Answers to this and other hypothetical questions.
I’ve been reminiscing about the days when I used to teach pre-retirement classes to a live audience, before our world revolved around social distancing and COVID-19. The good news is that virtual meetings have taken off as we all adjust to the new reality. Getting accustomed to using distance learning tools may be one of the bright spots that will remain when “normal” returns.
Whether I’m standing before a live audience in an auditorium or sitting in front of my computer speaking to people remotely, the popular subjects remain the same, and they often boil down to a series of what-if questions. This week, let’s look at some of them, revolving around what happens to your benefits if you resign at various ages and levels of service.
What if I resign before my minimum retirement age?
Assuming you’re not disabled, not eligible for a discontinued service retirement and aren’t being offered an opportunity to leave under Voluntary Early Retirement Authority, it depends on how much service you have at the time of your resignation:
- If you have less than five years of creditable civilian federal service, you’re not eligible for retirement. You can choose to take a refund of your Federal Employees Retirement System contributions.
- If you have five or more years of service, you’re eligible for a deferred retirement benefit later. But you’ll get no FERS supplement, no credit for unused sick leave in the computation of your retirement benefit and no entitlement to reinstate insurance benefits.
- With five years up to 10 years of service, you’re eligible to apply for retirement at age 62 with the benefit computed as 1% x your high-three average salary x years and months of creditable service.
- With 10 years up to 20 years of service, you’re eligible for a reduced retirement benefit at your minimum retirement age (55 to 57, depending on on year of birth). The calculation is the same as above, but the benefit is reduced by 5% for every year you’re under age 62.
- With 20 years up to 30 years of service, you’re eligible for a reduced retirement at your MRA as explained above, with the age reduction for being under 62. Or as a former employee you can apply for an unreduced benefit at 60, but you must have at least 20 years of creditable service with at least five years civilian service.
- With 30 or more years of service, you’re eligible for an unreduced retirement at your MRA.
Although active duty military service credit can be considered towards retirement eligibility, federal employees must complete a minimum of five years of civilian federal service covered by FERS retirement deductions to meet the minimum requirements for a FERS retirement benefit.
What if I resign at my MRA or later, but don’t have enough service for an unreduced immediate retirement?
Age and service are critical factors again:
- If you’re at your MRA with less than 10 years of service, you’re eligible for a deferred retirement at 62, as explained above.
- If you’re at your MRA with at least 10 years but less than 30 years of service, you’re eligible for an immediate, reduced FERS retirement benefit. Generally, you’re also eligible for continuation of health insurance and credit for your unused sick leave balance. But you would not get the FERS retirement supplement. This is what’s known as an MRA + 10 retirement. The calculation is the same as above, with the age penalty applied. Your application for retirement can be postponed to avoid some or all of the age reduction.
- If you separate from federal service with at least 20 years of service, the unreduced retirement is payable if your application is postponed to age 60 with the insurance benefits eligible for reinstatement (as long as the five-year test was met prior to resignation).
- If you separate from federal service with more than 10 years but less than 20 years of service, the age reduction will be eliminated if you postpone applying for retirement until age 62.
What if I’m eligible to retire at the time I leave federal service?
Under FERS, eligibility for an immediate, unreduced, optional retirement means you are at least your MRA with 30 or more years of creditable civilian service, age 60 with 20 or more years of service, or age 62 with at least five years of service. You can apply for retirement when you meet the age and service requirements or any time afterward. You’ll be eligible to receive the FERS supplement if you’re younger than 62.
What if I stay until I’m 62 or older with at least 20 years of service?
Your FERS retirement benefit would be computed at 1.1% x your high-three average salary x years and months of service (including credit for unused sick leave), which would result in a 10% higher benefit than using the 1% factor. No FERS supplement is payable if you’re 62 or older at retirement. But retirees are generally eligible for Social Security benefits as early as age 62.
By the way, if you’re covered under the older Civil Service Retirement System, you’re eligible for an unreduced immediate retirement at age 55 with 30 or more years of service, at age 60 with 20 or more years of service, or at age 62 with five or more years of service. A deferred retirement is payable at 62. The old system is a lot simpler to explain.