Factors to weigh in deciding whether to accept an offer to retire early.
Many federal employees are being offered early retirement this year – and many more wish they were. Often, the offers come with a Voluntary Separation Incentive Payment, otherwise known as a buyout. (See GovExec’s Buyout Watch for a running tally of agencies offering such incentives.)
The bad news is the buyout payment remains $25,000 -- the same as it was when I last wrote about this subject in 2006. Still, buyouts remain attractive. Here’s what you need to know if you are one of the lucky ones who receive such an offer and are eligible and ready to act on it -- or if you are just doing some wishful thinking.
Do You Qualify?
If you find yourself with an early out opportunity (your agency must make the offer and accept your application), you will be eligible for immediate retirement benefits if you are:
- 50 years old with 20 years of creditable service
- Any age with 25 years of creditable service
Length of service:
High-three average salary:
- Estimate your Social Security benefits as if you were 62, using all Social Security wages (including those gained under FERS and other nonfederal wages).
- Calculate civilian service creditable under FERS, rounded to the nearest full year.
- Divide the years of FERS service by 40.
- Multiply the Social Security benefit by the figure determined in the previous step.
Length of service
High-three average salary:
Thrift Savings Plan
- Be sure to read the TSP’s booklet on withdrawals and its publication on tax information.
- If you are going to work after you retire from government, you can postpone your TSP withdrawal. You also can choose to transfer some or all your TSP balance to an individual retirement arrangement, or your new employer's 401(k) plan.
- If you are younger than 55 when you retire, your TSP withdrawal may be subject to a 10 percent early withdrawal penalty for those payments that you receive prior to age 59½. To avoid this penalty, you can postpone your withdrawal, or choose to receive monthly payments based on life expectancy or a life annuity.
- If you are 55 or older in the year you retire, you can withdraw TSP funds without incurring the 10 percent penalty. If you transfer your TSP to an IRA, you will incur the penalty on withdrawals until you are 59½.
- The new Roth TSP option has additional limitations on withdrawals: The earnings in your Roth balance become qualified, and are therefore paid tax-free, when five years have passed since Jan. 1 of the calendar year in which you made your first Roth contribution and you have reached age 59½, or have a permanent disability.
- Retire during your agency's statutory buyout period; and
- Receive a buyout under the agency's statutory buyout authority; or
- Take early optional retirement as a result of early out authority in your agency; or
- Take a discontinued service retirement based on an involuntary separation due to reduction in force, directed reassignment, reclassification to a lower grade or abolishment of position
- You have been insured for the five years of service immediately before the date your annuity starts, or for the full period of service during which you were eligible to be insured if less than five years.
- You have not converted your life insurance coverage to an individual policy -- or if you already have converted the coverage, you cancel the converted policy.
Things to Remember
- How much do you enjoy your work?
- How much time have you spent planning for retirement, financially and psychologically?
- Can you afford to retire?
- Are there opportunities for you to use your skills in the private sector, or state or local government?
- By retiring earlier than you had planned, you will receive your retirement benefit longer.
- If you have a basic retirement income and you continue your FEHBP and FEGLI into retirement, you won't need as much salary or benefits from a second career. With health insurance included in your retirement, you could consider self-employment as a possible second career.
- Accepting a buyout with early retirement is a commitment to retire. You generally can't change your mind once you apply. Be sure this is what you want to do.
- A $25,000 buyout might add up to only $16,000 after taxes.
NEXT STORY: Service members weigh in on pay versus benefits