The last two weeks, I’ve written about the creditability of active duty service in the armed forces, how it affects your civilian annuity, and when a deposit is required to 1) get credit for that time when determining your length of service and 2) have it used in your annuity computation.
To recap: FERS employees must make a deposit for any period of active duty service or it won’t be counted at all. CSRS employees are treated the same way unless their active duty service was performed before October 1, 1982. If it was, they will only need to make a deposit to get credit for that time if they expect to be eligible for a Social Security benefit at age 62 or when they retire, if it’s after age 62.
The only way to find out if it makes sense for you is to do the math. And to do that, you’ll need to know two things. First, how much you will owe. Second, how much your retirement annuity will be increased if you make the deposit.
Last week I told you how to get an estimate of your active duty earnings and how to find out what you would owe. With that information in hand, you can compare it with how much you’d gain by making the deposit. To do that, you need the formulas used to compute an annuity. To determine the amount of your annuity under FERS or CSRS, use the following formulas. First do them without including your active duty service, then with it.
.01 x your years of service x your high-3 = your annuity
Note: The multiplier is .011 if you retire at age 62 or later with at least 20 years of service
.015 x first 5 years of service x your high-3, plus
.0175 x next 5 years of service x your high-3, plus
.02 x all years of service over 10 x your high-3
If you decide to make a deposit, you can do it in a lump sum or in payments as small as $50. However, the more time you take trying to decide whether to make a deposit, the more it could cost you. That’s because the interest on an unpaid deposit really mounts up. Interest rates have ranged from 13 percent in 1985 to 2 percent in 2015.
FYI: If you make the deposit within a period just shy of three years after you were first hired, you won’t owe any interest. If you make it after that, you will.