How does FERs work when retiring early.

[starguru]

I’m having trouble distilling the FERs rules and finding summaries online.  Basic situation is DW is starting to feel burned out as a Federal employee.  She asked if I would be ok if she stopped working to which I answers of course, but I want to understand if she did leave a federal position early what are the pension ramifications?

She is 42 with 13 years of service.   As I understand it she could defer collecting her pension at 62.  Is this right?  If so will she get the 13% of her top 3 years?

If anyone can fill in some details I would greatly appreciate it.  Thanks!

[Fomerly known as something]

Yes 13% at 62, she could collect a reduced amount at 57 but that probably isn’t worth it with only 13 years in.

[mcneally]

13% is correct. That's in nominal dollars, not adjusted for inflation, so that could erode it quite a bit. Once you start collecting, there is a COLA.

[flannel]

Pay particular attention to mcneally’s post. Inflation will eat away at the value of the pension for 20 years.  My wife did something similar, quitting in her late thirties. We are assuming it will be worth about fifty cents on the dollar by the time we are able to collect. 

There are some others things to know as well, which may not matter if she is burned out and can’t keep working. If you leave federal service prior to retirement age, you can’t take FEHB (health benefits) into retirement.  You also lose the Social Security supplemental pay you would get if you worked to 57. Inflation adjustment, FEHB, and the SS supplement are pretty good golden handcuffs to stick it out if you are close, but 42 is a long way to go to 57...

[starguru]

Pay particular attention to mcneally’s post. Inflation will eat away at the value of the pension for 20 years.  My wife did something similar, quitting in her late thirties. We are assuming it will be worth about fifty cents on the dollar by the time we are able to collect. 

There are some others things to know as well, which may not matter if she is burned out and can’t keep working. If you leave federal service prior to retirement age, you can’t take FEHB (health benefits) into retirement.  You also lose the Social Security supplemental pay you would get if you worked to 57. Inflation adjustment, FEHB, and the SS supplement are pretty good golden handcuffs to stick it out if you are close, but 42 is a long way to go to 57...

I appreciate all the replies. I was aware of inflation and the FEHB but what is the SS supplement?

[flannel]

If you retire at MRA, you are not yet eligible for SS, so FERS gives you a separate payment roughly equal to your SS benefits until SS kicks in.  Essentially you get SS five years early (if your MRA is 57 and you are eligible for SS at 62)

[starguru]

If you retire at MRA, you are not yet eligible for SS, so FERS gives you a separate payment roughly equal to your SS benefits until SS kicks in.  Essentially you get SS five years early (if your MRA is 57 and you are eligible for SS at 62)

Oh wow that’s crazy.  How do Feds who want to RE do it then?  Seems like they give up a very significant chunk of change if they don’t stick it out to MRA.

[Mrs. Sloth]

If you retire at MRA, you are not yet eligible for SS, so FERS gives you a separate payment roughly equal to your SS benefits until SS kicks in.  Essentially you get SS five years early (if your MRA is 57 and you are eligible for SS at 62)

Oh wow that’s crazy.  How do Feds who want to RE do it then?  Seems like they give up a very significant chunk of change if they don’t stick it out to MRA.

I think very few escape...pretty common to hear "no one leaves Federal Service (meaning before retirement)" and the closer you get to MRA/retirement, the stronger the golden handcuffs.

[Fomerly known as something]

I’m totally In Golden handcuffs mold.  I have 4.5 years until I’m eligible. I’m a special category employee so I work few years but the penalty for leaving early is greater.

[flannel]

It’s a great deal if you stick it out.  Leaving early ends up costing you a Lot. 

It’s not that different than other high earner scenarios.  Staying longer in any high paying occupation translates into a lot of money. Leaving costs you a lot.  It’s whether the “one more year syndrome “ comes from. 

I am pretty torn myself whether it’s worth sticking it out to 57.  If I stay federal, we should be FI when I am about 50.  That feels close enough that it might make sense to stay...but seven years of retirement is also a high price to pay...

[Mrs. Sloth]

If you retire at MRA, you are not yet eligible for SS, so FERS gives you a separate payment roughly equal to your SS benefits until SS kicks in.  Essentially you get SS five years early (if your MRA is 57 and you are eligible for SS at 62)

For your wife specifically, she won't have 30 years at MRA since she is 42 now with 13 years in, so she needs to stay until at least 60 with 20 years of federal service to qualify for the special retirement supplement. So maybe the grip of the golden handcuffs won't be as tight.

[starguru]

It’s a great deal if you stick it out.  Leaving early ends up costing you a Lot. 

It’s not that different than other high earner scenarios.  Staying longer in any high paying occupation translates into a lot of money. Leaving costs you a lot.  It’s whether the “one more year syndrome “ comes from. 

I am pretty torn myself whether it’s worth sticking it out to 57.  If I stay federal, we should be FI when I am about 50.  That feels close enough that it might make sense to stay...but seven years of retirement is also a high price to pay...

Up until this point I’ve been telling her not to underestimate the value of that pension as she’s been entertaining the idea of moving to the private sector.    She really is burning out however, so something has to give.  Most likely is she looks to move to another position in the government.

We are relatively high earners and we would be fine if she stops; at this point it’s more  A question of understanding the trade offs of stopping.  At some point the time becomes more important than making more money. 

[starguru]

If you retire at MRA, you are not yet eligible for SS, so FERS gives you a separate payment roughly equal to your SS benefits until SS kicks in.  Essentially you get SS five years early (if your MRA is 57 and you are eligible for SS at 62)

For your wife specifically, she won't have 30 years at MRA since she is 42 now with 13 years in, so she needs to stay until at least 60 with 20 years of federal service to qualify for the special retirement supplement. So maybe the grip of the golden handcuffs won't be as tight.

