Vesting for Retirement

It continues to amaze me how many people have recently entered government and within a few months ask me when they’ll have worked long enough to be entitled to an annuity. And no small number of them are hoping that their experience in the private sector or the armed forces can be used to meet that threshold, whatever it is.

The answer is simple. You have to have five years of actual FERS service—and all newly hired employees are in FERS—to be vested. Other employment – even active duty service in the armed forces for which you’ve made a deposit – doesn’t count. Only after you are vested in the retirement system will you be eligible for an annuity.

The next question is this. When will you be able to claim that annuity? If you have at least five years of service but fewer than 10 when you leave government, there’s only one possibility. You can apply for it at age 62.

If you have at least 10 years, you could retire at your MRA (minimum retirement age, which ranges between 55 and 57 depending on your year of birth—currently 56). However, your annuity would be reduced by 5 percent for every year you were under age 62. You could reduce or eliminate that penalty by postponing the receipt of your annuity to a later date.

If you have at least 20 years, you could retire on a penalty-free annuity at age 60–or at your MRA with 30 years.

No matter when you leave, your annuity will be based on your total years of service and the average of your highest three years of basic pay on the day you leave. Here’s the standard formula for computing that annuity:

.01 x the average of your highest three consecutive years of basic pay x your years and full months of service. (The multiplier is increased to .011 if you retire at age 62 or later with at least 20 years of service.)

To summarize, all you need is five years of service to be vested in the retirement system. If you leave before completing five years, you won’t have any title to an annuity. And if you don’t intend to return to government service, your only option would be to ask for a refund of your retirement deductions.

However, if you know you’ll be coming back (or are undecided), it makes sense to leave your retirement deductions in the fund. If you did come back, you wouldn’t have to redeposit the money, plus accrued interest, to get credit for that time. However, if you don’t come back, you can ask for a refund later, which you’ll get with accrued interest.