Retirement & Financial Planning Report

Getting an early retirement offer, while a fervent wish of many federal employees, brings with it important financial implications.

Under an early-out offer, whether you are covered by CSRS or FERS, you may retire at age 50 with 20 years of service or at any age with 25. However, depending on whether you are a CSRS or FERS employee, different rules apply after your eligibility to retire has been determined.

The fewer years of service you have, the smaller your annuity will be. For example, if you are a CSRS employee who retires with 30 years of service, you will have an annuity that equals 56.25 percent of your high-3. For every year less than that, you can deduct 2 percent. Further, if you are under age 55 when you retire, your annuity will be permanently reduced by 2 percent for every year you are under 55.

If you are a FERS employee who retires with 30 years of service, your annuity will be 30 percent of your high-3. Deduct 1 percent for every year less than that. Fortunately, there won’t be any age penalty for retiring early. On the other hand, you won’t be eligible for the special retirement supplement until you reach you minimum retirement age, which ranges between 55 and 57, depending on your year of birth—currently it’s 56.

In both cases, you also will be giving up the benefit in the annuity calculation of future salary raises that you would have received during the time between when you decide to take an early out and when you would have retired under normal rules.

As described above, the SRS approximates the Social Security benefit you earned while employed under FERS. The SRS ends at age 62 when you become eligible for a Social Security benefit. However, it can end even sooner if you have earnings from wages or self employment that exceed the Social Security earnings limit.

While CSRS retirees begin receiving annual cost-of-living adjustments to their annuities regardless of the age at which they retire, FERS retirees don’t get them until they reach age 62. And COLAs are never added to your SRS.