Targeting Early Retirement

Last week, Kellie Lunney wrote a story on GovExec.com about a proposal by Rep. John Duncan, R-Tenn., to curtail early retirement in government.

"Working as a waiter or waitress is more physically demanding than most federal government positions for which we now grant early retirement," he said.

The article sparked a huge number of reader comments. I thought I might be able to shed a little light on how and why federal rules around retirement -- both early and regular -- came into being.

Let's start with a look at the evolution of the federal retirement system to see how far we've come -- and where we might be headed back.

Before 1920, civil servants did not have a pension plan. The idea had surfaced from time to time, but the cost of military pensions dating back to the Revolutionary War always led to opposition. Many people believed that civil servants should rely solely on their own savings to provide for their old age.

But on May 22, 1920, a civil service retirement law went into effect. According to Biography of an Ideal, a history of the civil service prepared by the Office of Personnel Management, within two months, more than 5,000 employees retired -- some of them more than 90 years old. A mandatory retirement age of 70 was set for most employees who had at least 15 years of service, and employees in more strenuous positions, such as railway mechanics, were required to leave at 62.

Modern federal retirement eligibility rules, allowing retirement at 55 with 30 years of service, date back to 1942. And in 1948, provisions were instituted allowing for liberalized retirement benefits for certain employees engaged in investigations and law enforcement. They could retire at 50 with 20 years of service.

Over time, the Civil Service Retirement System became more generous with the addition of survivor's annuity benefits and cost-of-living adjustments, and a switch from using the average of an employee's highest five years of salary to compute retirement benefits to a high-three average. But federal employees did not contribute to Social Security and some critics said the retirement system bound workers to long-term employment with "golden handcuffs" in the form of stand-alone, single, defined benefit coverage. Few employees left federal service at midcareer, because doing so would mean a significant loss of retirement benefits.

By 1984, CSRS had amassed an unfunded liability of about $500 billion. So Congress put itself and all new federal employees under Social Security, requiring the implementation three years later of a new three-tiered benefits structure for them known as the Federal Employees Retirement System. In addition to Social Security, it relied on a smaller government pension and personal savings in the form of the Thrift Savings Plan.

Early vs. Full

Now, as for the difference between early and full retirement, it's important to note that people use these terms in different ways. Some consider full retirement to mean receiving the maximum CSRS retirement benefit, which would be 80 percent of one's high-three average salary after performing 41 years and 11 months of federal service. Others consider full retirement to mean an unreduced and immediate benefit that a federal employee can receive after reaching the appropriate retirement age with the minimum amount of service required to be eligible for benefits for that age.

Under CSRS, optional, immediate retirement benefits are available at age 55 with a minimum of 30 years of service, age 60 with a minimum of 20 years of service and age 62 with a minimum of five years of service. Under FERS, eligibility comes at an employee's minimum retirement age, which is between 55 and 57, depending on year of birth.

Personally, I don't like to use the phrase "full retirement." I like to talk about being financially ready for retirement. This is a time when your income from retirement sources will meet your outgoing expenses and you have enough set aside for unforeseen financial emergencies. This income can be a combination of a federal retirement benefit from CSRS or FERS, a Social Security retirement or spousal benefit, other defined benefits (such as a military or private sector pension), and income generated from savings in the TSP or an individual retirement account.

With regard to the term "early retirement," it's important to know the context in which it is being used. It can refer to Voluntary Early Retirement Authority, a tool that agencies use to cut costs by reducing staff size. Sometimes this goes hand in hand with Voluntary Separation Incentive Payments, commonly known as buyouts.

For VERA, the minimum requirements are age 50 with 20 years of service or any age with 25 years of service. But many employees who are eligible for an early out may not be financially ready for full retirement. They may be at a stage of their career where they are still accumulating retirement assets and can't live on the savings and benefits they have available. They will sometimes need to embark on a second career to allow for additional accumulation of retirement savings and to be closer to the full age for Social Security retirement. Under FERS, this is fairly common -- the golden handcuffs tying employees to federal work have been removed.

There are some who consider that the federal early retirement age is 55, since that's when federal employees are eligible to retire and still be financially comfortable. But for employees who are going to rely partially on Social Security benefits, 62 is the earliest age that most of them would consider retirement. And even that is early, since they would be eligible only for 75 percent of their full Social Security benefit. So as much as beauty is in the eye of the beholder, retirement has different meaning to each person based on their willingness to make sacrifices both before and after their working career is over.

Special Cases

The federal retirement system has long taken into consideration that some jobs are more physically and mentally demanding than others. Federal law enforcement officers, intelligence officers and Foreign Service officers must be willing to move their families across the country and around the world to support the missions of their agencies. Sometimes, performing their duties requires them to be in harm's way. Likewise, air traffic controllers face an intense kind of job stress.

To maintain what OPM calls a "young and vigorous" workforce in such areas, the government has deemed it essential to offer liberalized retirement eligibility and benefits. To anyone who thinks this is unfair, I dare you to walk in their shoes for a week. It might change your mind.

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.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Mondays at 10 a.m. EDT on federalnewsradio.com, or on WFED AM 1500 in the Washington-metro area.