Reg Jones Expert's View

When it comes to retiring early, FERS employees have a big advantage over their CSRS counterparts. If a CSRS-covered employee retires before age 55, his annuity is reduced by 2 percent (1/6 percent per month) for every year he is under age 55. While the penalty for FERS employees who retire early is much worse – 5/12ths of 1 percent per month or 5 percent per every year you are under age 62 (60 if you have at least 20 years of service) – there are three ways that they can avoid that penalty: the “early out,” the delayed annuity, and the deferred annuity. Stick with me.

The Early Out

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The age and service retirement hurdles are lowered for employees if an agency is faced with such things as a reduction in force, major reorganization or transfer or function and offers an opportunity for employees to retire early. When that happens, you can retire at age 50 with 20 years of service or at any age with 25 years of service. The additional good news is that the age reduction penalty is waived if you elect to leave or are forced out during a period when your agency is making retirement offers. And as long as you were covered by the FEHB program or FEGLI for at least five years before retiring, you will be able to carry that coverage into retirement.

The Delayed Annuity


FERS employees are eligible to retire at their minimum retirement age (MRA) with as few as 10 years of service. However, unless you have 30 years of service when you reach your MRA, you’ll be hit by that age reduction penalty. The way around the problem is to retire, but delay the receipt of your annuity to a later date. For example, if your MRA was 55 when you retired and you delayed receipt of that annuity until you reached age 62, you would avoid a reduction of 35 percent. While the annuity you’d receive at that time would be exactly the one you would have received 7 years earlier (less the penalty), if you took another job in the interval, delaying receipt of that annuity might make very good financial sense. Also, if you were covered by the FEHB program or FEGLI for at least five years before retiring, you would be able to reenroll in both programs when you activate your annuity.

Deferred Annuity


To be eligible for a deferred annuity without penalty, former FERS employees must be at least age 62 with 5 years of service, age 60 with 20 years, or have reached their minimum retirement age (MRA) with 30. Depending on when you left the service, your annuity could be a lot or a little. Either way, it’ll be like found money. Unfortunately, deferred annuitants may not reenroll in either the FEHB or FEGLI programs.

The Special Retirement Supplement


If you follow any of these penalty-avoiding strategies will you be eligible to receive the Special Retirement Supplement (SRS), which approximates the amount of the Social Security benefit you will receive based on your FERS service when you reach age 62? In some cases, yes. To be eligible for the SRS, you must fall into one of the following categories: at your MRA with 30 years of service, at age 60 with 20 years, on early voluntary retirement, or on involuntary retirement beginning at your MRA. To estimate what your SRS will be, use this formula: Social Security’s estimate of your monthly benefit at age 62 times your years of FERS service divided 40.