TIP: A Quick and Easy Guide To FERS Retirement Basics
Many people say the FERS is too confusing. Well, it is in a way. It has several moving parts that the CSRS did not have but that doesn’t mean you have to be confused or afraid of the FERS. You just have to identify the moving parts and then you will have a basic framework to estimate your retirement benefits.
As a ballpark figure, you want your retirement estimate to reach approximately 70% - 80% of your working income. Can be more or less but this is just for planning and analysis. You can adjust your estimate as you keep getting closer to your retirement day.
Lets start with those moving parts:
1. Basic FERS Annuity = (Time in Service X Percentage Multiplier) X High-3 Salary.
Special Category Employees (SCE): 1811 Federal Investigators, Air Traffic Controllers (ATC), and other public safety employees. Retirement at 20 years = 34% of your High-3 plus 1% for each additional year up to Age 57 (Mandatory). ATC mandatory at 56.
Minimum Retirement Age (MRA) with 30 Years or Age 60 with 20 Years = 1%. 20 X 1% = 20%. 30 X 1% = 30%
Age 62 with 20 Years = 1.1%. 20 X 1.1% = 22%. 30 X 1.1% = 33%
2. Retirement Annuity Supplement (RAS): Approximately 10,000 – 15,000 per year. Good until age 62 when regular Social Security takes over or you can wait until age 70 to max out your Social Security payment.
3. TSP: This part is up to you. For example, lets say you have a $500,000 TSP Balance and take out $2,500 per month = $30,000 per year. That should last you about 30 years.
The Basic Annuity and RAS should make up between 40% - 50% of your retirement. That leaves another 20% - 30% for your TSP to reach that 70% - 80% ballpark figure. You can make some tactical decisions about your retirement basic annuity, like staying in a few more years to reach age 56/57 for SCE or age 60/62 for non-SCE.
But the real question is, “How much can you build up your TSP?” That will definitely make a difference. You could make it 30% or more of your retirement estimate and maybe that’s the difference between being comfortable or not comfortable during your retirement!
Other parts that can have an impact on your FERS:
Deduct 0% for no benefit;
Deduct 5% from Basic Annuity = 25% for survivor;
Deduct 10% from Basic Annuity = 50% for survivor
You are allowed up to 1% of your FERS. 1% = 2,081 hours. 174 Hours = 30 Calender Days.
Military or Other Federal Agency Time: 1% for each year of other service time. You have to make sure you buy your Military service time or it won’t count! Check with your HR department if not sure! This should be done early in your career.
Employment After Retirement: This could affect your RAS if you make between $17,000 - $45,000 in your post retirement job but making the extra money will generally make up for your loss.
There you have it. That’s it. This is the basic framework for FERS known as the 3-Legged Stool of Federal Retirement. Now you just have to incorporate your own specific individual situation. Everybody is different.
Special Issues For Retirement: These are issues you will need more specialized assistance or guidance from your HR department or accountants/attorneys.
1. Early Retirement = MRA with at least 10 years.
Payable at Age 62 for an unreduced benefit.
Payable at Age 60 with 20 Years to postpone any reductions in benefit.
2. Disability Retirement.
4. Separated from Federal Service at some time in last 20 years.
Finally, don’t forget your taxes. The IRS definitely has not forgotten you!
Married, filing joint:
12% up to $77,400
22% up to $165,000
24% up to $315,000
32% up to $400,000
35% up to $600,000
12% up to $38,700
22% up to $82,500
24% up to $157,500
32% up to $200,000
35% up to $600,000
The Bottom Line:
1. Plan as early as possible for your retirement.
2. The earlier you start to plan, the more you can adjust and correct any potential issues that could affect your estimate.
3. Make some simple calculations to get to the ballpark estimate process going.
4. Apply for an official estimate from your agency when you get closer to retirement. It’s always good to confirm your calculations!
5. Get some specialized help if any of the special issues apply to you.
6. Nothing is set in stone. There are many ways to max out your retirement and be comfortable. Don’t be afraid. Just start calculating. Talk to someone if you are not sure.
As usual, if you need to talk to someone, call me. I will never refuse your call. You are not alone.