Leaving as Soon as You Can

Last week, I wrote about leaving government now and retiring later. After more than a year without commuting, and after considering what’s really important to them, some employees are considering leaving federal service early. It’s important for them to weigh all of the possibilities. Among them is a unique option under the Federal Employees Retirement System that allows a worker to retire at their minimum retirement age with as little as 10 years of service.

Before you get too excited, you should know that this option comes with some significant drawbacks that should be considered before making the leap into early retirement. 

To be clear, the MRA+10 option, as it is known, is a reduced retirement, not the standard full FERS retirement. To qualify for an immediate, unreduced retirement, you would need 30 years of service or more if you were between your MRA and age 60, and at least 20 years of service at age 60 or 61. At age 62, only five years of creditable civilian service is required for an immediate unreduced retirement.

Under the MRA+10 option, only 10 years of service is needed to qualify for an immediate retirement if you’re under age 62 (but you must be at least at your MRA at the time of your separation from federal service). To understand the difference between a reduced and an unreduced retirement, let’s look at the following example:

Jason is 57 years old, and has 19 years of creditable service. By working longer, his high-three average salary will increase, which would have a positive impact on the value of his retirement benefit. But for the sake of simplicity, let’s keep the high-three average for all of the scenarios involving his retirement options at $100,000.

Jason will be eligible to retire with an unreduced, immediate retirement at age 60 when he will have over 20 years of service. But Jason is eligible for an immediate, reduced MRA+10 retirement now. He also has a third option that’s worth looking at: waiting until he’s 62, when his FERS retirement benefit will begin to include cost-of-living adjustments and he’s eligible for Social Security benefits.

Here are the calculations that are important for Jason to understand before he commits to retiring early:

Age 57: 19 years of service x 1% x $100,000 = a benefit of $19,000 per year, or $1,583 per month. But If Jason applies for this benefit at 57, it will be reduced by 5% for every year he is under 62. So the cut will be 25%, to $1,187 a month. To avoid some or all of this reduction, Jason can postpone receiving the benefit.

Age 60: 22 years of service x 1% x $100,000 = $22,000 per year or $1,833 a month. Jason also would be eligible for the FERS supplement, payable until he turns 62, worth an estimated $1,072 a month.

Age 62: 24 years of service x 1.1% x $100,000 = $26,400 per year or $2,200 per month. Plus, Jason would be eligible for a reduced Social Security retirement benefit. Let’s say that benefit adds up to $23,400 a year or $1,950 a month. (Notice that the calculation changes from 1.0 percent to 1.1 percent for employees who retire at 62 or later who have at least 20 years of creditable service, including credit for unused sick leave.)

To avoid the substantial reduction for age when you leave federal service under 62, many employees will resign at their MRA, but postpone receiving the benefit to avoid some or all of the age reduction.

It’s also worth remembering that people who leave federal service after reaching their MRA with at least 10 years of creditable service are eligible to maintain their health insurance coverage if they apply for an immediate reduced retirement benefit—or are eligible to reenroll when they postpone their retirement benefit.

The specific requirements for an MRA+10 retirement can be found in Chapter 42 of the CSRS and FERS Handbook.

According to a recent CNBC report, one in four workers are considering changing careers to have more flexibility. As you think about your options for continuing or ending your federal career, it’s very important to evaluate the financial realities of leaving service early.