Wait, There are Different Types of Retirements?
Most of the time when we talk about retirement, we are talking about getting paid to work one day, and then getting paid to NOT work the next day. In other words, we transition from showing up every day, to getting our pension. Generally that transition happens immediately. On Friday, we are employed, getting a salary; on Monday we are unemployed, getting a pension. That’s what we typically refer to as a “retirement”. OPM refers to this as an “immediate retirement”. Why? Well, number one, because it’s immediate (at the beginning of the next month). But also because there are different types of retirements and we need to distinguish between them. Think if you don’t do a full 20 or 30 years in the government, you won’t get an annuity (pension)? Think again.
Eligibility
First I think it’s worth looking at the eligibility requirements as a refresher. You won’t believe the number of emails I get from people asking me when they can retire. You should know the date you are eligible to leave and get an annuity. Here are the rules for an immediate, unreduced retirement:
You have reached 62 years of age, and you have done at least 5 years under FERS
You have reached 60 years of age, and you have done at least 20 years under FERS
You have reached your Minimum Retirement Age (55-57 years old) and have done at least 30 years under FERS
For SCE’s (like Law Enforcement), you have reached 50 years of age, and have done at least 20 years under FERS
For SCE’s, you are ANY age, but have done 25 years under FERS
There is another immediate annuity option, but it is reduced. You have reached your MRA, and you have less than 30 years, but more than 10 years. This is referred to in government-speak as MRA+10. You can retire, but the annuity may be reduced similar to how we will discuss things in a few minutes.
Whew, is that confusing??? It can be, but understand this: Most of you don’t need to know all of the different ways to retire; you just need to know the one or two ways that will get you to where you need to be. For example, if you got hired at 58, probably only #1 and maybe the MRA+10 would apply. Could #2 apply? It could, but that would mean you’d have to work until you’re 78.
If you’re a DEA agent, you are concerned with #4 or #5. If you were hired after you turned 25, then you’re really only concerned with #4.
So, no need to memorize the chart. Find what applies to your specific situation and focus on that. There’s a chance only 1 or 2 will be relevant to you anyway.
Now that we’ve gotten that out of the way, let’s look at some of the other retirements:
Deferred Retirement
A deferred retirement in OPM-language means you’ve worked enough to get an annuity, but you separated from the government position before you met one of the eligibility rules above. In other words you quit. Call it a retirement if you want, call it “in between jobs”, or just call it being a former federal employee, but OPM calls it a separation before immediate retirement. Doesn’t mean you won’t get a pension. It just means you won’t get a pension next month. You’ll get one in the future. When? And how much? Depends on how long you had on the job.
Here’s an added benefit to me typing the eligibility chart above, and you reading it (hopefully): the deferred retirement rules mirror the eligibility rules pretty closely:
Say you get hired at 25 years old, and do 5 years under FERS. You then leave to go pursue your PhD in 17th Century French Huguenot Studies, never to return to the government. When you are 62, you can file for a retirement from OPM and start getting a pension for the rest of your life beginning in the month after you turn 62.
Say you do a little more than 5 years. Let’s assume you work for 10 years for the government, until you are 35. Forms, bureaucracy, and cubicle habitation are sucking the life out of you. So you leave, start your own business, and become wealthy. In this case, you don’t have to wait until you are 62 years old. You can start getting a pension when you reach your Minimum Retirement Age, aka MRA. Aka somewhere between 55 and 57, depending on the year you were born. Let’s say your MRA is 57. When you reach that age, you can file some of those dreaded forms and start getting a check every month from Uncle Sam. There is a catch though. Even though you are eligible for an annuity when you reach your MRA, OPM still considers this an “early” annuity and penalizes you for it. (I know, right?) For every month you are under 62 when you file for this type of deferred annuity, OPM dings you 5/12ths of 1%. You probably need to read that sentence again. Basically, it means this: OPM docks you 5% of your annuity for every year you are under 62 when you file. Example: file at 57 and they reduce your annuity by 25% (5 years x 5%). If you were going to get $1,000 a month, you will now get $750 a month.
A little more about this second option. You do not HAVE to file for your retirement as soon as you hit your MRA. You are simply ELIGIBILE to do so. If you don’t want to have the reduction penalty, you can wait and file when you hit 62 years of age. Then your $1,000 a month (in our example) stays at $1,000. Want to see the form you file? Your wish is my command. What about an instruction pamphlet on how to fill the form out? I got you.
How is the monthly amount calculated? Same as always: based on length of service and High-3 salary at time of separation.
The downsides to leaving early and then later getting a deferred annuity? There are some big ones!
No FEHB. This is the government health insurance. Can take it into an immediate retirement. Can’t take it into a deferred retirement.
No FERS Retiree Annuity Supplement.
No credit for unused sick time toward your service.
No FEGLI
One last point and we’ll move on—this deferred retirement annuity is still eligible for a 50%, 25% or 0% spousal survival benefit.
Postponed Retirement
Pay attention here. This may be a little tricky. The words “postponed” and “deferred” sound like they have similar meanings. And they may in the real world. But in OPM universe, these two words mean different things.
Let’s go back to the immediate retirement for a second. Remember when I said you could retire at the MRA+10? You have 10 years on, you have reached your MRA birthday and you want to retire under an immediate (not deferred) retirement. You can do that, but if you’ll recall above, I said you will lose 5% a year in a reduction for every year you are under 62.
If you don’t want to take that reduction in your immediate annuity, you can postpone your benefits. You still retire at say, age 57, but you don’t turn on the pension faucet, so to speak. You sit patiently for 5 years, and then you file your pension paperwork (again the same form as above), and you get your full, unreduced annuity.
