As a US Government employee under the Federal Employee Retirement System, or FERS, you have at least three income streams in your retirement: The Thrift Savings Program, Social Security, and your government pension annuity. Understanding the income streams from each is key to retirement planning. The formula for determining your annuity is:
1% (or 1.1%) x High-3 x Years in Service.
We’ll break each of these elements down to help you find an estimate of your annual annuity payments.
1% (or 1.1% at 62)
While the average retiree will calculate their annuity payments at 1%, employees can earn an extra .1% by retiring at or after age 62. This advantage makes a huge difference over time, and should be a major consideration when choosing your retirement date.
High-3
Your High-3 is your highest-earning three consecutive years in service to the Government. The High-3 is the most recent three years in service for many people, but if you have experienced a job change, your highest three salaries may be in the past.
Years in Service
Years in service may be reasonably straightforward, but it can be increased in a couple of ways. While you can’t apply unused sick time to your years of service to determine your minimum retirement age, you may use it for your annuity calculation. To do this, add on your accrued sick leave to your time in service in monthly increments.
If you’ve spent time in the military, you can also add those years to your years in service if you participate in the buy-back program. These additional hours will count toward your minimum retirement age, in addition to your annuity calculation.
Special Circumstances
If you choose to retire before the age of 60 with less than 20 years in service, the Government will reduce your annuity payments by 5% for each year under the age of 62. This fee can be waived if you are participating in an early-out program.
For those retiring before the age of 62, the Government will increase your annuity payment to cover the gap between your separation date and the time until you qualify for Social Security. This is called the FERS Supplement. This supplement will expire at age 62, at which time you are eligible to draw Social Security. The FERS Supplement and Social Security require the same standards of earnings. In 2022, this amount was $19,560 in income per year.
Conclusion
If this article has left you with any questions about your annuity calculations, or if you’d like to work on making an overall plan for your Federal retirement, don’t hesitate to get in touch with us for a completely free Federal Employee Benefits Report. Your benefits expert will work closely with you to ensure you get the most from your Federal retirement benefits.
