Early retirement options for federal employees

by Government Worker FI | Last Updated: March 8, 2019

I have worked for the federal government since I was 18 years old and have never known a federal employee to leave before their “minimum retirement age” (MRA).  In fact, I have only known a few who have left for the private sector. The water cooler talk after these people left was extremely negative. People gossiped about why these people would ever “give up” their pension.  In this post, I examine what early retirement options are available for federal employees and what that really means for their retirement benefits.

Why I’m writing about early retirement options for federal employees

One of my reasons for starting this blog was to help federal employees examine all of their retirement options.  I want to show federal employees that it is possible to pursue financial independence or early retirement outside of their pensions. (Note that the TSP is an important tool to consider in addition to the pension.)  Hopefully, I can inspire people to chase happiness, even if that means leaving federal service.

Early retirement option 1: “Deferred Retirement”

A deferred retirement is where you leave the federal government before you reach minimum retirement age.  Here are the details:

Early retirement option 2: “Postponed Retirement”

Postponed retirement is an option for people who achieved their MRA but do not have 30 years of service. To receive a full pension, employees need to be at or above their MRA with 30 years of service, or be 62 with at least 5 years of service.  

Postponed retirement allows employees between their MRA and age 62 who don’t have 30 years of service to retire but not touch their pension benefits until age 62.  

Advantages of postponed retirement:

However, the major disadvantage of postponed retirement is that you need to have reached your MRA. This is in contrast to deferred retirement which is available at any time.  Therefore, postponed retirement doesn’t fit the traditional “early retirement” moniker.

Early retirement option 3: “Voluntary Early Retirement Authority (VERA)”

VERA is by far the most generous early retirement option.  You can immediately receive your full pension for the remainder of your life.  You also get to keep your health insurance. However, there are certain restrictions:

  1. You need to be 50 years old with 20 years of service OR any age with 25 years of service.**
  2. VERA is only offered at certain times when an agency or office is trying to reduce staff.  

Why is early retirement hard for federal employees?

I have previously written about what happens to your pension benefits if you retire early as a federal employee (or leave for another job). If that were the only benefit of federal employment, it’d be a simple cost-benefit analysis to run.  But it’s not just the pension. There are so many more benefits. I can’t tell you how many times that I’ve interviewed for other jobs that paid more money but then turned them down or self sabotaged because I felt like I couldn’t leave:

All of those benefits make it really hard to leave the federal service. How much more would an employer need to offer to compensate for losing all of that time off? How much more would you need to save to make it worth retiring early but losing a lifetime guarantee of cheap health insurance? With these benefits is early retirement a reasonable option for federal employees?

Summary- comparison of early retirement options for federal employees

In summary, a deferred retirement is available to anyone who has at least 5 years of service.  However, it offers the least generous pension benefit package.

On the other hand, postponed retirement does not fit the traditional “early retirement”  moniker. However, it might be a good option if you are older than the minimum retirement age.

VERA is by far the best deal for an early retirement as a federal employee.  However, VERAs may or may not be offered when you’re ready for early retirement. They’re also not an option if you’re one of the “retire by 40 (or 30)” crowd, since they require 20-25 years of service.

Footnotes

*There may be a few readers out there who are still under the CSRS system.  However, “early” retirement doesn’t really apply to them as CSRS was phased out over 30 years ago!!

**Until about 3 months ago, I had only heard of the 50-20 rule.  I’ll have 25 years of creditable service in June of 2030 when I’m 47.  So that was a nice surprise!

***Just a general disclaimer that this is my understanding of the retirement system. Please consult an expert before making any permanent or irreversible decisions about your retirement benefits.