There are many factors related to retiring from federal service, and it is never too early to start planning. But where do you begin?
1. When Can I Retire?
Congress created the Federal Employees Retirement System (FERS) in 1986, and it became effective on January 1, 1987. Since that time, new Federal civilian employees who have retirement coverage are covered by FERS. Eligibility is determined by your age and number of years of creditable service. In some cases, you must have reached the Minimum Retirement Age (MRA) to receive retirement benefits. Use the following chart to figure your Minimum Retirement Age. An immediate retirement benefit is one that starts within 30 days from the date you stop working. If you meet one of the following sets of age and service requirements, you are entitled to an immediate retirement benefit:
Eligibility Information
Age Years of Service
62 5
60 20
MRA 30
MRA 10
If you retire at your MRA with at least 10, but less than 30 years of service, your benefit will be reduced by 5 percent a year for each year you are under 62, unless you have 20 years of service and your benefit starts when you reach age 60 or later. Check out our How Soon Can I Retire? Calculator to determine when you’re eligible for retirement.
2. What Will My Pension Amount Be?
Your basic annuity is computed based on your length of service and “high-3” average salary. Your “high-3” average pay is the highest average basic pay you earned during any 3 consecutive years of service. These three years are usually your final three years of service but can be an earlier period, if your basic pay was higher during that period.
If you are under 62 at retirement, you will receive 1% of your high-3 avg for each year of creditable service. For example, if you have 30 years of service, you would receive 30% of your high-3 average as your basic annuity. Divide this number by 12 to calculate your monthly amount.
If you are at least 62 at retirement with at least 20 years of service, you will receive 10% more or 1.1% for each year of creditable service. Using the same example from above, you would receive 33% instead of 30% of your high-3. Our FERS and CSRS Calculators and will show your retirement income and benefit deductions. (Note that if you are special provisions our calculator will assist you as well.)
3. What Happens To My Health Insurance & Life Insurance?
As a federal employee, being able to continue your Federal Employees Health Benefits in retirement at the same rate as a regularly employed FERS participant is one of your most valuable benefits. To continue your health benefits enrollment into retirement, there are two basic requirements:
(1) have retired on an immediate annuity
(2) have been continuously enrolled (or covered as a family member) in any FEHB Program plan (not necessarily the same plan) for the five years of service immediately preceding retirement.
Unfortunately, this is not the case with your life insurance through FEGLI (Federal Employee Group Life Insurance.) The cost for Basic coverage can increase by 650% at retirement and the premiums for optional coverages can increase even more. This can be quite a shock for people who don’t prepare beforehand. To see how much your cost will increase, use our FEGLI calculator then reach out to us to learn about alternative plans.
4. What Are My Options With My Thrift Savings Plan?
Upon retirement, your TSP may well be your biggest asset. After all, you may have been contributing to your account for 30 years and accruing interest on a tax-free basis. Deciding what to do with your TSP may be your most important decision at retirement so you want to know your options and speak with a professional to learn more. Let’s look at the four basic options you have:
- Lump-Sum Payment: it can be tempting to simply take your entire balance in one payment when you retire, but this can be a very costly mistake. If you are pulling this money from the Traditional TSP, the entire amount will be added to your taxable income for that year and you could be facing an enormous tax debt. Some people want to pay off their mortgage using a lump sum payment from their TSP, but the math rarely works in your favor.
- Monthly Payments: many retirees are looking for a monthly amount to supplement their pension and social security and will consider monthly installments from TSP. But this comes with considerable risks as well as there are no guarantees the money will last the rest of your life.
- Purchase an Annuity from TSP: When you choose this option, you are exchanging your account balance for guaranteed payments. The most common type is a straight-life annuity which means level monthly payments for the rest of your life. Sounds great at first, but there are two major downsides: (1) the payment never increases, and (2) there is nothing to leave to your beneficiary.
- Transfer to an Individual Retirement Account: this is the recommended option for most federal employees because it gives the retiree greater flexibility and access to their account. There are no taxes or penalties, and you can choose the right IRA for your unique situation. I favor IRA’s that give the owner: protection from market losses, increasing income for life, & beneficiary protection. To learn more, request a consultation with one of our retirement specialists for a free consultation.
5. Can I Afford to Retire?
This may be the last question on our list, but it is the most crucial one to answer. Before finalizing your retirement, you need to know exactly what your income will be and if it will be enough to cover your needs. You will want to calculate your pension, social security benefit, and any TSP withdrawals; then subtract your expenses. It is recommended to complete a retirement budget so you will have a better understanding of your expenses in retirement.
Regarding Social Security, if you retire before the age of 62, you may be eligible for a supplement based on your Social Security benefit. If retiring after 62, you may either start Social Security benefits early (taking a reduced amount), wait until your Full Retirement Age (age 65-67, depending on year of birth) or defer taking your benefits until age 70. Refer to our Social Security Estimator to view your income options.
Knowing when to retire from federal service is one of the most important decisions of your life, and many elections are irrevocable after separating from service. So don’t go it alone – fill out the form below to schedule a consultation!