FEDweek

Calculating Your Annuity

In this article I want to show you how to calculate your annuity, an exercise that starts off as straight-forward but that includes some complications. But before getting into that, I need to let you know what the age and service requirements are to retire.

Retirement eligibility – CSRS

If you are a CSRS or CSRS Offset employee, you can retire on an immediate annuity if you are age 55 and have 30 years of service, 60 with 20, or 62 with 5.You can also retire on an immediate annuity if you lose your job through no fault of your own or leave under the Voluntary Early Retirement Authority, most commonly called early retirement or early-out. Then you can retire at age 50 with 20 years of service or, if you have 25 years of service, at any age. However, your annuity will be reduced by 1/6 of 1 percent for every month (2 percent per year) that you are under age 55 (few CSRS employees are below that age).

Retirement eligibility – FERS

If you are a FERS employee, you can retire immediately at your minimum retirement age (MRA) with 30 years of service, 60 with 20, or 62 with 5. (MRAs range from 55 to 57, depending on your year of birth.) Just as is true for CSRS employees, if you lose your job through no fault of your own or leave under an early-out, you can retire at age 50 with 20 years of service or, if you have 25 years of service, at any age. However, unlike CSRS retirees, you won’t be subject to an age penalty.

You can also retire at your MRA with at least 10 years of service but fewer than 30. However, if you retire under the MRA+10 provision and have fewer than 20 years of service, your annuity will be reduced by 5 percent for every year (5/12ths of 1 percent per month) that you are under age 62 (age 60 if you had at least 20 years of service). You can reduce or eliminate that penalty by postponing the receipt of your annuity to a later date.

CSRS computation

Here’s how you compute a CSRS annuity:

• .015 x the average of your highest 3 consecutive years of basic pay (your high-3) x 5 years of service, plus

• .0175 x your high-3 x 5 years of service, plus

• .02 x your high-3 x all remaining years and full months of service

While your basic annuity can’t exceed 80 percent of your high-3, unused sick leave isn’t subject to the 80 percent limitation. Once you have met the age and service requirements to retire, it will be added to your actual service and used to increase the amount of your annuity.

FERS computation

Here’s how to compute a FERS annuity:

• .01 x your high-3 x all years of service

If you are age 62 and have at least 20 years of service, use this formula:

• .011 x your high-3 x all years and full months of service

Just as is true of CSRS, once you have met the age and service requirements to retire, any unused sick leave will be added to your actual service and used to increase the amount of your annuity.

Note: If you have a CSRS component in your FERS annuity, it will computed using CSRS rules.

Discontinued service retirement

If you have at least five years of covered service, leave government before having the age and service needed to retire, and don’t ask for a refund of your retirement contributions—you’ll be eligible for a discontinued service retirement.

Former CSRS employees are eligible for that benefit at age 62 with 5 years of service, age 60 with 20, or at age 55 with 30.

Former FERS employees are eligible at age 62 with 5 years of service, age 60 with 20, or at their MRA with 30. They are also eligible at their MRA with at least 10 years of service but fewer than 30. As mentioned above, if you retire under the MRA+10 provision and have fewer than 20 years of service, your annuity will be reduced by 5 percent for every year (5/12ths of 1 percent per month) that you are under age 62, age 60 if you had at least 20 years of service. You can reduce or eliminate that penalty by postponing the receipt of your annuity to a later date.

The special retirement supplement

The SRS approximates the amount of Social Security benefit you earned while a FERS employee. You’ll be entitled to that benefit if you retire on an immediate, unreduced annuity before age 62 (except if you retire under the MRA+10 provision). The same is true if you if you receive a discontinued service retirement.

 

Your special retirement supplement will be suspended if you exceed the annual Social Security earnings limit. Note: Special category employees, such as law enforcement officers and firefighters, are exempt from this rule until they reach their MRA.

 

Next week, I’ll talk about cost-of-living adjustments, who gets them and when.