We speak with thousands of Feds each year during our complimentary Serving Those Who Serve webinars about the various retirement options available to federal employees.
We’ve found that two of the most important — and often misunderstood — options are deferred and postponed retirement under the Federal Employees Retirement System (FERS). In this article, we’ll explain these two choices, including a brief rundown of the pros and cons of each, along with the key steps you can take now to safeguard your retirement.
What Is FERS?
The Federal Employees Retirement System (FERS) is a comprehensive retirement plan for U.S. federal employees. Covering Federal employees hired after January 1, 1984, FERS provides eligible Feds a lifetime guaranteed income stream in retirement, backed by the full faith and credit of the U.S. government.
The main component of FERS is the pension plan annuity. Federal employees, the government, and agencies all make required contributions to FERS. The two other components supplementing a Fed’s retirement are Social Security and a Thrift Savings Plan (TSP).
To calculate the FERS annuity, a federal employee would take their highest average basic pay over any three consecutive years of service (known as the "High-3" average), multiply this by their years of creditable service, and then multiply this by 1% if retiring prior to age 62 (or 1.1% if retiring at age 62 or older). This figure represents the Fed’s monthly pension.
Eligibility Criteria for FERS Retirement
The age and service requirements for an immediate FERS annuity are:
- Age 62 with 5 years of service,
- Age 60 with 20 years, or
- Minimum retirement age (MRA)— between 55 and 57 depending on birth year—with 30 years of service.
Not all Feds will meet the requirements for an immediate FERS annuity. In these circumstances, deferred retirement or postponed retirement might offer a good alternative.
Check out our webinars for federal employees!
What Is Deferred Retirement?
FERS employees who leave federal service before reaching their MRA can still collect a pension later through deferred retirement. With at least five years of service, they can defer their pension to age 62.
Those with 20 years of service can start collecting at 60, but face penalties. For each month under 62, there's a 0.416% reduction (5% per year). Starting at 60 means a permanent 10% reduction, while starting at 61 results in a 5% reduction.
Pros and Cons of Deferred Retirement
- Advantages: Eligible former employees retain access to their FERS pension even if they leave federal service before MRA.
- Disadvantages: When a federal employee leaves their government job, they become ineligible for Federal Employee Health Benefits (FEHB), Federal Employee Group Life Insurance (FEGLI), and Federal Employee's Dental and Vision Insurance Program (FEDVIP).
What Is Postponed Retirement?
Employees who reach their MRA with at least 10 years of service can postpone receiving their annuity until 62, thereby avoiding age reduction penalties. Unlike deferred retirement, postponing allows re-enrollment in FEHB upon retirement, assuming eligibility.
Pros and Cons of Postponed Retirement
- Advantages: The separated employee can reduce or eliminate age reduction penalties and in certain circumstances may re-enroll in federal insurance benefits (health, dental/vision, life, and long-term care).
- Disadvantages: The separated employee may face a potential reduction in benefits due to earlier retirement. They will also temporarily lose their federal insurance benefits, which will be suspended until their postponed FERS annuity begins.
Key Differences Between Deferred and Postponed Retirement
- Eligibility: Deferred retirement requires at least 5 years of service, while postponed retirement needs at least 10 years and reaching your MRA.
- Health Benefits: With deferred retirement, you lose FEHB coverage. Postponed retirement allows you to reinstate FEHB when you begin receiving your annuity.
- Survivor Benefits: Deferred retirement does not offer survivor benefits, while postponed retirement may provide survivor benefits in certain circumstances.
- Cost of Living Adjustments (COLAs): Deferred retirees don't receive COLAs until age 62, while postponed retirees can receive them as soon as their annuity begins.
The STWS Team Can Help You Plan a Secure Retirement
Understanding the differences between deferred and postponed retirement is essential for maximizing your FERS benefits. Each option has its advantages and considerations, and the best choice depends on your individual circumstances.
Serving Those Who Serve offers complimentary webinars and seminars to help you understand your federal retirement benefits. Have immediate questions? Feel free to contact our team at [email protected].
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The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
