FERS Flexibilities

By Tammy Flanagan

September 26, 2008

I knew it would happen. I just knew it. Last week's column comparing the Civil Service Retirement System and the Federal Employees Retirement System caused a stir.

Based on the comments on the article and the e-mails I received, some further explanation about the flexibility of FERS might be in order.

Let's look at a hypothetical example of an employee who does not spend his entire career in federal service.

Suppose Joe came to work for the federal government at 40. At his minimum retirement age of 56, he has only 16 years of service. Joe's high-three average salary is $65,000. At this point, his FERS basic benefit would be computed as follows:

1% x years/months of service x high-three = $10,400

But Joe doesn't have the 30 years of service needed to retire with an unreduced FERS benefit. So his retirement will be reduced by 5 percent for every year he is under 62. That adds up to a 30 percent reduction, leaving him only $7,280 per year.

That might be enough to pay taxes and insurance, but there won't be much left over to live on. Poor Joe, how will he ever retire?

Before we feel sorry for Joe, let's ask him some questions.

What did he do from 18 to 40? Here are some possible scenarios:

What kind of retirement savings has Joe accumulated? Here are some possible answers:

What should he do now? Here are some potential courses of action:

Reality Check

FERS offered Joe the ability to transition to a career in federal service at midcareer, continue saving for retirement through the TSP, and keep making contributions toward his future Social Security benefit. Remember, Social Security was never intended to be enough to retire on by itself; most people in private industry have an employer-sponsored savings account, such as a 401(k) plan, to supplement future Social Security benefits.

Joe's government service provided him a retirement benefit in addition to his savings. Federal employees need only five years of civilian service to be vested for benefits under FERS. And since Joe worked until he reached his minimum retirement age with at least 10 years of service, he not only was eligible for a government retirement benefit, but was also eligible to continue federal insurance benefits for the rest of his life.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning live on Saturday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area. This week's topic is "Financial Navigation in Troubling Times" with guest Karen Schaeffer, CFP. This week's hosts: Bob Leins, CPA, NITP, and Tammy Flanagan, senior benefits director, NITP. 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.

By Tammy Flanagan

September 26, 2008