eliminate the age reduction that otherwise could apply.
FEHB and FEGLI coverage generally stop during the postponement. If the employee otherwise satisfies the requirements for carrying those benefits into retirement, eligible coverage can resume when the postponed annuity begins.
Deferred Retirement
A former employee who leaves federal service before qualifying for an immediate retirement may later qualify for a deferred FERS annuity if the applicable requirements are met.
A deferred retirement is not the same thing as postponing an MRA+10 retirement.
That distinction is particularly important when evaluating retirement insurance benefits.
Many federal employees can continue Federal Employees Health Benefits coverage into retirement, but eligibility requirements must be satisfied.
Generally, the employee must be entitled to retire on an immediate annuity, including an eligible FERS MRA+10 retirement, and must have been continuously enrolled in or covered as a family member under FEHB for:
The 5 years of service immediately preceding retirement, or
The entire period since the employee's first opportunity to enroll, if that period is less than 5 years.
Certain qualifying military health coverage can count toward the five-year requirement when the applicable conditions are satisfied.
For an MRA+10 retiree who postpones the annuity, FEHB coverage is generally suspended while the annuity is postponed and can resume when the annuity begins if the employee otherwise qualifies.
Because FEHB can be an extremely valuable retirement benefit, employees should verify their eligibility before separating from federal service.
Turning 65 does not automatically mean a federal retiree must abandon FEHB.
Many federal retirees who are eligible for Medicare continue FEHB coverage.
The decision concerning Medicare—particularly Medicare Part B—should be evaluated together with the retiree's FEHB coverage and personal circumstances.
Considerations can include:
FEHB plan benefits
Medicare premiums
Income-related Medicare premium adjustments
Expected healthcare use
Prescription-drug coverage
Spousal coverage
Provider preferences
Travel and geographic considerations
There is not one combination that is automatically best for every federal retiree.
Leaving federal service does not mean that you must immediately withdraw all of your money from the Thrift Savings Plan.
Your TSP is one component of your overall federal retirement picture.
Before making a major decision concerning retirement assets, consider issues such as:
Retirement income needs
Liquidity
Investment choices and risk
Withdrawal flexibility
Taxes
Beneficiary planning
Other retirement accounts and assets
How long the money may need to provide retirement income
The important question is not simply:
“Can I move my TSP?”
A more useful question is:
“How should my retirement assets work together with my FERS pension and Social Security to support my retirement?”
There is no single Social Security claiming age that is appropriate for everyone.
Social Security retirement benefits can generally begin as early as age 62, but beginning benefits before Full Retirement Age results in a reduced monthly benefit.
Waiting beyond Full Retirement Age can increase the monthly retirement benefit through delayed retirement credits. Those increases stop at age 70.
The appropriate claiming decision can depend upon factors such as:
Other retirement income
FERS pension
TSP and other retirement assets
Whether the individual continues working
Spousal and survivor considerations
Cash-flow needs
Longevity considerations
Social Security should therefore be evaluated as one component of the employee's overall retirement-income strategy.
Certain FERS employees who retire before age 62 may qualify for the FERS annuity supplement.
The supplement is designed to approximate the portion of a Social Security benefit attributable to the employee's FERS civilian service.
Not every FERS retiree qualifies for the supplement.
For individuals subject to the earnings test, earnings above the applicable Social Security exempt amount can reduce the supplement. OPM states that the reduction is $1 for every $2 of earnings over the applicable exempt amount.
The supplement can therefore be reduced substantially or even to zero because of earnings.
Federal employees planning to retire before age 62 should determine whether they are expected to qualify for the supplement rather than automatically including it in their retirement-income projections.
For a married FERS employee retiring with a spouse, the survivor election can affect both retirement income and protection for the surviving spouse.
Under FERS, the maximum survivor annuity generally provides the surviving spouse with 50% of the retiree's unreduced annuity. Electing the maximum survivor benefit generally reduces the retiree's annuity by 10%.
A partial survivor annuity generally provides 25% of the unreduced annuity and generally results in a 5% reduction to the retiree's annuity.
A married employee generally must provide the maximum survivor benefit unless the spouse consents to a lesser election.
The survivor decision can also be important to continued FEHB coverage for a surviving spouse.
For that reason, the survivor election should not be evaluated solely by looking at the reduction in the retiree's monthly pension.
Unused sick leave and annual leave are treated differently when an eligible federal employee retires.
Sick Leave
Unused sick leave can be used in determining the amount of creditable service used to calculate an eligible FERS retiree's annuity.
However, unused sick leave does not generally make an employee eligible to retire sooner. The employee must first satisfy the applicable retirement eligibility requirements based upon actual creditable service.
Annual Leave
Unused annual leave is generally paid as a lump-sum payment after separation, subject to applicable rules.
Because leave balances can represent significant value, employees approaching retirement should understand how both forms of leave will be treated before selecting a retirement date.
Receiving a final FERS pension calculation is not necessarily immediate.
After retirement, the employing agency and payroll office must process the retirement package before OPM can complete the claim.
OPM may place an eligible immediate retiree into interim pay while the final retirement claim is being processed.
OPM currently explains that interim payments for many retirees are approximately 60%–80% of the estimated finalized net annuity.
Processing time varies according to the circumstances of the individual application.
This means employees should consider having adequate accessible funds for the transition between their final paycheck and their finalized retirement payments.
A federal employee's retirement date can affect several different benefits and financial considerations.
Before choosing a retirement date, consider reviewing:
FERS retirement eligibility
Estimated FERS pension
High-3 average salary
Creditable service
Military-service deposits, when applicable
Sick leave
Annual leave
FEHB eligibility
FEGLI
Survivor-benefit elections
TSP
Social Security
Medicare, when applicable
Taxes
Expected retirement expenses
Other household income and assets
OPM recommends that employees preparing for retirement work with their agency benefits office in advance of their planned separation date.
A retirement date should therefore be considered in the context of the employee's entire federal retirement picture, rather than based on a single benefit.
Have You Looked at Your Entire Federal Retirement Picture?
Federal retirement decisions should not be made one benefit at a time.
Your FERS pension, TSP, Social Security, FEHB, Medicare, survivor benefits, insurance and personal retirement assets can all affect the income and financial flexibility available to you after federal service.
Request a Federal Retirement Review
If you are approaching retirement and want to better understand how the pieces of your federal retirement picture fit together, request a Federal Retirement Review.
Publication Note
The supplied federal-benefit information is educational content. Benefits and individual circumstances vary. The page should not be presented as an individual determination of entitlement to a particular federal benefit.
Contact Us
Phone
- joseph@fershelp.net