When can I retire? It is a top question we receive as financial advisors. The answer may be different for federal employees than those working for a public or private company. The federal government provides substantial benefits to retired federal employees providing financial stability for years. It’s a diverse retirement plan with three income sources so the amount of money you receive can vary. Learn how to calculate FERS (Federal Employees Retirement System) benefits.
What You Need To Know
With FERS (Federal Employees Retirement System), retirees qualify for three potential benefits, including a basic benefit or annuity, Social Security benefits, and a Thrift Savings Plan (TSP). You may also qualify for an annuity supplement if you retire before you are eligible to receive Social Security benefits.
Your financial advisor can help you calculate the value of your FERS retirements as they can vary based on your high-3 salary and years of service; investments, contributions, and growth in your TSP account; and Social Security benefits. Knowing the value of your benefits will help you determine when you can retire.
When Can I Retire?
When someone asks us when they can retire, most retirees or soon-to-retirees are focused on when they can financially afford to retire.
Unlike most jobs, it’s not as easy as saying, “I’m retiring,” when you’re a federal employee. There’s a process to follow depending on your retirement type. In some cases, there are also age and service requirements to retire and qualify for full benefits.
So, what types of retirement benefits are available under FERS (Federal Employees Retirement System), and how is their value determined?
Let’s explore your options so you can answer the question, “When can I retire?”
Types of FERS benefits
When you retire from the federal government, most employees are eligible for certain benefits under the Federal Employees Retirement System (FERS).
The three-tier retirement system creates a balanced approach to retirement, with income coming from various sources.
These include:
- Basic Benefit – an annuity upon retirement
- Social Security
- FERS Annuity Supplement, depending on age
- Thrift Savings Plan
You’re also eligible to continue health and life insurance benefits as long as you enrolled five years before retirement.
What if I leave the federal government before retirement?
If you leave the federal government before retirement, you can take your TSP account with you, and you’ll still receive Social Security benefits when you are eligible.
However, you won’t receive your basic federal retirement benefit. It’s only available to qualified federal retirees.
1. Basic Benefit (Annuity)
The basic benefit, also called an annuity, is a reliable and steady source of income when you’re retired from the federal government. It’s like a pension plan for private sector employees.
You pay into the annuity, and the federal government contributes as well.
The basic benefit formula considers two factors:
- Your high-3 average pay
- Years of creditable service
What is the high-3?
The “high-3” is typically what people focus on with their basic benefit.
That refers to the highest average basic pay you received during 3 consecutive years of service.
It’s typically your last three years of work, but it could be earlier in your career as well.
That’s important to note because if you are a few years out from retirement, and your high-3 is not as high as you’d like it to be, you may consider another position for the last three years of work to bump your high-3. That move can pay dividends during retirement.
Calculating your annuity with your high-3
The government takes your high-3 and calculates your benefit based on the FERS annuity formula when you retire.
| Amount | Age | |
| 1% of your high-3 for each year of service | Under age 62 or over age 62 but do not have 20 years of service. | |
| 1.1% of your high-3 for each year of service. | Age 62 with 20 or more years of service. |
The basic formula works like this:
Example:
You’re age 62 with 25 years of service, and your salary was $100,000 for the last three years (high-3). You’d earn 1.1% of that.Percent x High-3 Salary x Years of Service
1.1% X $100,000 x 25 = $27,500
Total Annuity: $27,500/year
Like everything else, there are also exceptions to this.
If you qualify for early retirement, which is a type of federal retirement pathway, you may receive a reduced payout.
There are also exceptions depending on your federal job and circumstances.
In some cases, like those of firefighters and law enforcement, the percentage is 1.7% of your high-3 multiplied for your years of service in that position, not exceeding 20 years.
For more than 20 years of service in this position, you’ll get an additional 1% of your high-3 multiplied by years of service.
2. Social Security benefits – when to take them?
The annuity is just one component of your FERS retirement. You’re also eligible for Social Security benefits at age 62.
