Reg Jones Expert's View

After giving you a good scare last week when I wrote about Congressman Westerman’s bill that would change the way annuities that start in 2017 and later are calculated from one based on the average of your highest three consecutive years of basic pay to one based on five years, I thought it would be a good idea to explain how annuities are calculated under current rules. This time, I’ll do that for CSRS employees. Next week, I’ll do the same for FERS.

CSRS – Regular Employees
CSRS employees can retire on an immediate unreduced annuity at age 55 with 30 years of service, 60 with 20 or 62 with 5. And they can retire on an immediate – but reduced annuity – if they are offered an opportunity to retire early. They can do that at age 50 with 20 years of service or at any age with 25. That reduction is 2 percent for every year they are under age 55.

The formula for computing a CSRS annuity is a little more complicated than the one used for FERS, but it’s simple enough that you can do it with pencil and paper. Here it is:

.015 x 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

So, for example, if you met the age and service requirements to retire of 55 and 30 and had a high-3 of $80,000, here’s how your annuity would be calculated:

.015 x $80,000 x 5 = $6,000, plus
.0175 x $80,000 x5 = $7,000, plus
.02 x $80,000 x 20 = $32,000

Therefore, your annuity would be $45,000, which is 56.25 percent of your high-3.

Note: Although only full months of service are used in your annuity computation, any leftover hours of actual service can be combined with any unused sick leave hours to create additional months, which will be used in your annuity computation. Because a work year, by law, is 2,087 hours long and your annuity is made up of 12 equal payments, 174 hours equals 1 month.

CSRS – Special Category Employees
If you are a law enforcement officer or firefighter who has at least 20 years of covered service and is at least 50 years old, you can retire on an immediate unreduced annuity. That annuity would be calculated as follows:

0.025 x your high-3 x 20 years of service, plus
0.02 x your high-3 x all additional years and full months of service, including unused sick leave, as mentioned above.

If you are a special category employee, you can retire at age 50 with 20 years of service. If you do, your annuity calculation would look like this:

.025 x $80,000 x 20 = $40,000 or 50 percent of your high-3

All additional years of service would be calculated using the standard multiplier. So, for example, if you worked 5 years longer, your annuity calculation would look like this:

.025 x $80,000 x 20 = $40,000, plus
.02 x $80,000 x 5 = $8,000

So, your final annuity would be $48,000 or 60 percent of your high-3.

Whether you are a regular or special category CSRS employee, you’ll be entitled to receive cost-of-living adjustment to your annuity, regardless of the age at which you retire.

One final note. If you are a CSRS Offset employee, you are covered by CSRS and Social Security. Therefore, if you retire and have enough credits under Social Security, you’ll be entitled to a Social Security benefit at age 62. If you retire before age 62, at age 62 your CSRS annuity will be reduced by the amount of Social Security benefit you earned while a CSRS Offset employee. If you retire at or after age 62, the offset will occur on the day you retire. The reduction is automatic and will occur whether or not you apply for a Social Security benefit, therefore you should apply to take Social Security at age 62, if retired before turning that age, or immediately on retirement, if after.

Next time, I’ll run the numbers for FERS employees.