If you decide to make a deposit to get credit for your active-duty service in determining your years of civilian service, you will have to waive your military retired pay. Image: Photoroyalty/Shutterstock.com
By: Reg JonesI recently got the following email from a military retiree: “I retired from the military after 20 years as an E8. I’ve been offered a federal position; however, I’m not sure whether to keep my military retirement pay separate from my newly acquired federal position or buy-back the 20 years from the military. How do I calculate which option is more financially beneficial? Also, will I have to give up my retirement pay from the military if I chose to buy back the years?”
Here is my answer, which may be helpful to any of you who are in the same situation:
While you’ll need a financial adviser to get the most complete answer to your question, I can help you by going over the basic rules.
Because you’ll be covered under the Federal Employees Retirement System (FERS), you would need to make a deposit to get credit for that active-duty service in determining your length of civilian service. For periods of active-duty service prior to January 1,1999, the deposit equals 3 percent of basic military pay (not allowances od differentials); for periods of service performed during 1990, the deposit equals 3.25 percent; for periods of service performed during 2000, the deposit equals 3.40 percent; after December 31, 2000, it equals 3 percent. No interest on the amount owed will be charged if a deposit is made within two years after the date you first become employed by the federal government.
If you come to work for the government, the following combinations of age and service would be used to determine your eligibility to retire:
-Age 62 with 5 years of service
-Age 60 with 20 years of service
-At your minimum retirement age with 30 years of service
-(MRAs range from 55 t 47, depending on your year of birth)
You could also retire at your MRA with between 10 and 29 years of service; however, your annuity would be reduced by 5 percent per year (5/12ths of 1 percent per month) that you were under age 62. You could reduce or eliminate that penalty by postponing the receipt of your annuity to a later date.
The formula used to calculate a FERS annuity is a simple one: .01 X the average of your three highest consecutive years of basic pay (your high-3) X .01 percent. That multiplier is increased to .011 percent if you retire at age 62 with at least 20 years of service.
Finally, if you decide to make a deposit to get credit for your active-duty service in determining your years of civilian service, you will have to waive your military retired pay when you retire from your civilian job. Waiving that pay would have no effect on your entitlement as a retired member of the armed forces.
Former head of retirement and insurance policy at the Office of Personnel Management, and longtime FEDweek contributor, Reg Jones is known throughout the federal workforce community as an authority on pay and benefits.
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See also,
Calculating Service Credit for Sick Leave At Retirement
FERS Supplement vs The 10% Pension Bonus
How Your FERS, Social Security and TSP Payments Get Taxed
