Under FERS, federal employees have many unique retirement options, so it’s important to know the facts to determine which best fits your situation. One large source of confusion seems to be the difference between deferred and postponed retirement.
Components of FERS
FERS is comprised of three components and at its core is the pension plan annuity. Contributions come from federal employees, the government, and various agencies. The remaining elements of this attractive retirement system are Social Security and the Thrift Savings Plan (TSP).
When you meet the following age and service requirements, you qualify for an immediate FERS annuity, which means you select your retirement date, submit your paperwork, and your annuity checks begin around 60 days later.
- Age 62 with 5 years of service
- Age 60 with 20 years of service
- Minimum retirement age (MRA)—between 55 and 57 depending on birth year—with 30 years of service
However, if you don’t meet these criteria, deferred or postponed retirement may be a viable alternative.
Deferred Retirement
Employees covered under FERS who have not reached their MRA before leaving federal service can still receive a pension through deferred retirement. With at least five years of service, they can defer their pension until age 62. Those with 20 years of service can start receiving benefits at age 60 but will incur a 0.416% reduction for each month under 62, (equating to 5% per year). So, starting at age 60 results in a permanent 10% reduction, while starting at age 61 results in a 5% reduction.
Advantages:
- Retain access to your FERS pension even if you leave federal service before reaching your MRA.
Disadvantages:
- Losing eligibility for Federal Employee Health Benefits (FEHB), Federal Employee Group Life Insurance (FEGLI), and the Federal Employee’s Dental and Vision Insurance Program (FEDVIP).
- Deferred retirees don’t receive COLAs until age 62
Postponed Retirement Explained
Employees who reach their MRA with at least 10 years of service can delay receiving their annuity until age 62, and avoid age reduction penalties. Unlike deferred retirement, postponing allows for re-enrollment in FEHB upon retirement – if you meet eligibility requirements.
Advantages:
- Separated employees can reduce or eliminate age reduction penalties
- In some cases, you can re-enroll in federal insurance benefits (health, dental/vision, life, and long-term care).
- Postponed retirees may receive COLAs as soon as their annuity begins
Disadvantages:
- Separated employees may face reduced benefits due to earlier retirement.
- Temporary loss of federal insurance benefits, which are suspended until the postponed FERS annuity begins.
Understanding which retirement option works best for you will help you optimize your FERS benefits. For more information, reach out to an FRC® trained advisor.
