Explore options for early FERS retirement when leaving federal service at age 55 or younger. Learn about eligibility to retire and benefits for federal employees.
Understanding Early Retirement Options Under FERS: Eligibility, Annuity Supplements, and More
Early retirement under the Federal Employees Retirement System (FERS) is a topic of significant interest for many federal employees these days as the federal workforce face significant downsizing through reduction in force (RIF) and the deferred resignation offer. Understanding the nuances of eligibility, annuity supplements, and other retirement benefits is important as federal employee readdress their financial plans.
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Leaving Federal Service Before Age 55: What Feds Should Be Aware Of
When evaluating options regarding leaving your federal job before reaching age 55, or your MRA (57), it is important to keep in mind what you’re eligible for and how your benefits are impacted. Reviewing retirement eligibility, TSP rules, and the special retirement supplement (SRS) for FERS can help you optimize your financial plan. Federal employees who have reached their MRA with at least 10 years can explore postponed retirement.
What Are the Eligibility Requirements for Early Retirement Under FERS?
Eligibility for early retirement under FERS is determined by several factors, including age and years of federal service. However, to qualify for early retirement, federal employees must meet specific age and service requirements. These requirements are crucial in determining whether an employee can retire early and what type of retirement benefits they will receive. If a VERA or VSIP has been offered by the employing agency, then 20 years of service at age 50 or older, or 25 years at any age, is needed to retire on an immediate FERS pension (same goes for a discontinued service retirement because of an involuntary separation). If you don’t have at least 20 years though, then the only way to retire before your minimum retirement age (MRA) is with a deferred retirement (unless you qualify for disability retirement benefits), in which case all you need is at least 5 years of creditable civilian service under FERS. (Check out this article about taking a refund of FERS contributions vs. deferring retirement.)
Deferring Retirement: Understanding Age Reduction Penalties
FERS employees who retire early and choose to defer their pension can begin collecting pension income at their MRA with 30 years without worrying about age reduction penalties, same with age 60 with 20 years, or they can collect their deferred annuity at age 62. If you start when you reach your minimum retirement age with less than 30 years, or after age 60 but before age 62 with less than 20, then there are penalties when you defer your retirement. It is also important to remember that if covered by the federal employee health benefits (FEHB) program, you cannot extend coverage into retirement if deferring your pension. The age based penalty works like this, for every year below age 62, there is a permanent 5% reduction (technically, 1/12 of 5% is reduced for every month below the age of 62). See the below chart to see how this impacts different pension amounts:
| Unreduced Pension | Age when Pension is Collected | Age Reduction Penalty | Actual Annual Pension Amount Received |
| $10,000 | 57 | -25% | $7500 |
| $10,000 | 58 | -20% | $8000 |
| $10,000 | 59 | -15% | $8500 |
| $10,000 | 60 | -10% | $9000 |
| $10,000 | 61 | -5% | $9500 |
| $10,000 | 62 | -0% | $10,000 |
What to Know About the FERS Annuity Supplement (SRS)
The FERS annuity supplement is an additional benefit available to certain federal employees who retire before age 62. This supplement is designed to bridge the gap between early retirement and eligibility for Social Security benefits. However, this is only available to those who meet the age and service requirements for an immediate retirement benefit. There are early optional retirement choices that are ineligible for the SRS, one is MRA+10 retirement (or postponed retirement), and the others include deferred retirement to disability retirement.
When Can Federal Retirees Collect the Special Retirement Supplement?
Eligibility for the FERS annuity supplement is limited to employees who retire under specific conditions. Generally, employees who retire on an immediate FERS pension before age 62 are eligible, even if it was an early retirement annuity through VERA or DSR. However, unless you retire under special provisions, the SRS does not begin until reaching your MRA. So, if you leave federal service before MRA, even if you took one of the recent early retirement offers, the SRS does not begin until reaching that minimum age (55-57), It is also important to remember that, like regular Social Security retirement benefits, the additional income could be subject to the earnings test, reducing or eliminating the amount if you continue to work after leaving your job at a federal government agency.
How Is the Annuity Supplement Calculated?
The calculation of the FERS annuity supplement is based on the retiree’s years of creditable service and their estimated Social Security benefit. The Office of Personnel Management uses a specific formula to determine the supplement amount, which is designed to approximate the Social Security benefit the retiree would receive at age 62. Understanding this calculation is crucial for retirees to accurately estimate their retirement income and plan accordingly. You can use our FERS Annuity Supplement Calculator to estimate your benefit!
Managing TSP for Early Retirement
The Thrift Savings Plan (TSP) is a crucial component of retirement planning for federal employees. Managing TSP effectively is essential for those considering early retirement, as it can significantly impact retirement income. When it comes to retiring early, there are some important rules to keep in mind:
| Type of Retirement (+Age at Retirement) | Age Able to Make Penalty-Free TSP Withdrawals |
| Special Provisions, Immediate Pension (50+) | 50 |
| VERA/DSR, Immediate Pension (under 55) | 59.5 |
| VERA/DSR, Immediate Pension (55+) | 55 |
| Deferred or Postponed Pension (any age) | 59.5 |
Estimate your retirement income with our Thrift Savings Plan Calculator.
