With you as a federal employee planning your retirement, one crucial task is calculating the amount you will receive on your FERS retirement pension (also sometimes called your FERS annuity). You need to know when you can start receiving payments and how much they will be.
This article will examine many of your questions about a FERS pension. This material doesn’t consider early retirements due to disability. Here are some things to keep in mind when calculating what your FERS pension payments will likely be — and how you can adapt these practical fundamentals for your federal retirement planning.
What Is the FERS Pension and How Do You Get It?
The Federal Employee Retirement System, created in 1986, was designed for federal civilian employees. It’s referred to as FERS, for short. This retirement system gives you and other covered employees benefits in three ways:
- Basic Benefit Plan (FERS pension)
- Social Security
- Thrift Savings Plan (TSP)
Social Security and your Thrift Savings Plan are portable if you leave federal service before retiring.
How Much Will You Get from Your FERS Pension?
Your FERS annuity reflects your highest average basic pay you have earned as a federal employee during any three consecutive years of employment. Usually, these are the three most recent years you have worked for the federal government.
You can, however, use earlier years if your pay was higher then. You then add those three salaries together and divide them by three. The result is your average for the three years. Hence why you hear of the “High-3 average salary” in discussions of calculating FERS pension payments.
Basic pay doesn’t include overtime, bonuses, and similar payments, but it does include shift rates. If retirement benefits get withheld, the hours count toward your total.
Next, multiply the average by the number of creditable years of service you have with the federal government. Multiply that result by 1 percent.
Creditable service for FERS includes:
- Service where your pay was subject to FERS retirement deductions
- Unused Sick Leave
- Federal service before 1989 as long as a deposit is made (with some exceptions for work with particular employers)
The deposit is a payment for a period when deductions weren’t withheld. Your deposit will generally be 1.3 percent of the salary plus interest. You never have to make a deposit, but you can’t count the period as creditable unless you do.
Once you have all this data, you can do the math to determine your FERS pension payment.
If you have less than 20 years of creditable service but are at least 62, you get: Years of Service times High-3 Average times 1 percent equals your monthly payment. Note that if you have less than 20 years and are under 62, your annuity will be reduced by 5 percent for each year under age 62. However, if your agency permits you to retire early, they can waive this reduction.
If you have 20 years or more of service and are at least 62, you get: Years of service times High-3 Average times 1.1 percent equals your monthly payment.
When Can You Retire Under FERS?
FERS sets minimum retirement ages, and, like Social Security, they depend, to some extent, on when you were born. The FERS ages are:
- Born before 1948: Age 55
- 1948: Age 55 and 2 months
- 1949: Age 55 and 4 months
- 1950: Age 55 and 6 months
- 1951: Age 55 and 8 months
- 1952: Age 55 and 10 months
- 1953–1964: Age 56
- 1965: Age 56 and 2 months
- 1966: Age 56 and 4 months
- 1967: Age 56 and 6 months
- 1968: Age 56 and 8 months
- 1969: Age 56 and 10 months
- Born 1970 and after: Age 57
If you had five or more years in the Civil Service Retirement System (CSRS) before participating in FERS, you would use the CSRS formula.
FERS Annuity Supplement – What Is It?
If you worked in FERS and meet the requirements, you can receive a Special Retirement Supplement. This is also known as the FERS Supplement or the FERS Annuity Supplement. This Supplement will be paid to you every month until you are 62.
The payment is the equivalent of the Social Security Benefit you earned while you are/were a federal government employee.
How Do You Qualify?
To be eligible for a Special Retirement Supplement, you must:
- Retire after your minimum retirement age and have at least 30 years of service or be 60 with 20 years of service
- If you are 50 years old with 20 years of service or any age with 25 years and take voluntary early retirement, you can receive your Supplement beginning at your minimum retirement age and collect until age 62.
- If you involuntarily retire, you can collect the Supplement from your minimum retirement age through age 62.
If you transfer from the CSRS systems to FERS, you must work at least a year in FERS before you qualify for the Supplement. Further, if you have earnings from wages or self-employment, you will be subject to the same earnings limitations applicable to Social Security before full retirement age.
CSRS gives you 1.5 percent of your high-3 average salaries for each year of service in the first five years. The second five years is 1.7 percent, and any years over ten are 2 percent. Certain first responders and member of Congress and their employees have a different, higher percentage applied.
Getting Your FERS Annuity Payment
Once you have figured out what your monthly payment from your FERS pension will be, you have some options. You can make an irreversible and irrevocable choice to turn on your pension income, once the timing makes sense for your situation, and begin receiving those payments. The payments don’t increase over time. Nor do they always provide any inheritance rights.
Don’t forget about your Thrift Savings Plan funds. Social Security and your FERS pension are likely to cover your needed income for retirement up to a certain level. We find that from these two income streams, many federal employees get up to 50-70% of what they were taking home for an annual salary as a retirement income.
Because of their lifestyle goals, most federal employees typically want a higher income level than that. If you are working with a federal benefits consultant or federal retirement planning strategist, ask about options to maximize your income alongside your Social Security and FERS pension payments.
You can also roll your TSP funds into another qualified retirement account, such as an IRA or Roth IRA.
Don’t Go It Alone
This is just one area of many covered by your federal employee retirement benefits. You have many options to choose and elections to opt for, and an improper choice could have you wind losing on a bundle in lost benefits.
When thinking about your FERS pension payments and other benefits options, you may want to work with an independent and licensed federal benefits consultant. There aren’t any do-overs, and you will want to get it right. They can help you with understanding all of your options and helping you prepare for a confident, financially secure future.
If you are looking for someone that understands your federal benefits and how they fit into your financial picture, see how we can help. Our Federal Employee Benefits USA team can connect you with an experienced benefits counselor to walk through a personal federal benefits analysis for you.
Call us today to request your personal federal benefits analysis, or ask us about another question that is on your mind. We look forward to helping you navigate the system and serving you!