How well do you know the differences between the various types of FERS Retirements?
Let’s look at an overview of the numerous types of retirements that can occur under FERS:
1. Immediate and Full
You’re eligible for an unreduced immediate annuity at age 62 with at least 5 years of service. When you claim your full pension, the only way to get the 10% boost for your retirement calculation is to retire at 62 or older with 20 years of service or more – that’s when you can use a 1.1% multiplier in your annuity calculation and not the standard 1%. At age 62, you can also start taking social security income, so the Special Retirement Supplement is not applicable. (The SRS, Special Retirement Supplement, is a federal program designed to supplement social security benefits before age 62.)
2. Immediate and Unreduced
If you reach your MRA (minimum retirement age) with at least 30 years of service, you can claim an immediate and unreduced FERS annuity. This can also be done at age 60 with at least 20 years of service. However, your FERS retirement calculation will use a 1% multiplier, not 1.1% like if you wait until 62. Until you reach age 62, though, you can receive the SRS with an immediate and unreduced pension – just don’t forget about the earnings test.
3. Immediate and Reduced
If you’re 60 or 61 and have at least 10 years of service (but less than 20), you can still retire with an immediate FERS annuity, but it will be subject to a reduction. This is also the case for those who reach their MRA with 10 years of service (but less than 30) – referred to as an MRA+10 retirement. In both these situations, you’ll be ineligible for SRS payments and your pension will be slashed 5% for every year under 62. So, if you were to retire this way at age 60, there would be a 10% reduction.
4. Deferred and Unreduced
Once you’ve got at least 5 years of federal service under your belt, you can retire at any age and still receive an unreduced FERS annuity… you’ll just have to wait until age 62 to receive it, and you don’t get the 10% boost. If you’ve got at least 30 years of service, you can defer an unreduced annuity until your MRA, but note that even if you’re under 62 when you claim the pension, you won’t qualify for SRS payments with a deferred retirement. Don’t forget about your health benefits with this option, either – you can’t re-enroll in FEHB with a deferred retirement!
5. Deferred and Reduced
If you defer your retirement and had at least 10, but less than 20, years of service, you can start receiving FERS retirement income at age 60 instead of 62. The same reduction rules apply, though, as with immediate annuities- a 5% reduction for every year under 62. And with at least 10, but less than 30, years of service, you claim your deferred retirement benefits at your MRA. This will also result in the 5% reductions for every year under 62. And again, it is important you remember that you can’t re-enroll in FEHB when you start receiving your FERS income.
6. Postponed Retirement
A deferred retirement is for those who leave federal service at any age. A postponed retirement applies to those who have reached their MRA upon leaving the federal workforce. So long as you also have 10 years of service or more, you can postpone your retirement until age 62. It is not subject to any reduction penalties, and the biggest difference between postponing and deferring a FERS annuity is the ability to re-enroll in FEHB once you start receiving benefits. (Note the word “re-enroll” – if you weren’t already enrolled, or at least eligible for enrollment, in FEHB when you left federal service, you can’t enroll upon collecting your pension.) There’s also no 10% boost and you won’t receive any SRS payments.
7. Early Retirement: VERA and VSIP
You can collect an immediate, unreduced annuity before reaching MRA, but only if you’re specifically offered an “early out” from your employing agency. When agencies are restructuring or trying to reduce positions for other reasons, they will offer specific employees an early retirement. The offer is usually only on the table for a short time. OPM allows agencies to offer early retirements via the Voluntary Early Retirement Authority (VERA). When offering an early retirement, an agency may add a bonus to entice you. These payments are known as a VSIP (voluntary separation incentive payment), which cannot exceed $25,000 by law.
To be eligible for an early retirement through VERA, you need to be at least age 50 with 20 years of service, or any age with 25 years. (So, if you were hired under FERS at age 18 and offered a VERA after working 25 years, at 43 years old, you would be the youngest possible age that someone can receive an unreduced, immediate, non-disability FERS pension.) While those who take an early out don’t get a 10% boost, they are eligible to receive SRS income.
8. Disability Retirement
At any age with 18 months of service or more, you might be eligible for a FERS disability retirement. You would need to be disabled, though. Claiming this retirement entails providing your employing agency with complete documentation regarding the medical condition. If the agency is unable to make a reasonable attempt to keep you employed in a “productive capacity,” then you might be able to claim disability retirement benefits. However, the pension amount will be offset by any social security disability benefits you’ve received in the same timeframe. If you claim a disability retirement before age 62, you cannot qualify for SRS income. If you are 62 or older, you do get the 10% boost to your retirement calculation.
9. Mandatory and Special Retirements
If you are a Law Enforcement Officer (LEO), Federal Firefighter, or nuclear weapon courier (NWC), then you are mandated to retire at age 57. And if you’re an air-traffic controller (ATC), the mandatory retirement age is 56. Because of this, you also have different eligibility requirements. You can take an unreduced immediate annuity at age 50 with 25 years of service or more – or at age 55 with 20+ years. Because you wouldn’t be able to get the 0.1% boost by retiring at age 62, your retirement calculation will use a 1.7% multiplier for your first 20 years of service and 1% for any subsequent years. Note this also means that for each paycheck, you contribute 0.5% more to FERS than those without mandated retirement ages.
Because the SRS was designed for this specific group of feds, you’d naturally be eligible for the supplement. And to boot, if you retire before reaching your MRA, the SRS isn’t subject to that pesky earnings test until you’re at that age.
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**Written by Benjamin Derge, Financial Planner, ChFEBC℠. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.