I guess she’d have 30 years at 59.  Is there any way to reclaim any of the money she has put into the pension up to this point?

[Mrs. Sloth]

If you retire at MRA, you are not yet eligible for SS, so FERS gives you a separate payment roughly equal to your SS benefits until SS kicks in.  Essentially you get SS five years early (if your MRA is 57 and you are eligible for SS at 62)

For your wife specifically, she won't have 30 years at MRA since she is 42 now with 13 years in, so she needs to stay until at least 60 with 20 years of federal service to qualify for the special retirement supplement. So maybe the grip of the golden handcuffs won't be as tight.

I guess she’d have 30 years at 59.  Is there any way to reclaim any of the money she has put into the pension up to this point?

For the pension part, based on the fact that she has been a Fed for 13 years, her contribution would only have been 0.8% every paycheck (this has been increased for newer incoming employees) and there is no option to get that back upon leaving since I believe it goes towards pension pay out when one is eligible for retirement. If you are talking about her contributions to her TSP, then yes she can take it out upon leaving Federal service, but the fees for TSP is pretty low and so it may not be a bad idea to leave it in there to grow.

[Michael in ABQ]

If you retire at MRA, you are not yet eligible for SS, so FERS gives you a separate payment roughly equal to your SS benefits until SS kicks in.  Essentially you get SS five years early (if your MRA is 57 and you are eligible for SS at 62)

Oh wow that’s crazy.  How do Feds who want to RE do it then?  Seems like they give up a very significant chunk of change if they don’t stick it out to MRA.

I started as a fed a couple of years ago and I'm still in my 30s. Definitely doesn't make sense for me to stick it out for 20+ years to MRA. I'll take whatever lump sum has been taken from my paycheck for FERS (several thousand by now) and go stick it in my Vanguard fund. Big difference of losing 4.4% of each paycheck vs. 0.8% for those who are grandfathered in. 4.4%/year to get 1%/year is not worth it. Can't argue with the 100% match on 5% of my TSP (Federal 401k equivalent). That's been doing fine.

[DeniseNJ]

For the pension part, based on the fact that she has been a Fed for 13 years, her contribution would only have been 0.8% every paycheck (this has been increased for newer incoming employees) and there is no option to get that back upon leaving since I believe it goes towards pension pay out when one is eligible for retirement. If you are talking about her contributions to her TSP, then yes she can take it out upon leaving Federal service, but the fees for TSP is pretty low and so it may not be a bad idea to leave it in there to grow.

She can request to have it paid back in a lump sum, but it won't be much.

[Mrs. Sloth]

For the pension part, based on the fact that she has been a Fed for 13 years, her contribution would only have been 0.8% every paycheck (this has been increased for newer incoming employees) and there is no option to get that back upon leaving since I believe it goes towards pension pay out when one is eligible for retirement. If you are talking about her contributions to her TSP, then yes she can take it out upon leaving Federal service, but the fees for TSP is pretty low and so it may not be a bad idea to leave it in there to grow.

She can request to have it paid back in a lump sum, but it won't be much.

Good to know! Does that affect your pension when you become eligible to collect say 10 years after you leave?

[tj]

If you retire at MRA, you are not yet eligible for SS, so FERS gives you a separate payment roughly equal to your SS benefits until SS kicks in.  Essentially you get SS five years early (if your MRA is 57 and you are eligible for SS at 62)

Oh wow that’s crazy.  How do Feds who want to RE do it then?  Seems like they give up a very significant chunk of change if they don’t stick it out to MRA.

The same way people who work in the private sector do, high savings rate.   I look at FERS as extra Social Security. If I hit a number, I'm out, although there are options like taking seasonal jobs or part time jobs if yo uwant to grow the pension and are content making that type of time commitment to work.

By the way, you only get the FERS settlement if you have 30 years at 57, or you get targeted for a reduction in force voluntary retirement.

She has career tenure preference for life, so if she quits, she can always go back.

if she takes a few years off and decided that she misses working, she can always go back and try some other government job (is there a reason she hasn't considered just switching now if she is burned out on the current job? For me the biggest perk of government work is there are so many different things you can try, all over country and in much of the world, too.)

[DeniseNJ]

For the pension part, based on the fact that she has been a Fed for 13 years, her contribution would only have been 0.8% every paycheck (this has been increased for newer incoming employees) and there is no option to get that back upon leaving since I believe it goes towards pension pay out when one is eligible for retirement. If you are talking about her contributions to her TSP, then yes she can take it out upon leaving Federal service, but the fees for TSP is pretty low and so it may not be a bad idea to leave it in there to grow.

She can request to have it paid back in a lump sum, but it won't be much.

Good to know! Does that affect your pension when you become eligible to collect say 10 years after you leave?

https://www.opm.gov/retirement-services/fers-information/former-employees/
This is the OPM link. Basically if you take the money you don't get anything at retirement, unless you pay it back. The time is calculated toward your time in service if you go back to gov't service but the money is not counted as a contribution since you took it.

[six-car-habit]

We had a guy who cashed out the portion he had paid into  the FERS system over the years . He moved onto a private job.  Several years later , he decided coming back to work with the gov't was a good idea, and he got hired right back into the location and shop he had been with previously.  He had spent the FERS refund while in private employ.  I believe it was about $7000 for him at the time . 
    He didn't realize accepting the money meant his " time in service " kind of went to zero.   The shop/gov't let him return the money back in regular installments from his paycheck, to pay it back, and include his previous  years service in any retirement calculations.  I think he was angling to get back 11-13 years of time.