Federal employees enjoy great retirement benefits that many in the private sector envy.
But I have certainly seen that having access to these great benefits is far from enough to have a comfortable and confident retirement. One must understand what benefits exist and how to get the most out of them.
Your FERS Retirement
Your FERS (Federal Employees Retirement System) retirement is made up of 3 main retirement income sources. For those of you who spent time in the military or in a private job, you may have other investments or income sources as well.
TSP (Thrift Savings Plan)
FERS Pension
Social Security
Each of these 3 columns can make a significant difference in your retirement. Your Social Security and your pension will be a fixed dollar amount depending on a number of factors, while your TSP will depend more on how much you have contributed and how well you have managed your investment choices over your career.
But before we dig too deep into any of these income sources, you have to know when you are actually eligible to retire.
Note: Being eligible for retirement is important to be able to qualify for a full and unreduced pension.
When Are You Eligible to Retire Under FERS?
There are 3 major things that must be considered:
-Your Age (that you’d like to retire)
-Your Years of Creditable Service
-What type of retirement you’d like to choose
Note: You will need to be familiar with your MRA(Minimum Retirement Age). Here is a chart to help you figure out what it is for you.
Born Before 1948……….55
Born in 1948…………….55 and 2 months
Born in 1949…………….55 and 4 months
Born in 1950…………….55 and 6 months
Born in 1951…………….55 and 8 months
Born in 1952…………….55 and 10 months
Born in 1953-1964………56
Born in 1965…………….56 and 2 months
Born in 1966…………….56 and 4 months
Born in 1967…………….56 and 6 months
Born in 1968…………….56 and 8 months
Born in 1969…………….56 and 10 months
Born in 1970…………….57
Born after 1970…….…..57
Let’s jump into the different types of retirement that are available under the FERS.
1. Immediate Voluntary FERS Retirement
This is the most common type and is often referred to as voluntary retirement. To be eligible for this retirement you must meet one of the following:
Be your MRA with at least 30 years of service (MRA+30) or
Be at least 60 with at least 20 years of service (60+20) or
Be at least 62 with at least 5 years of service (62+5)
How to get a 10% BONUS in retirement
If you are at least 62 and have at least 20 years of service, you are eligible for a 1.1 multiplier when calculating your pension. This is a 10% increase from the regular multiplier of 1.
2. FERS MRA+10 Retirement
If you are not eligible for retirement under the immediate voluntary retirement you may be eligible for this type. You must have reached your MRA and have at least 10 years of creditable service. This option does allow you to retire earlier but does have a big downside. Your pension will be decreased by 5% for every year that you retire before age 62. (i.e. if you retire 6 months before your 62nd birthday, your pension will be decreased by 2.5%)
1.TSP
Your TSP is similar to a 401(k) for those in the private sector. The TSP allows you to save directly from your paycheck. You are then able to invest this money in any of the TSP funds.
This account can grow tax-deferred or tax-free (with the Roth TSP) over the course of your career and, if properly managed, it can grow into a substantial amount. From this account you’d be able to fund many of the things that your other fixed income does not.
Curious what your TSP balance will be at retirement? Check out the TSP Calculator here.
2. Pension
Every pay period, the government takes out a portion of your pay to go to your pension. However, the amount you receive from your pension in retirement is not directly based on how much you contributed over your career. It is based on the following three things:
Your High-3 Salary
Years of (creditable) Service
Your Pension Multiplier
And here is the FERS Pension Calculation Equation:
Check out our FERS Pension Calculator Here.
Although this formula is simple, it gets complicated when calculating your High-3 salary and knowing what actually counts towards creditable years of service. This article goes deeper into these topics.
Gross Vs. Net Pension
One thing that is critical when planning your retirement is calculating your net pension and not just your gross. Your net pension is the actual dollar amount that you will receive each month. To do this calculation you have to include all the reductions to your pension. There can be 6 or more different reductions to your pension! Click here to learn what 6 reductions could be and how they will affect your retirement.
3. Social Security
Similar to your pension, your social security is calculated based on a number of factors. Some of these factors include how much you have made and how many years you have worked in a job that contributes to social security.
The easiest way to find out an estimate for how much you are eligible for is the Social Security website. You will be able to make an account and view your social security statements online.
FERS Supplement
Social Security can play a large role in your retirement but you are only eligible for social security once you are at least 62. The FERS supplement was designed for those that retire before they are eligible for social security. It helps bridge the gap until they are at least 62. Check out my article about the FERS Supplement here.