Strategies for Federal Employees to Maximize TSP Benefits
Maximizing TSP benefits involves strategic planning and investment decisions. Employees should consider contributing the maximum allowable amount to their TSP accounts to take advantage of employer matching contributions. Diversifying investments within the TSP can also help maximize returns and reduce risk. Additionally, employees should regularly review their TSP allocations to ensure they align with their retirement goals and risk tolerance.
How Does TSP Withdrawal Affect Retirement Income?
TSP withdrawals can significantly affect retirement income, especially for those retiring early. Employees must carefully consider the timing and amount of TSP withdrawals to avoid depleting their retirement savings prematurely. Understanding the tax implications of TSP withdrawals is also crucial, as early withdrawals may incur penalties and affect overall retirement income. Strategic planning can help retirees manage their TSP withdrawals effectively and ensure a stable financial future.
What Are the Penalties for Early TSP Withdrawal?
Early TSP withdrawals, typically before age 59½, may incur penalties, including a 10% early withdrawal penalty in addition to regular income taxes. These penalties can significantly reduce the amount of retirement savings available to retirees. Understanding the penalties for early TSP withdrawal is essential for employees considering early retirement, as it can impact their overall retirement strategy and financial security. As seen in the above chart, if you retire under special provisions at age 50 or older, or with an immediate FERS pension at 55 or older, there is no 10% penalty. However, if younger than 55, you have to wait until you are 59.5.
What Are the Options for Deferred Retirement Under FERS?
Deferred retirement is an option for federal employees who separate from federal service before meeting the age and service requirements for immediate retirement. This option allows employees to receive retirement benefits at a later date, providing flexibility for those who wish to retire early but do not meet the standard criteria. Understanding the options for deferred retirement is essential for employees considering this path.
How Does Deferred Retirement Differ from Immediate Retirement?
Deferred retirement differs from immediate retirement in that it allows employees to separate from federal service without immediately receiving retirement benefits. Instead, benefits are postponed until the employee reaches a specific age, typically age 62. This option provides flexibility for employees who wish to retire early but do not meet the age and service requirements for immediate retirement. Deferred retirement can be a strategic choice for those who want to retire early but are not yet eligible for full retirement benefits.
What Are the Benefits of Choosing Deferred Retirement?
Choosing deferred retirement offers several benefits, including the ability to retire early without meeting the standard age and service requirements. This option allows employees to separate from federal service and pursue other opportunities while still retaining eligibility for retirement benefits at a later date. Deferred retirement can also provide financial flexibility, as employees can continue to work in other capacities while waiting to receive their retirement annuity.
What Are the Eligibility Requirements for Deferred Retirement?
Eligibility for deferred retirement under FERS requires that employees have at least 5 years of federal service. Employees must also separate from federal service before reaching the age and service requirements for immediate retirement. Once these criteria are met, employees can apply for deferred retirement benefits, which will become payable when they reach age 62. Understanding these eligibility requirements is crucial for employees considering deferred retirement as an option.
Disability Retirement and Other Early Retirement Options Under FERS
Disability retirement under FERS is an option for federal employees who are unable to continue working due to a medical condition. This type of retirement provides financial support for employees who meet specific eligibility criteria. Understanding the implications of disability retirement is crucial for employees facing health challenges that impact their ability to work.
What Are the Eligibility Criteria for FERS Disability Retirement?
Eligibility for FERS disability retirement requires that employees have at least 18 months of federal service and be unable to perform their job duties due to a medical condition. The Office of Personnel Management evaluates disability retirement applications to ensure that employees meet the necessary criteria. Understanding these eligibility requirements is essential for employees considering disability retirement as an option.
What Are the Age and Service Requirements for Early Retirement?
To qualify for early retirement under FERS, federal employees must meet specific age and service requirements. Generally, employees can retire at age 50 with 20 years of service or at any age with 25 years of service under the voluntary early retirement authority. These requirements ensure that employees have sufficient years of creditable service to qualify for retirement benefits. The Office of Personnel Management oversees these requirements, ensuring that employees meet the necessary criteria before retiring early.
Can Federal Employees Retire Early with Less Than 20 Years of Service?
While the standard requirement for early retirement under FERS is 20 years of service, there are exceptions. Federal employees with at least 5 years of service may qualify for a type of retirement known as deferred retirement. This option allows employees to separate from federal service and receive retirement benefits at a later date, typically when they reach age 62. Deferred retirement provides flexibility for those who do not meet the standard service requirements but still wish to retire early.
Reach Out to Us!
If you have additional federal benefit questions, contact our team of CERTIFIED FINANCIAL PLANNER™ (CFP®), Chartered Federal Employee Benefits Consultants (ChFEBC℠), and Accredited Investment Fiduciary (AIF) professionals. At PlanWell, we are federal employee financial advisors with a focus on retirement planning. Learn more about our process designed for the career fed.
Preparing for federal retirement? Check out our scheduled federal retirement workshops. Sign up for our no-cost federal retirement webinars here! Make sure to plan ahead and reserve your seat for our FERS webinar, held every three weeks. Want to have PlanWell host a federal retirement seminar for your agency? Reach out, and we’ll collaborate with HR to arrange an on-site FERS seminar.
Want to fast-track your federal retirement plan? Skip the FERS webinar and start a one-on-one conversation with a ChFEBC today. You can schedule a one-on-one meeting here.
