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

FERS Flexibilities

I knew it would happen. I just knew it. Last week's column comparing the Civil Service Retirement System and the Federal Employees Retirement System caused a stir.

Based on the comments on the article and the e-mails I received, some further explanation about the flexibility of FERS might be in order.

Let's look at a hypothetical example of an employee who does not spend his entire career in federal service.

Suppose Joe came to work for the federal government at 40. At his minimum retirement age of 56, he has only 16 years of service. Joe's high-three average salary is $65,000. At this point, his FERS basic benefit would be computed as follows:

1% x years/months of service x high-three = $10,400

But Joe doesn't have the 30 years of service needed to retire with an unreduced FERS benefit. So his retirement will be reduced by 5 percent for every year he is under 62. That adds up to a 30 percent reduction, leaving him only $7,280 per year.

That might be enough to pay taxes and insurance, but there won't be much left over to live on. Poor Joe, how will he ever retire?

Before we feel sorry for Joe, let's ask him some questions.

What did he do from 18 to 40? Here are some possible scenarios:

  • He served in the military and has been receiving military retired pay for 22 years of service since he was discharged 16 years ago.
  • He worked in private industry for 18 years, contributed to his 401(k) plan and will be eligible for a company pension at age 62.
  • He worked, but his employer did not offer a 401(k) plan or a pension and Joe neglected saving for his future.

What kind of retirement savings has Joe accumulated? Here are some possible answers:

  • A substantial 401(k) from his previous employer.
  • An Individual Retirement Account and other investments Joe made because his employer didn't offer a 401(k).
  • Contributions to his Thrift Savings Plan account of 5 percent since he began his federal career.
  • Maximum TSP contributions since he began his federal career.
  • Nothing. (Joe might have assumed Social Security would cover his retirement.)

What should he do now? Here are some potential courses of action:

  • Work longer. If Joe's savings and retirement benefits are not enough to live on, he can continue his federal career until he turns 60, at which time he will have 20 years of service. This is enough to avoid the 5 percent penalty and also would qualify him to receive a Social Security supplement to tide him over until he is eligible for Social Security at 62.
  • Work even longer. Joe can continue working until he is 62 or older, when he will qualify for his lifetime Social Security benefit and a larger FERS basic benefit.
  • Change careers. Joe can postpone receiving his FERS benefit and go to work somewhere else. He still will be eligible for an unreduced FERS benefit at 62 and will be able to reinstate his federal health insurance when he begins collecting his postponed retirement benefit. (This assumes that he left at 56, with eligibility to retire with an immediate benefit, and that he had federal health insurance during his five years of service immediately before leaving government.)
  • Do nothing. Maybe Joe was downsized with a golden parachute from a major corporation and does not need to continue earning a salary. His small federal retirement would provide him the ability to continue his federal health, dental, vision, life and long-term care insurance for the rest of his life.
  • Combine retirements. Assuming the scenario above in which Joe spent 22 years in the military, he might consider combining his military and civilian careers into one FERS retirement benefit. This would give him 38 years of total service, providing an unreduced benefit of 38 percent of his high-three salary. And he would be entitled to a FERS supplement that would bridge the years until he qualifies for Social Security at 62. Joe would have to permanently waive his retired pay from the military and pay a deposit of 3 percent of his military base pay plus interest if he chooses to combine retirements.

Reality Check

FERS offered Joe the ability to transition to a career in federal service at midcareer, continue saving for retirement through the TSP, and keep making contributions toward his future Social Security benefit. Remember, Social Security was never intended to be enough to retire on by itself; most people in private industry have an employer-sponsored savings account, such as a 401(k) plan, to supplement future Social Security benefits.

Joe's government service provided him a retirement benefit in addition to his savings. Federal employees need only five years of civilian service to be vested for benefits under FERS. And since Joe worked until he reached his minimum retirement age with at least 10 years of service, he not only was eligible for a government retirement benefit, but was also eligible to continue federal insurance benefits for the rest of his life.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning live on Saturday mornings at 10 a.m. ET on or on WFED AM 1500 in the Washington metro area. This week's topic is "Financial Navigation in Troubling Times" with guest Karen Schaeffer, CFP. This week's hosts: Bob Leins, CPA, NITP, and Tammy Flanagan, senior benefits director, NITP. 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 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

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