Taking the Plunge
You could go cold turkey by accepting your last paycheck and never entering the workforce again. Or you can ease into retirement by shifting to a part-time schedule first, or leaving government and putting your expertise to use in the private sector before ending your career.
More employees are gravitating toward the gradual approach, according to a 2008 Labor Department report. Life expectancies are rising and people are healthy enough to work past the traditional retirement age. They also need to set aside more savings to support longer retirements.
Still, there are a number of factors to consider when determining the right approach for you. In past columns I have explored the pros and cons of working part time before you retire or becoming a reemployed annuitant, differences in how part-time work is treated under the Civil Service Retirement System and the Federal Employees Retirement System, and special considerations for Defense Department employees. I've also shared words of wisdom from a couple that has been retired since the mid-1970s.
The following questions have cropped up in response to those columns:
Retire now, or switch to part time? I am 55 years old with more than 35 years of service (CSRS). I was planning to retire this December, but now am considering going part time for about a year starting in January. Would this have an effect on my retirement income? Moneywise, would I be better off if I just retired in December? My husband also is a federal employee and he has two more years before he can retire.
If you decide to retire now with 35 years of service, your CSRS retirement will be computed at 66.25 percent of your high-three average salary. But if you continue working and switch to a part-time schedule, your retirement will have to be computed under a different formula. It generally doesn't make sense for CSRS employees to switch to a part-time schedule during their last three years of service since there will be an impact on their high-three average salary. This is due to a change in the law that took effect in 1986, resulting in two separate formulas for computing part-time retirement benefits under CSRS (see the next question below).How is part-time service computed? I have been employed under CSRS for 25 years. The first 15 years I worked full time. The next four years and five months, I worked part time with a 24-hour workweek. For the last six years I worked part time with a 16-hour workweek. How do I determine my monthly annuity?
So the way I see it, your retirement will equal the part-time salary you would be earning if you stay employed. Plus, you could work part time after you retire and still receive your earned CSRS retirement benefit in addition to a part-time salary. If you are employed in a position covered by Social Security outside your federal career, then you might qualify for a small Social Security benefit as well. For more reasons why you shouldn't switch to part-time service, see the March 2007 columns highlighted above.
By the way, this reasoning would not necessarily apply to a FERS employee. Under FERS, you already are paying Social Security taxes, and by continuing your employment you can continue the matching Thrift Savings Plan contributions. Switching to a part-time schedule prior to retirement does not change your high-three average salary under FERS because the system uses the full-time equivalent of your pay rate, even if you are scheduled to work less than 40 hours weekly. If you are in FERS, and like your job but want to put in fewer hours, then a part-time opportunity might be the way to transition into retirement.
Your retirement will be calculated using two separate rules because the law regarding part-time computations for CSRS changed in 1986.Can you receive extra credit for overtime? Fifteen years ago my wife elected to switch to part-time employment for child care reasons. Her agency never informed her that her CSRS pension would be affected due to working less than 40 hours weekly. Seven years ago, she attended a pre-retirement course where she was alerted to this, and she switched back to full time. If she works overtime during the next couple of years, can she use these additional hours to offset the pension reduction due to the period that she worked part time?
Service performed before April 6, 1986, will count as if it were full time, regardless of your work schedule. But your actual high-three salary will be used in the annuity calculation, rather than the full-time equivalent.
Your post-1986 service will be computed using the full-time equivalent of your salary for the high-three figure, even though you are working only 40 percent of the full-time schedule. The benefit you would have received if you'd worked full time will be prorated according to the number of hours you actually worked since April 6, 1986.
These two computations will be added together to determine your CSRS annuity benefit. By the way, working part time does not affect your eligibility for retirement. Working part time for 30 years is just as creditable as 30 years of full-time service.
Legislation pending in Congress would use the full-time pay rate in the high-three calculation for both the pre- and post-1986 CSRS service, but it has not yet passed. If this were to change, it would make it easier for employees who meet service but not age requirements for retirement to switch to a part-time appointment while waiting to reach their retirement eligibility age, without taking a hit on their annuity for pre-1986 service.
If you were a FERS employee, then you would start by calculating your annuity as though you had worked full time, using the full-time pay rates to figure out your highest three years of salary. Then, you would prorate the benefit based on the hours you actually worked. You would divide the number of hours you actually worked by the number you would have worked had you been a full-time employee to arrive at a proration factor. Your actual benefit would equal the amount you would have received if you'd worked full time, multiplied by the proration factor.
Part-time FERS employees who work more hours than scheduled can use the additional hours to beef up their proration factor, so employees should make sure payroll records reflecting actual hours worked rather than the scheduled hours shown on the Notification of Personnel Action (SF 50) form are used in the computations. It might not hurt to save your leave and earnings statements showing the actual hours worked each pay period.
The Veterans Health Administration uses a special proration method to compute certain credit for part-time service.
That would be nice, but the answer is no. Federal employees generally receive one day of credit for every day between their appointment and separation dates. There is an exception if the employee worked on an intermittent or "when actually employed" (WAE) appointment, but these appointments result in less service, not more, if the employee worked less than 40 hours per week. There is no provision that would allow more than full-time credit.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.
For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.