Retiring early from the federal government is a dream come true for many feds. But how does an early out retirement work for feds and does it make sense for you (if you are even offered it at all)?
For some, an early retirement makes incredible sense (because they were prepared for it), but for others, not so much.
Feel free to jump to the section that is most helpful to you.
-How Does FERS Early Out Retirement Work?
-Who is Eligible for FERS Early Out Retirement?
-Early Retirement (VERA) Pension Calculation
-Can I Keep My Health Insurance With an Early Out Retirement?
-Can You Get The FERS Supplement with an Early Out Retirement?
-Should You Take The Early Out Retirement Offer From Your Agency?
-Does an Early Out Always Come with a Buyout (VSIP)?
-Who Is Eligible for a Buyout or VSIP?
How Does FERS Early Out Retirement Work?
The official name for an early out retirement is a VERA or Voluntary Early Retirement Authority. I will use VERA and Early Out retirement interchangeably during this article. It was created for agencies that are downsizing, restructuring, or reshaping of some kind.
Basically, a VERA allows agencies to allow their employees to voluntarily retire early if they meet certain criteria. The agency wins because they then have fewer employees to pay every two weeks and the employees win because they were able to get full retirement benefits earlier than they would have otherwise.
But because it is only used when agencies want to downsize, an early out retirement is not available all the time. The following steps would have to occur for you to get an early out retirement.
Your agency applies and is approved by OPM to offer a VERA
Your agency offers an early out for your position
You apply and are approved for the early out by your agency (assuming you are eligible, see below)
If any of these steps don’t happen then a VERA is not available to you.
Who is Eligible for FERS Early Out Retirement?
And even if your agency offers an early out, it is not universally available for all employees at the agency. They’d have to offer it for your position and you’d have to meet one of the following eligibility requirements:
Have at least 20 years of service and be at least age 50 or
Have at least 25 years of service at any age
If you meet one of these requirements then you are eligible to apply for the VERA and then your agency would have to accept your application.
Early Retirement (VERA) Pension Calculation
If you qualify for and are accepted for a VERA (early out retirement) then your pension calculation will be based on the normal formula as shown below:
So if you are 55, have 20 years of service, and a high-3 of $80,000 then your calculation would look like this:
$80,000 X 20 X 1% = $16,000/year or $1,333/month
You can find more information on calculating your pension here.
Can I Keep My Health Insurance With an Early Out Retirement?
Yes, you sure can keep your health insurance with an early retirement assuming you have been covered under FEHB (federal employee health benefits) for the 5 years before retiring.
Basically, an early out retirement allows you to get the benefits of a full and immediate retirement at an earlier age. This includes your life, dental, and vision insurance as well.
Because as you may know, without a VERA you’d have to meet one of the following criteria to retire with full retirement benefits:
Have 30 years at your minimum retirement age
Have 20 years at 60
Have 5 years at 62
Can You Get The FERS Supplement with an Early Out Retirement?
Yes, you can get the FERS supplement under an early out retirement. However, the one difference is that the supplement wouldn’t start until your MRA (minimum retirement age) per the chart below.
The supplement would then continue to be paid to you (assuming you don’t make more than the earnings test) until age 62.
You can learn more about the FERS supplement here.
Should You Take The Early Out Retirement Offer From Your Agency?
An early out retirement can be a great opportunity for someone to retire early if they are already financially prepared to retire. For example, if you already know that your pension and TSP (Thrift Savings Plan) is large enough to give you the comfortable retirement that you want then an early retirement might be a no-brainer.
But some people may need some more years to increase their pension and save more in their TSP before they hang it up for good.
Another situation where it could make a ton of sense is if you’d like to take a job or start a business on the private side. An early out retirement would allow you to continue your health insurance (assuming you are eligible) and draw a pension while you pursue your goals outside the government.
Does an Early Out Always Come with a Buyout (VSIP)?
For those that are unfamiliar, a buyout is a lump sum payment (generally around $25,000) that the government would use to incentivize even more employees to retire. And while buyouts have and do occur in conjunction with a VERA, this is certainly not always the case.
Buyouts can occur on their own and more and more we are seeing the government is not offering a buyout when they offer a VERA.
The official name for a buyout is a VSIP, or Voluntary Separation Incentive Payment Authority.
Who Is Eligible for a Buyout or VSIP?
According to OPM, to be eligible for a VSIP, an employee must meet all of the following:
Be serving in an appointment without time limit;
Be currently employed by the Executive Branch of the Federal Government for a continuous period of at least 3 years;
Be serving in a position covered by an agency VSIP plan (i.e., in the specific geographic area, organization, series and grade);
Apply for and receive approval for a VSIP from the agency making the VSIP offer; and
Not be included in any of the ineligibility categories listed below.
Any of the following would disqualify an employee from being eligible for a VSIP:
Are reemployed annuitants;
Have a disability such that the individual is or would be eligible for disability retirement;
Have received a decision notice of involuntary separation for misconduct or poor performance;
Previously received any VSIP from the Federal Government;
During the 36-month period preceding the date of separation, performed service for which a student loan repayment benefit was paid, or is to be paid;
During the 24-month period preceding the date of separation, performed service for which a recruitment or relocation incentive was paid, or is to be paid; and
During the 12-month period preceding the date of separation, performed service for which a retention incentive was paid, or is to be paid.
How Much Will I Get From VSIP?
The highest that a buyout can be is $25,000 for many agencies but that limit has increased to $40,000 for defense federal employees. This doesn’t mean that your agency will offer the highest amount but they could.
Note: These are the gross amounts but after taxes and deductions a $25,000 buyout is probably closer to $18,000-$19,000. And in retirement 18k-19k doesn’t often go very far so you will want to make sure that you are financially prepared to retire before accepting the VSIP.
Do I Have To Pay The VSIP Back If I Return To Work?
If you receive a VSIP to retire early and then return to work for the federal government within 5 years then you would generally be required to pay back the VSIP amount.
