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:
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.
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
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
Key Differences Between Deferred and Postponed Retirement
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].
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. **
The FedLife Podcast is your in-depth, biweekly deep dive into the world of federal benefits and retirement planning. Hosted by federal benefits expert Ed Zurndorfer and Dan Sipe of Serving Those Who Serve, each 30-minute episode unpacks the complexities of FERS and CSRS retirement, FEHB and Medicare, survivor benefits, tax planning, and more. Designed for federal employees and retirees who want more than just the basics, FedLife goes beyond the headlines to explore the rules, nuances, and strategies that can make a meaningful difference in your retirement. Remember: it’s your Fed life, make it a great one.
The Fed15 Podcast is your weekly 15(ish)-minute briefing on federal benefits and financial planning, built specifically for federal employees and retirees. Hosted by Dan Sipe and Katelyn Murray of Serving Those Who Serve, each episode delivers clear, actionable guidance on topics like FERS and CSRS retirement, TSP strategies, FEHB, survivor benefits, tax planning, and more! Whether you’re five years from retirement or already there, The Fed15 helps you cut through the noise, avoid costly mistakes, and make confident decisions about your federal benefits.