Note the word “eligible.” Even though you can start taking Social Security at age 62, you may not want to take the benefits immediately.
The full Social Security retirement age is usually between 66 and 67, depending on when you were born.
Benefits are reduced if you take them between the age of 62 and your full retirement age. This can be a 25% and 30% reduction, which is significant.
On a $1000 benefit, you would lose between $250 and $300 a month.
Talk with your financial planner about when to take Social Security benefits. Taking Social Security early may mean you get the benefits longer, but you’ll get less money each month.
If you wait and take delayed Social Security retirement, which is past your full retirement age, you’ll get an increase until age 70. You can play around with the numbers with the Social Security Online Calculator.
You can also create a Social Security account, and on the main dashboard, you’ll see your benefits if you:
- retire early (before the full Social Security retirement age)
- reach the full retirement age
- delay payment until age 70
When to collect Social Security depends on your entire financial portfolio and personal circumstances. Talk with your advisor about your retirement goals, health, and your investments.
FERS Annuity Supplement
In some cases, a federal employee may retire from the federal government before they’re eligible for Social Security benefits. So, even though they’re a benefit of a federal job, you can’t take them if you’re younger than 62. That’s the earliest you can get Social Security benefits.
But, there’s still a benefit from the federal government. It’s called the FERS Annuity Supplement.
This benefit is calculated as if you were eligible to receive Social Security benefits the day you retired from your federal job.
These benefits continue until the retiree meets one of these conditions:
- The last day of the month in which you turn 62.
- The last day of the month before the first month when you become eligible for Social Security benefits.
This supplement has specific eligibility requirements depending on the type of federal retirement taken. Learn about those scenarios and how the supplement is calculated.
3. Thrift Savings Plan Value
The Thrift Savings Plan (TSP) is the third component of your retirement benefits. You can use the Retirement Income Modeler inside your TSP account to help you determine your retirement savings goals.
The Thrift Savings Plan is your personal investment vehicle and includes government contributions. Its value is tied to:
- Contributions
- Shares purchases
- TSP market growth
Federal government retirement calculator
It’s never too early to start planning for retirement. If you’re a federal employee, you can use the Federal Ballpark E$timate®. It can help you think about ways to save for retirement, even with only a few years of federal service.
The estimate helps you estimate how much money you need to save for retirement. It includes projected federal annuity (basic benefit) and Thrift Savings Plan benefits. That’s why it’s beneficial for all federal employees, even new ones, who have years or even decades before retirement.
What is your federal replacement rate?
The Ballpark E$timate asks about your replacement rate and other personal information about retirement and federal service.
What is the replacement rate?
It’s the amount of your current (pre-retirement) income you want replaced with your retirement income.
In other words, how much of your current income do you hope to receive in retirement?
The answer depends on personal preferences, such as:
- where you’ll live in retirement
- age
- potential medical expenses
- lifestyle
A typical retirement replacement rate is 75-85% of your income. The Federal Ballpark E$timate uses a 70% rate as a default, but you can choose between 20% and 120% depending on your circumstances.
The rate is calculated based on the years you expect to live in retirement, which is a question, and the average rate during that time.
Retirement questions to ask yourself
When to retire from a federal job is a complex question that depends on personal and professional circumstances and long-term financial goals.
Perhaps you have more than just federal benefits that you’re eligible for, especially if you worked in the private sector before taking the federal position. You may have a 401(K) from another job or private investments.
You’ll also want to consider your goals as a retiree. Do you want to be active or maintain the same lifestyle?
Also, what’s your health like? You will also want to consider health and life insurance benefits available to federal employees, as medical costs alone can significantly impact your retirement.
When retiring from a federal job, there’s a lot to consider. Determining the value of your FERS benefits depends on many factors and is based on personal and professional circumstances.
When talking with a financial advisor, they can help you calculate your benefits to ensure you retire at the right time.
Looking at the whole picture can help you answer the question, “When can I retire?”