Federal Retirement - Questions and Answers

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Federal Retirement - Questions and Answers

Post by Spartan626 » Thu Sep 13, 2018 3:10 am

Thought I would start this thread to get/give some answers on the federal retirement system (FERS). Major Caveat: I am just starting with a fed agency and it took me forever to figure out the basics of FERS and what I can expect to get upon retirement. I will outline the very basic part to my understanding. Hopefully someone with knowledge can impart more wisdom. Please let me know if anything is incorrect and I will update it.

There are three parts to FERS: 1) Annuity, 2) Thrift Savings Plan, and 3) Social Security.

1) Annuity: This is calculated as 1% of your average pay over the highest 3-year period, then multiplied by number of years of service. So if the average pay over a three year period was $100,000, and you retired after 30 years of service, your annual retirement would be:

(.01 x 100,000) x 30 = $30,000 per year.

The age thing really throws me off. I really have no idea how that works with minimum retirement age. As best I can understand, you essentially do not start collecting your annuity until you turn 62 years old. A long time if you start young and retire after 20 or even 30 years. Maybe someone else can expand on the minimum retirement age and when you start collecting. I am curious if there is a way to collect early.

Note that the calculation for annuity includes locality pay. Try to arrange things so that you are in a high level position (GS-15) in a high COL area (if your agency has different offices). This will maximize your benefit.

2) Thrift Savings Plan (TSP): This is similar to employee retirement plans (maybe?) in that you put a certain percentage of your pay into a fund and the employer (the federal government) matches. The government will automatically place an amount equal to 1% of your pay into your TSP each month. Your contributions will be matched as follows:

- First 3%: match dollar for dollar. So if you put 3% of your pay into TSP each month, the government will put 4% in.
- 4th and 5th percentages: 50 cents on the dollar. So you contribute 5%, then the government will match 5% (1% automatic, plus 4% match).

The max you can contribute is 5%, which will be matched. This is essentially an immediate 100% return on your investment so IMO it is a good idea to max as early as possible (due to compound interest). :-) There are a few (10 I think) different funds that you can pick from. I haven't gotten that far yet to see the types of funds.

3) Social Security: Little bit of a gripe here. Not a fan of Social Security in the first place (would rather keep that money and invest it myself for my own retirement). I really have an issue with them claiming this is part of your "federal retirement system." Yes, I understand the federal government is paying this to you, but you get this no matter what job you have, as long as you are an employee in the United States. Don't this this should be counted as part of federal employee retirement. Maybe there is some extra benefit I am missing here.

These are just my own initial views and thoughts on the federal retirement system. Once I looked at it closely, it is not quite as good as I expected (although my views are likely skewed by my time in the military and knowledge of the military retirement system, which really can't be beat (at least the old system)).

Would love to hear other thoughts on this and hope this thread can also be used to answer questions from people considering federal service.

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Re: Federal Retirement - Questions and Answers

Post by lapolicia » Thu Sep 13, 2018 3:38 am

This is really a fantastic summary of FERS. As a federal employee for some time now, I would only add the following:

1. The TSP is virtually identical to a 401(k) in the private sector. You can contribute more than 5%--in fact you can contribute currently up to $18,500 per year, just like in a 401(k). The match by the federal government is limited to 5% (including the 1% automatic contribution). There is also the Roth TSP option, which, like a Roth 401(k), may be advantageous if you think your current tax rate will be better than your tax rate at retirement because you pay tax on Roth contributions at the time they are withheld from your paycheck.

2. This is more just a fun fact. The reason Social Security is considered part of FERS is because in the previous retirement system before FERS, called CSRS (a traditional pension system similar to most state employees today), federal employees did not contribute to nor receive Social Security. FERS was designed to make federal employee benefits more akin to private sector benefits at the time (1980s), so Social Security was considered one of the sources of income along with the TSP and FERS annuity to replace the single much larger CSRS annuity.

3. The financial regulatory agencies typically have an additional 3% match to the TSP, beyond the standard 5%, meaning you get a total match of 8%.

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Re: Federal Retirement - Questions and Answers

Post by Nony » Thu Sep 13, 2018 7:11 am

Re: minimum retirement age - this is between 55 and 57 depending on the year you were born (for pretty much everyone on this site it’s going to be 57). If you hit the minimum retirement age, and you have 30 years of service, you can retire and start receiving your annuity right away. (So for instance, I have a colleague who retired last year age 56 who had 30 years of service and got his annuity right away. He had been a K-JD who started with the feds right out of law school.)

If you’re at minimum retirement age and have at least 10 years service but less than 30, then you can either 1) collect your annuity, but it will be reduced by 5/12% per month until you hit age 62 or 2) ask to have the annuity deferred until you’re 62, when you’ll get the full payment. I think if you have at least 20 years of service, the full payments start at age 60 instead of 62.

Re: the TSP funds - there are 5 options you can pick based on the nature of the investments (securities, bonds, small company stocks, big company stocks, etc), and then there are also funds that have a target retirement date attached, and will automatically shift retirement strategies as you get closer to retirement (more aggressive when it’s far away shifting for more conservative it gets closer).

Re: how good this is - yeah, I would imagine it doesn’t compare to the military; I think some of the law enforcement agencies offer better benefits too. But both those categories require risk to life and limb. I don’t think almost any private sector job is going to offer an annuity/pension any more, though.

The only other thing I’d add is that your unused annual leave gets paid out to you as a lump sum when you retire, so many people spend the use-or-lose period up to their retirement date hoarding their leave and trying not to take any.

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Re: Federal Retirement - Questions and Answers

Post by howell » Thu Sep 13, 2018 1:45 pm

If you make it to 62 with at least 20 years of service, you get a bump to 1.1% your high-three.

You can also double dip on your military time if you didn't retire from active duty, so long as you buy the time out. Let's say you're on active duty for 10 years, then switch to the Reserves and retire from there. You get your normal Reserves retirement at ~60. But if you switched to a federal job when you left active duty, bought the time out, and worked 20 years, your federal retirement would be calculated based on 30 years of service.

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