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What happens when you’re ready to retire, but don’t have a full career’s worth of federal service?

Not everyone spends their entire career in the federal civil service. Some folks have worked in the private sector, others have served in the military and others have taken a break at some point to spend time at home with their children. So what happens when you are old enough for retirement, but you don't have a full career's worth of service?

I recently received an e-mail from a reader named Jennie that got me thinking about this situation. Here's what she wrote:

It seems that many of the questions and articles surrounding [Federal Employees Retirement System] benefits and benefit calculations are based on the assumption that the retiree will tap into the benefits -- such as the FERS lifetime retirement benefit or FERS annuity -- as soon as the retiree stops working. What would my retirement benefits be if I stop working at my minimum retirement age of 56 with 24 years' service, but do not access my FERS retirement, [Thrift Savings Plan] or Social Security until age 62?

Jennie is eligible to retire under what are known as the MRA+10 eligibility rules under FERS. This means she has reached the FERS minimum retirement age (55-57, depending on your year of birth) and has more than 10 years of creditable service, but less than 30. This situation also occurs when an employee retires at 60 or 61 with more than 10 and less than 20 years of service.

Jennie is eligible for an immediate, but reduced, FERS benefit because she doesn't have enough service to meet the regular requirements of MRA plus 30 years of service, or age 60 plus 20 years of service. She also is eligible to postpone receiving the benefit to avoid the reduction.

Here's what I told Jennie:

  • If you left government at age 56 with 24 years of service, you could receive an immediate FERS retirement equal to 24 percent of your high-three average salary that would be reduced by 5 percent for every year you're under 62. Even though you'd be eligible to retire with an unreduced retirement benefit if you worked until 60, the MRA+10 age reduction is computed with a 5 percent per year reduction based on the number of months you are under age 62.
  • By choosing to receive an immediate retirement you also would be eligible to continue coverage under the Federal Employees Health Benefit Program and Federal Employees Group Life Insurance Program -- as long as you meet the five years of coverage requirement. Retiring employees also are eligible to continue coverage under the Federal Employees Dental and Vision Insurance Program and the Long-Term Care Insurance Program without meeting the five years of coverage test and can enroll in these programs after retirement.
  • If you postpone receiving retirement benefits until you turn 60, you'll get an unreduced benefit, since you would meet the 20-year service requirement. I wouldn't recommend delaying receiving the benefit past age 60. (Employees with less than 20 years of service could delay or postpone receiving their benefit until they turn 62 to avoid the reduction for age).
  • When you postpone receiving your FERS retirement, you also postpone the continuation of your insurance benefits (with the exception of long-term care insurance).
  • You also are eligible to begin receiving the benefit anytime between your separation at age 56 and age 60, but still would be subject to the age reduction for the number of months under age 62.
  • You would not be eligible for Social Security retirement until you're 62. The supplement paid to bridge the time between a FERS retirement and qualifying for Social Security is not payable if you leave federal service before you are eligible for an immediate, unreduced retirement. To get it, you'd have to keep working until you turn 60.

Jennie also could begin an immediate withdrawal of funds in her Thrift Savings Plan account without penalty if she retired at 56, or could postpone the decision on TSP withdrawals until she is 70½ years old. That would give her about 14 years to decide how to withdraw the money. There are no age or service requirements to be eligible to begin withdrawals from the TSP. But there are some tax rules to be aware of. Since Jennie would be leaving in the year she turned 55 (or later), she's exempt from the early withdrawal penalty. See this TSP publication for the exceptions to this penalty.

Next week, we'll look at the options for people who have served on the civilian side of government after a military career.

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.

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