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:
- You do not get to keep your health insurance.
- If you have more than 10 years of service, you can request your pension at your MRA or at age 62.
- If you wait until you’re age 62, you will receive your full benefit. Your benefit is calculated by {0.01 ✖(years of service)✖(average of high 3 years of salary)}. So if you worked for 10 years and had a “high 3” of $100,000, you’d receive $10,000 per year for life starting at age 62.
- If you request it at your MRA, your pension gets reduced by 5% for for each year under age 62. So, my MRA is 57. So in the previous example, the $10,000 per year benefit would be reduced by 25% (i.e. (62-57)✖5%) for an annuity of $7,500 per year starting at age 57.
- If you have between 5 and 10 years of service, you can request your pension at age 62. In this case it is calculated as {0.01 ✖(years of service)✖(average of high 3 years of salary}. So if had 7 years of service with a “high 3” of $100,000, you’d receive $7,000 per year for life.
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:
- You get your full pension {0.01 ✖(years of service)✖(average of high 3 years of salary} at age 62
- When you reach age 62, you can re-enroll in your federal health benefits.
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:
- You need to be 50 years old with 20 years of service OR any age with 25 years of service.**
- 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:
- An insane amount of vacation. I carry over 240 hours (6 weeks) of vacation each year. I also earn 5.2 weeks of new vacation that I must use each year (“use or lose”). There’s also 10 federal holidays. (I *love* having Columbus Day and Washington’s Birthday off… can you imagine having a holiday when no one else is recreating**?) All together that’s 7.2 weeks off per year. (Or ~14% of the year). (Here is how I track my vacation time)
- “Fitness time”: In addition to all of the vacation, I get 3 hours paid per week of “fitness time” to exercise. (That adds up to another 19 days off per year. Is that even possible?) All in, that’s 55.5 days or 11.1 weeks of paid time off a year. That’s the first time I’ve actually added this all up and I’m shocked. That’s 21% of the 2,080 hours in a work year that I’m not actually working***.
- Health insurance: contrary to popular opinion, federal employee health benefits aren’t the best on the planet. In fact, most of my friends in the private sector have lower premiums than I do, lower deductibles than I do, or both. Mrs. Gov’s state health insurance benefits are also better than mine. However, we’re on my insurance because if I make it to the retirement finish line, I can continue in the FEHB plan into retirement (with the government continuing to cover the employer portion).
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.