Once a federal employee reaches their MRA with 10 years of service under their belt, they’re eligible to retire and start collecting their pension.
What options are available to federal employee who has reached their minimum retirement age (MRA) and wants to retire? Well, if they have at least 30 years of federal service, they can apply to start receiving monthly income from a FERS annuity. This pension amount will not be reduced and there is no need to wait until you either reach age 62, or at least approach it. Same goes for folks who are 60 years old with at least 20 years of federal service and special provision employees with either 25 years of service at age 50 or 20 years at their MRA. But if you’re in between your MRA and 62 without these necessary service requirements, you can explore “MRA+10” retirement eligibility. Should you go this route, however, the FERS annuity you receive will either be postponed or reduced.
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Let’s break down the available options, and key items to consider, when deciding whether or not to go down the “MRA+10” path.
Pension Reduction
For every month before reaching the age of 62, a FERS pension is reduced by 5/12 of 1.0%, or 5% for each year, when electing a “MRA+10” retirement. So, for example, if an individual takes their FERS annuity exactly three years before turning 62, at age 59, that’s a total reduction of 15% (3 years x 5%). This reduction is also permanent – it does not go away upon reaching 62 years old. But once separated from federal service and choosing to postpone, a federal retiree does not have to wait until 62 to start receiving income from their FERS pension. Hypothetically, one could leave their job at the federal government at age 59, start drawing from their pension on their 61st birthday, and therefore only see a 5% reduction instead of 15%.
Postponed Retirement
With an “MRA+10” retirement, the biggest decision that needs to be made is whether a FERS retiree wants an immediate reduced pension or a postponed unreduced pension. If an individual chooses to postpone their annuity, they avoid the reduction detailed above. However, it is worth remembering that FEHB and FEGLI coverage is suspended amidst the postponement. Assuming the FERS retiree had continuous FEHB coverage in the five years before leaving federal service, they can resume these health benefits when claiming their FERS annuity.
Also, FERS retirees only get the 10% income boost (1.1% multiplier) if they work to age 62 or beyond. So even if one were to delay collecting their pension until 62, the unreduced annuity they’d receive would still be computed with the 1.0% factor. And if you’re thinking a FERS retiree could use the special retirement supplement (SRS) to help with income before the age of 62, that won’t work because those who postpone their FERS pension via “MRA+10” rules, they are not eligible to get SRS payments. And the last thing to keep in mind when thinking about this type of FERS retirement is that a “postponed” retirement is not synonymous with a “deferred” retirement. Any federal employee with at least 5 years of service can leave the federal government and defer their pension until age 62, but they will not be able to regain their FEHB coverage like with a postponed retirement.
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Until Next Time,
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**Written by Benjamin Derge, Financial Planner, ChFEBC℠ 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 Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
