Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

Buyer Beware

How would you feel if you bought a car that was estimated to cost $385 per month, but when the bill came in the mail, the required payment was actually $500? And suppose you paid the $385 a month for four months only to find out you owe $460 in back payments, along with the higher payment for the remainder of your loan? I think that even if I could afford the car at that point, I'd want to return it.

But suppose you then found out that you're stuck with the higher payment because you didn't read the fine print saying the rate you were quoted at the dealership was only an estimate and the bank only would tell you the exact payment after it was too late to return the car.

This kind of scenario can unfold for federal employees who plan their retirement based on annuity estimates prepared by their agencies. After retirement (sometimes months after retirement), some employees find out that the estimate they received was just a ballpark figure -- or simply incorrect -- and that their benefits actually will be much lower.

For better or for worse, it's the employees' job to read the fine print on the estimates they receive. To understand what can happen if you don't, I'll highlight two unfortunate stories I've been told in recent e-mails from readers. Disability Dilemma

"Andy" retired last year because of health issues. His agency assisted him in submitting an application for disability retirement under the Federal Employees Retirement System and informed him that he also needed to apply for Social Security benefits.

Andy's agency estimated that he was entitled to $1,500 a month in FERS disability benefits and $1,000 per month in Social Security. What the agency didn't tell him -- and what his retirement estimate didn't show -- is that if a FERS employee is eligible for optional retirement, his retirement will not be computed using the disability formula his agency used, but instead be subject to the general FERS formula.

As a result, Andy actually is receiving a FERS benefit of $916 per month instead of $1,500 -- a difference of $583 a month.

So why can't he fight this situation and get the higher payment promised in his estimate? Because agencies are not held responsible for providing inaccurate estimates -- and employees are responsible for reading the information provided in their retirement application materials. The brochure given to employees who apply for disability retirement states that disability benefits under FERS are computed in different ways, depending on the retiree's age and amount of service at retirement.

Andy says there's now a formal investigation into the mishandling of numerous personnel actions at his agency, but this will not help him get a higher benefit than he has earned. In addition, he had to repay a considerable sum to the Office of Personnel Management, since he had been overpaid in his first months of retirement based on the estimate.

From CSRS Offset to FERS

"Georgia" retired last year at 60 under FERS. She had transferred into the system during the 1998 open season, after having been in the Civil Service Retirement System-Offset program since 1988. But she didn't know that by switching to FERS, her 10 years of CSRS Offset service would be treated as FERS when she retires -- and that she would have no opportunity to receive any matching TSP contributions from her agency for this service. The bottom line on the switch is that Georgia would lose 10 percent of her high-three average salary in her future retirement computation without the ability to make up for this loss by agency contributions to her TSP account.

But she didn't know this, because when she retired, the 1988-98 piece of her service was computed as CSRS for the purposes of her retirement estimate. So Georgia left government under the assumption that her benefit would be $2,653 per month. Only after being retired for three months did she receive her final annuity computation from OPM showing that her monthly benefit would be only $2,062.

So can Georgia fight the situation? Nope, because if she had read the FERS Transfer Handbook before she signed the election form to transfer to FERS in 1998, she would have seen this warning: "If you are considering electing FERS, you must keep in mind that any CSRS Offset service (service under both CSRS and Social Security) will then change to FERS service. Since FERS pays a lower percentage of your 'high-three' average salary, this could make a significant difference in the amount of your federal retirement benefits." The handbook also provided examples of how this rule would impact an employee covered under CSRS-Offset if they transferred to FERS.

So why didn't officials at Georgia's agency read the transfer handbook before preparing her retirement estimate? Good question.

I know that most retirement specialists are careful to avoid situations like those affecting Andy and Georgia -- because I was such a specialist myself once. Most of us in that line of work treat our retiring co-workers like family members and make every attempt to provide accurate information to assist them.

But not every agency has an array of experienced retirement specialists who are fully trained to apply the rules and provide correct information. And that's unfortunate.

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.


Tammy Flanagan has spent 30 years helping federal employees take charge of their retirement by understanding their benefits. She runs her own consulting business at and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement and the Federal Long Term Care insurance Program. She also serves as the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on

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