useng/Getty Images
Federal retirement planning during uncertain times
Answers to some of your pressing questions.
This week I try to address some of the questions that have been raised during these unusual times for federal retirement planning and decision-making. There have been a lot of questions from employees who are retiring with eligibility for MRA+10 retirement as well as some about the basics of the retirement process. Here are some of the latest from the email inbox:
Question: I am a federal employee who is eligible for retirement. Can I resign in two weeks, and then submit my retirement paperwork with 60 days' notice? E.g. resign and turn in badges on March 30 but file for retirement for a start date of May 30.
Answer: There is not a requirement to give a 60-day notice that you will be retiring. It is generally recommended to do this (or even longer) but that is so your HR office can have time to put together the documentation that needs to be sent to the Office of Personnel Management with your retirement application.
To “start the ball rolling” you should complete the Application for Immediate Retirement (FERS: SF 3107 or CSRS: SF 2801). In Section B of the application, you will indicate the date you wish to be separated from your agency (i.e. date of retirement). You may also need to gather other documentation as necessary such as a marriage certificate, divorce decree, military records, etc. If you have FEGLI (government life insurance) you will need to submit SF 2818, Continuation of Life Insurance form with your retirement application,
If you resign on March 30 then that would be your date of separation. If you want to apply for a deferred or a postponed retirement, that would be the only time it would make sense to resign and then apply for retirement later. Check with your HR Office or Shared Services Center to verify that you have enough service and meet the age requirements for immediate retirement eligibility. They can provide personalized assistance because they have your employment records. Your local personnel service center will also talk with you about the date your annuity payments can start based on the date you pick.
OPM tips for applying for retirement: You may submit your retirement application to your HR office up to 31 days following your last day on the job, however, if you wait any longer, you will need to submit your application directly to OPM and this will hold up the processing of your application since the personnel at OPM will need to gather your employment records before beginning the processing of your application.
Question: I am eligible to retire (age 62 with more than 20 years of service) but I don't want to stop working quite yet. Is there any difference between voluntary retirement and getting involuntarily separated during a Reduction in Force (RIF) as far as retirement benefits?
Answer: Since you are eligible for “optional” retirement, your retirement will be computed with the service you have on the day of your separation from federal employment and your high-three average salary as of that date.
According to Chapter 44 of the CSRS and FERS Handbook, for FERS retirements, a discontinued service annuity commences on the day after separation only when the retiree is at least age 50 with at least 20 years of service or, is any age with at least 25 years of service. If an employee is involuntarily separated and meets general eligibility requirements to retire but does not have at least 20 years of service, (for example, separated at age 62 with 15 years of service), the annuity will commence on the first of the following month.
Since you meet the requirement for immediate retirement, under a DSR, your retirement would commence on the day after your separation, for example, if your last day is COB July 4, 2025, your first FERS retirement benefit would be paid as of Aug. 1 for July 5 – 31. Your retirement payments are paid on the first of the month for the previous month. Here is a quick guide that OPM has prepared to help you see the retirement process.
Question: For a FERS retirement at age 62 - To get the 1.1% for each year of service calculated for the basic annuity, does the retirement have to occur after the employee turns 62? Or can retirement occur in the same month that the employee turns 62?
Answer: There are two ways to calculate a retirement under FERS:
- High-three average salary x years and months of creditable service x 1.0%, or
- High-three average salary x years and months of creditable service x 1.1%
It might not seem like much of a difference by 20 years of service with a high-three average salary of $100,000 at 1.0% is $20,000/year, but at 1.1%, that would be $22,000/year. That’s $167/month more! To qualify for the 1.1% multiplier, you must be 62 or older on the day that you separate from federal service, and you must have 20 or more years of service.
According to OPM, the eligibility requirements for an immediate annuity are codified at 5 U.S.C. § 8412. At age 62, an employee needs just 5 years of creditable FERS service to retire. Once retirement eligibility is established, then it is determined what is the correct calculation method. Because the law clearly provides that a retiree is entitled to service credit for unused sick leave for the purposes of calculating the immediate annuity, any unused sick leave is added to the service total and used to calculate the annuity. This means that a retiree who is at least age 62, whose actual service is less than 20 years but increases to at least 20 years with the addition of unused sick leave credit, will have their annuity computed using the 1.1% formula.
Question: I resigned in 2022 at age 57 with almost 24 years of service under FERS, Since I would be subject to a 25 percent age penalty under the MRA+10 retirement rules, I decided to postpone applying for my retirement. My 60 birthday is coming up on June 28. What date to choose for retirement commencement? If I choose April 29, I am clearly 60 years of age and in principle meet the age requirement to avoid a reduced pension for being under 62. However, here are three disagreeing descriptions of meeting the age 60 requirement, all from OPM websites and documentation.
Answer: You will submit the form RI 92-19, Application for Deferred or Postponed retirement. It is important to submit this form about 60 days before you want your retirement to begin. The RI 92-19 instructions at the start of the form state, "The age reduction does not apply if your annuity commences the first day of the month after your 60th birthday and you have at least 20 years of service." Your retirement should begin on the first day of the month after you have reached age 60 since you have more than 20 years of service. If you had less than 20 years (but more than 10), your retirement should begin no later than two days before your 62nd birthday to be considered a “postponed” retirement with entitlement to reinstate your insurance vs a deferred retirement with no eligibility to restore your insurance coverage. In your case, you may choose a “commencement date” of July 1, 2025.
If you have more questions, you may want to join me and my colleague, former CFP Board Chair Karen P. Schaeffer, a Certified Financial Planner® professional Thursday night for a virtual discussion, “Managing Your Finances in Uncertain Times: Resources for Federal Government Employees.” There is no cost to attend, but capacity is limited.