Retirement & Financial Planning Report

Under FERS, there is no maximum annuity. But if you are a CSRS employee, the maximum amount of annuity that you can receive at retirement is 80 percent of your high-3. For most employees, that percentage is reached when they have 41 ears and 11 months of service. However, some employees reach the limit much sooner; for example, special category employees, such as law enforcement officers and firefighters, and Congressional employees.

In anticipation of their shorter careers, an enhanced formula is used to compute the annuities of LEOs and firefighters, one for which they pay with higher retirement deductions (7.5 percent). Here’s the formula: 2.5 percent x the high-3 average pay x 20 years of covered service. This results in an annuity that equals 50 percent of their high-3. Any years beyond 20 are calculated using 2 percent. So, it would only take 15 more years of service for such an employee to hit the 80 percent limit. And those 35 years of service could be composed entirely of on-the-job work as a civilian employee of the government or include other employment, such as active duty military service, for which – in some cases – a deposit to the retirement fund would need to be made.

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For the same basic reason – shorter careers – the formula used for computing the annuities of Congressional employees is more generous and requires even higher retirement deductions. As a result, anyone who worked for about 32 years as a Congressional employee would reach the 80 percent limit–longer if some non-Congressional service was included. (Note: A deposit maybe required to get credit for service for which civilian retirement deductions hadn’t been taken.)

If you reach the 80 percent limit based on years of service, you will still have retirement deductions taken out of your pay. At retirement, you will be offered a choice. You can either take a refund of those contributions or use it to purchase additional annuity, which won’t be subject to the 80 percent limit. If you retire at or before age 55, each $100 will buy $7 a year. The amount increases by 20¢ for each full year over 55. So, if you retire at age 60, you’d get $8 for every $100 spent, and, at age 62, $8.40.

One more thing to keep in mind – Any unused sick leave to your credit at will be added to your service time and used to increase your annuity. And that increase won’t be subject to the 80 percent limit.

Why is there no limit under FERS? Mainly because at the standard multiplier for a FERS civil service benefit of 1 percent of high-3 salary per year of service (1.1 percent after age 62 with at least 20 years of service) it would be unrealistic to expect employees to work long enough to reach 80 percent.