To Retire, or Not to Retire –That is the Question

Retirement is not an easy decision, especially if you work for the federal government.

First, you need to evaluate whether your retirement income from your U.S. government benefits will offset the generous salary you made on the job.

As a federal employee, you are entitled to retirement income from three sources: your Thrift Savings Plan account, Social Security, and an annuity through the Federal Employees Retirement System (FERS). So from all that hard-earned money you invested in your TSP, Social Security and your basic annuity through FERS, you are eligible by law to receive income from all these sources after you retire.

However, there are different rules governing how that money is distributed, when it is distributed, and how you become eligible to receive it.

In this blog post, we will focus on your FERS basic annuity. It can be difficult to understand how and when that money is distributed to you. The government created many complex rules that regulate eligibility and how much income you can expect come retirement. In this post, we will point you to some resources to help you better understand how it works.

If you don’t know what an annuity is, let’s first turn to a few basic definitions:

Merriam-Webster: “a fixed amount of money that is paid to someone each year.”

Dictionary.com: “a specified income payable at stated intervals for a fixed or a contingent period, often for the recipient’s life, in consideration of a stipulated premium paid either in prior installment payments or in a single payment.”

Investopedia: “an annuity is a contractual financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time.”

Your colleagues may also refer to it as the Federal Employees Retirement System Annuity Supplement, Social Security supplement, basic benefit plan, or simply, your pension.

During your career with the government you were required to set aside a portion of your paycheck — a fixed percentage depending on when you were hired and what Congress said you must contribute — into the FERS fund in order to be eligible for an annuity from the federal government. That annuity, or fixed payment, is what you receive when you retire from federal service.

The government created this benefit for you so that you would be able to collect a steady stream of retirement income, in addition to the retirement income you earn from Social Security and your Thrift Savings Plan investments.

That’s a basic understanding of how it works. Now, you probably have two questions on your mind:

1.)    When am I eligible to receive my annuity?

2.)    How much will I receive?

When you are eligible to receive your annuity from the federal government often comes down to two major factors: your length of federal government service and if you have reached the minimum retirement age, also known as the MRA.

Depending on your years of service and age, you may be eligible for an immediate retirement annuity, an early retirement annuity, or deferred retirement annuity. We encourage you to visit this section of our website where we have published easy-to-read charts that you can review to determine when you may be eligible for those options.

Also, you may be thinking about leaving your government job now for an opportunity in the private sector. You will still be eligible for your FERS annuity. However, you may have to wait until you meet the minimum retirement age. In this column, Government Executive provides helpful information for anyone considering this option.

Just be aware that there are different rules governing different situations.

Now, how much money you are eligible to earn is a bit trickier. Generally, the annuity you receive when you retire is derived from a formula based on your length of service and the highest average pay you earned during any three consecutive years of federal government service.

However, as you well know, government regulations are never that simple. Your annuity may be calculated differently if you were an air traffic controller, firefighter, or if you served with the capitol police or other professions. The U.S. Office of Personnel Management’s website offers some information about how they go about calculating your annuity payout.

It can be difficult to understand, however. That’s why we encourage you to contact one of our federal benefits specialists for a free consultation. We can help you better understand your annuity options, such as how much money you are eligible to receive and when you are eligible.

Also, there are many other important questions to consider when you retire. Will your basic annuity, Social Security, and TSP give you enough retirement income to overcome the rising cost-of-living and any other expenses you may have?

We’re here to guide you through these difficult questions and surely many others that will come to mind when you decide to retire. It’s our job to assist you on the road to retirement. Contact us anytime.

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