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Turning On Your Retirement Benefits

Making the most of the flexibility of FERS.

One of the great things about a three-part retirement plan like the Federal Employees Retirement System is its flexibility. Under FERS, there are three distinct benefits that can be “turned on” at different times:

Among the advantages of this three-tiered plan is that all of your retirement eggs aren’t in one basket. Changes that occur in one of the benefits will not affect the other two. Each of the three parts of FERS can provide a lifetime stream of income, but the eligibility rules, tax implications and cost of living protections differ based on the laws that govern these payments.

Although having three sources of retirement income can be more complicated than the simple single-benefit Civil Service Retirement System, it can be an advantage for those people who don’t spend their entire careers in federal civilian employment. And even for those who do, the three parts of FERS can replace an employee’s salary to adequately provide financial security in retirement. 

During FERS employees’ federal service, the TSP provides an automatic agency contribution of 1% of salary, and matching contributions for employees who save up to 5% of their basic pay (up to a certain dollar limit). The traditional TSP allows you to save money on a pre-tax basis. (You’ll pay taxes on those earnings when you withdraw the money.) The Roth TSP option allows you to save after-tax dollars, so there are no taxes due when you retire.

It’s up to you to determine how much to save during your career and how to invest those savings. That means it’s important to understand at an early age the value of compound interest and how to balance your investments between stocks and bonds. Saving for retirement requires knowledge and discipline. 

When the time comes to retire, federal employees can make a clean break or move on in stages. Some are eligible to retire at younger ages, such as law enforcement officers, foreign service officers and firefighters. All federal workers covered under FERS can retire at their minimum retirement age (55-57, depending on year of birth) if they have completed 30 years of creditable service, or a minimum of 10 years of service for a reduced benefit. For those who entered federal service later in life, an unreduced benefit is payable at age 60 with at least 20 years of service and at 62 with a minimum of five years of service. 

Some federal employees retire from government and start a second career in the private or nonprofit sector. Others return to federal service under a reemployed annuitant program or continue working part time under phased retirement regulations. 

You can claim your Social Security retirement benefit and begin taking TSP withdrawals at the same time as when you apply for your FERS retirement benefit. Or you might decide to stagger  these benefits for various reasons.

A reduced Social Security retirement is payable as young as age 62. You can delay taking it until as late as age 70 to get a bigger payout. FERS employees who retire younger than 62 with an unreduced immediate benefit are eligible for a supplement designed to bridge the time between retirement and qualifying for Social Security benefits at age 62. 

Withdrawals from the TSP are the most flexible of the three benefits of FERS, and the options for withdrawing from your TSP will be further liberalized next month when new regulations take effect. Separated TSP participants will be able to choose monthly, quarterly or annual withdrawals. In addition, partial lump sum payments can be made as needed while taking monthly payments.

You can also choose a life annuity option, providing a monthly benefit. Multiple annuity purchases will be allowed under the new withdrawal program.

Are you ready to take charge of your future? There’s a lot to learn about how the three parts of FERS retirement mesh together, but knowing how they work can reveal the secrets to a financially secure retirement.