Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

Basic Retirement Computations

ARCHIVES
In last week's column, we opened our discussion of the importance of estimating your future retirement benefits. You should request a retirement estimate from your agency's human resources office at least a year before you plan to retire. This estimate will be prepared by a trained retirement specialist who works in your agency's human resources office. She or he will use sophisticated retirement software to provide you with an accurate estimate based on your personnel records and payroll information.

The Office of Personnel Management will provide you with your actual retirement benefit after you retire, but you surely will want to have a reasonably accurate estimate before you depart so you can prepare confidently for your future financial security. If you understand the method used to compute your benefits, you should have more trust in the estimate you receive, and you'll be able to ask questions if you think there are errors in the computation. And don't worry: You don't have to be a math whiz to figure this stuff out.

Defined Benefit

Before we begin, it is important to remember that under both the Civil Service Retirement System and the Federal Employees Retirement System, the basic benefit comes from a "defined benefit" rather than a "defined contribution" plan. Here's the difference:

  • A defined contribution plan provides an individual account for each participant. The benefits are based on the amount contributed and are also affected by income, expenses, gains and loses. The Thrift Savings Plan is a defined contribution plan.
  • A defined benefit plan promises the participant a specific monthly benefit at retirement. Under CSRS and FERS, monthly benefits are calculated through a formula that considers a participant's salary and service. Most public sector defined benefit systems require employee contributions. CSRS requires contributions of 7 percent of basic pay. (Law enforcement officers and firefighters contribute 7.5 percent.) FERS requires contributions of 0.8 percent of basic pay. (Law enforcement officers and firefighters contribute 1.3 percent). In defined benefit plans, participants are not required to make investment decisions. Social Security retirement is a form of defined benefit plan.
The Short Version

So how can you go about estimating your basic benefit? It's a three-step process. First, compute your high-three average salary, since your retirement will be figured as a percentage of that salary. The easy way to estimate your high-three is to assume that it's roughly equal to your annual salary rate for the year before the year you're retiring. For example, if you are planning to retire at the end of 2007, your high-three period would be 2005, 2006 and 2007. The average of those three years would be somewhat close to the 2006 rate.

Second, determine and compute your length of creditable service. How much federal service do you have and how much longer do you plan to work? This is usually the amount of service that will be used to compute your CSRS or FERS basic retirement benefit. Under CSRS, you also get credit for unused sick leave.

Third, apply the CSRS or FERS formula to compute the basic benefit:

  • FERS provides 1 percent of your high-three average salary for your total years and months of service. For example, 30 years of service equals 30 percent of your high-three average salary.
  • CSRS provides roughly 2 percent of your high-three average salary for your total years and months of service. For example, 30 years of service equals a little more than 56 percent of your high-three average salary.

That's the simple version. Next week, I'll go into more of the details of computing your basic benefit.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

Tammy Flanagan has spent 30 years helping federal employees take charge of their retirement by understanding their benefits. She runs her own consulting business at www.tammyflanagan.com and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement as well as the Federal Long Term Care insurance Program. She also serves as the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on NITPInc.com.

FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Sponsored by Brocade

    Best of 2016 Federal Forum eBook

    Earlier this summer, Federal and tech industry leaders convened to talk security, machine learning, network modernization, DevOps, and much more at the 2016 Federal Forum. This eBook includes a useful summary highlighting the best content shared at the 2016 Federal Forum to help agencies modernize their network infrastructure.

    Download
  • Sponsored by CDW-G

    GBC Flash Poll Series: Merger & Acquisitions

    Download this GBC Flash Poll to learn more about federal perspectives on the impact of industry consolidation.

    Download
  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

    Download
  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

    Download
  • Sponsored by Aquilent

    A DevOps Roadmap for the Federal Government

    This GBC Report discusses how DevOps is steadily gaining traction among some of government's leading IT developers and agencies.

    Download
  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

    Download
  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

    Download
  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

    Download
  • Sponsored by CDW-G

    Joint Enterprise Licensing Agreements

    Read this eBook to learn how defense agencies can achieve savings and efficiencies with an Enterprise Software Agreement.

    Download
  • Sponsored by Cloudera

    Government Forum Content Library

    Get all the essential resources needed for effective technology strategies in the federal landscape.

    Download

When you download a report, your information may be shared with the underwriters of that document.