The Feds we help at Serving Those Who Serve all have one thing in common — they’re all eager to learn how to maximize their Federal Employee Retirement System (FERS) or Civil Service Retirement System (CSRS) benefits. They realize that with a little advance planning and the right strategies, they can significantly boost their monthly retirement checks.
In this article, we discuss two options that can potentially do just that: retirement redeposits and military buybacks.
Understanding Retirement Redeposits
It’s not uncommon for federal employees to leave government service only to return at some point later in their career. At the time they initially leave service, the Fed may decide to have their FERS or CSRS retirement contributions refunded to them. Once they return to government service, they have the option to make a “retirement redeposit.” This means they can repay the amount of the refunded retirement contribution (plus interest) back into their FERS or CSRS account.
A retirement redeposit enables the Fed to receive credit for their initial service period. This credit — combined with their new retirement contributions — will be used to calculate their retirement annuity.
For the returning Fed, there are three potentially big advantages to making a full retirement redeposit:
- They could receive a larger retirement annuity, translating to more money each month.
- They might be able to retire sooner than anticipated.
- They’d be able to provide a bigger survivor annuity to their spouse and/or other survivors.
The Process of Making a Retirement Redeposit
The first step to making a retirement redeposit is to complete the correct application form and turn it in to your Human Resources department.
- For CSRS applicants, you’ll need to complete Standard Form 2803 (Application to Make a Deposit or Redeposit).
- For FERS applicants, you’ll need to complete Standard Form 3108 (Application to Make Service Credit Payment).
The U.S. Office of Personnel Management (OPM) will review your application and contact you with information about your redeposit amount due (including interest) and payment options.
Our article “Making Redeposits for Refunded Contributions Under CSRS and FERS” covers in more detail who can make redeposits, interest charges, and examples showing the potential impact making a redeposit could have on your annuity.
Military Buybacks Explained
Federal employees who previously served in the U.S. military may have the option to participate in the military buyback program. The program allows Feds with prior military service to “buy back” their military time by purchasing credits for their time served.
These credits increase the number of service years used when calculating their federal annuity. A military buyback offers Feds several advantages, including the potential for an earlier retirement and a higher monthly pension amount.
Here are some general eligibility requirements for a military time buyback:
- The military time being bought back must not have already been used for a military retirement.
- To be creditable for a federal retirement annuity, the military service must have been active service terminated under honorable conditions.
- The military service must have occurred prior to leaving federal service for retirement.
For complete eligibility requirements, you can download the OPM’s guide “Federal Employees Retirement System Transfer Handbook.”
Check out our webinars for federal employees!
Calculating and Completing a Military Time Buyback
One of the factors affecting the cost of a military time buyback is the base pay the employee earned during their service time. With a few exceptions, the cost for a military buyback is typically 7% of the military base pay for CSRS and 3% for FERS.
For both pension plans, you may need to pay interest as part of the cost of the buyback. Fortunately, there is generally a two-year interest-free grace period. If you complete your buyback during this time, you can avoid paying interest.
To calculate the cost of a military buyback, you’ll need to first request an estimate of your military earnings by completing form RI 20-97. Your military payroll office will provide you with a copy of your earnings statement, which you’ll then need to give to your benefits department to calculate the amount owed for your buyback.
If you decide to go through with your buyback, you’ll need to complete an application form and select your payment method. Payment methods include paying by check or authorizing payroll deductions.
More Strategies for Maximizing Your Federal Retirement
If you’re a Fed looking for ways to increase your annuity, both retirement redeposits and military buybacks have the potential to increase your creditable service years. This could not only boost your pension but could also mean you could retire earlier than expected.
These strategies, however, are not one-size-fits-all. Everyone’s situation is unique, and you should base your decisions on your personal financial goals and retirement plans.
Chatting with a financial advisor familiar with federal benefits can be a great first step. That’s why we host complimentary webinars for Feds interested in learning about benefits and retirement strategies. You can check them out here, or feel free to reach out to the team at Serving Those Who Serve at [email protected].
You Might Also Enjoy This Podcast
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. **