In most cases, you’d have to postpone this until age 62. But, there is a circumstance that allows you to postpone it until only age 60. Again, this sort of aligns with the immediate retirement rules. Let’s explain it through an example:
Mindy is hired at age 37 and works for 20 years. She hits her MRA of 57 and then walks out the door. She is eligible for an immediate annuity if she wants one, under the MRA+10. However, she doesn’t want to take the reduction, so she chooses to postpone the retirement. Does she have to postpone it until 62? No. Remember she has 20 years on. If someone has 20 years on, when can they retire? (Hint: look at #2 in the Eligibility List above). She can file her unreduced postponed retirement at age 60, not age 62.
I realize this is like a game of pick-up sticks—you move one piece and everything else moves. But again, focus on the combination of numbers that works for you and go with it. I’m writing to an audience that falls all over the spectrum above, but each one of you only needs to be concerned with what works for you.
Remember this: postponed means you are eligible for an immediate retirement when you separate, but you choose to postpone it until the future. Deferred means you left before you are eligible for an immediate retirement, but you’ll still get some benefit in the future.
In case you are wondering, you DO get to keep your FEHB with a postponed retirement. But you don’t get it unless you are actually getting your annuity benefits. So, if you separate at 57, but postpone your retirement until 62, you will have a gap in your FEHB coverage from 57 to 62. You can elect to temporarily (18 months) receive coverage, but you gotta pay the WHOLE premium and a 2% administrative fee.
In case you were also wondering about FEGLI, you don’t get that coverage when you are in that period of no-annuity time.
Supplement
You are not eligible for the supplement on a postponed retirement, so factor that in. As a matter of fact, let’s make it clear when you will NOT get the supplement:
Retire on an immediate annuity that is reduced for age (MRA+10)
Postponed Retirement
Deferred Retirement
Please make sure when you are running these numbers, you consider the cost of missing out on the supplement. It might make a difference in whether you stay longer or leave now.
Disability Retirement
This is a big one. I know it seems hard to believe, but this one is far more complicated than everything above put together. I’ll give you the highlights, and suggest you seek some professional consultation if you are finding yourself in this situation.
If you’re no longer able to perform your duties appropriately due to an extended medical condition, and your agency cannot find you another job at your same pay that you can perform, and the disease, injury, or other disability is expected to last more than one year, you may be eligible to retire on a disability retirement.
For most people under 62, this retirement will be equal to about 60% of their average High-3 at separation for the first year. After that, it will be 40% of the High-3. Both of these amounts can be reduced by Social Security Disability payments you may be receiving. If you think about it, those are some pretty high percentages. For a regular FERS employee, they would have to work 40 years to get 40% of their High-3. For an SCE, they would have to work 26 years for 40%. So, it’s a significant credit.
Once the individual reaches age 62, the pension is recalculated as if they had continued working until age 62 and went out on a “normal” retirement.
Contrary to very common and persistent rumors out there, disability retirement is taxable! It is not tax-free, as I have heard many times. Once the individual reaches their MRA, a portion of the annuity is not taxable, per IRS rules, but that is a small portion. IRS Pub 721 is a good resource explaining this.
If you would like to start some research on this topic, here is the OPM page. Additionally, I highly recommend Dan Jamison’s FERSGUIDE, which has multiple pages on the subject in plain English. So good in fact, there’s little reason for me to, in essence, re-type the same information here.
Early Optional Retirement
Sometimes an agency may be downsizing, or restructuring, or reducing their force. In this case, an employee may receive an offer to retire earlier than otherwise eligible. The retirement is essentially the Special Category Employee retirement rules listed above—25 years at any age, or 50 years old with 20 years on. OPM talks more about it HERE.
Summary
I realize that’s a LOT of information. Even so, there will be some HR Ninja’s out there reading this and saying, “But you left out X, Y and Z!!!” I understand, and my apologies. My goal is never to paraphrase the entire federal register and every OPM rule. But rather to give you a starting place, in plain English, of how to go about getting a handle on something that may be applicable to you. And this is one corner of the FERS world that I don’t deal with every day so feel free to verify anything I’ve written. If you want to email me and tell me what I’ve left out, or what needs corrected, I’d rather you paste it in the comments below. Then, everyone can see the correct information….just make sure you’re correct. Post links to authoritative sites (OPM, US Code) if you have them.
My recommendation is that if you are considering any of the above alternatives to the traditional immediate government retirement, you hire someone that is very knowledgeable in these areas, and has experience walking people through them. (Tammy Flanagan is one that immediately comes to mind.) A lot of these decisions are irrevocable, and you want to have all the information possible (including the long-term consequences) before you go down that road. After getting some consultation, you might find yourself in a spot where you only have to work another year or two to drastically change your situation. Might be some good info to know.
Final Word
I know I am being humorous with some of this stuff (or at least trying to be), but if you are in your 20’s or 30’s, have been working in the government for a few years, and realize it’s just not for you, my advice is this: Don’t endure a decades long, soul-sucking vortex from which there is no escape, solely for the purpose of getting an immediate retirement when you’re middle-age. You’ll be miserable. You’ll make others miserable around you, and you’ll waste the most precious gift you’ve ever been given: time. If you’ve got 8 years in and you start to talk about leaving, you will have co-workers trying to tell you to stick it out for the big payoff in the end. And maybe you should stick it out. Maybe the grass isn’t always greener. But then again, sometimes it is. I don’t know exactly what your particular purpose in life is, but I can be pretty certain it’s not just occupying a tiny spot in a cubicle farm, moving paper from the In box to the Out box for 30 years. Go find your purpose!