Federal service is a sustainable and long-term career. However, similar to every other industry, federal employees will arrive at a time when they need to leave active service.
Retirement planning is crucial to ensure a comfortable transition into your post-career life. Unfortunately, not everyone has a plan after their retirement. Because of this, many people face challenges when they leave their careers.
As a federal employee, you have an advantage over others regarding retirement planning. The government offers excellent retirement benefits that can help set you up for success after your career.
However, it would help to consider a few things before retiring from federal service. In this blog post, we round up five critical factors you must think about before you submit your retirement paperwork.
The Two Federal Retirement Systems
In data published by the U.S. Office of Personnel Management, they estimated around 616,822 employees have retired from their service. The scope of this information is limited to fiscal years 2008 to 2017.
In a separate report, almost 96% of federal employees in the fiscal year 2018 are enrolled under the Federal Employees’ Retirement System (FERS). In contrast, the remaining 4% are enrolled under the Civil Service Retirement System (CSRS).
Understanding how these two retirement systems differ will help you make an informed decision about your retirement plan.
Federal Employees’ Retirement System (FERS)
The FERS is a three-tiered retirement system that consists of Social Security benefits, the Basic Benefit Plan, and the Thrift Savings Plan.
Employees accepted into federal service after 1983 are automatically enrolled in the FERS program. If you are a FERS employee, you are required to contribute 0.8% of your salary to the primary benefit coverage of the program.
Under FERS, your primary benefit is calculated using a formula that takes into account your length of service and your highest three years of salary.
Civil Service Retirement System (CSRS)
The CSRS is a defined benefit retirement system that provides benefits to employees hired before 1983. This is the earliest known retirement system in America, dating back to its creation in 1920.
If you are a CSRS employee, you are required to contribute 7% of your salary towards the basic benefit coverage of the program. The annuity is computed the same way as the FERS program.
The difference between these two programs is that the FERS program covers more comprehensive benefits than the CSRS.
Different Types of Federal Service Retirement
The primary thing you should know is that there are different types of federal service retirement. Several factors may affect your retirement benefits, but age and years of service are the critical factors impacting your annuity.
Disability retirement is available to employees who can no longer perform the essential duties of their jobs due to an intervening medical condition. If you accomplished a minimum of 18 months of creditable service, you might qualify for this type of retirement.
A retiree in this category may receive a disability benefit depending on their age and years of service. The computation of benefits differs for each annuitant or claimant.
On the other hand, early retirement is an option for federal employees who wish to retire from the service after ten years of work. However, it can only be considered “early” retirement if they are under the age of 62 when they file their retirement.
Your annuity or retirement income stream will be reduced by 5% for each month you are under the age of 62. Keep in mind that this is just a general rule and that some agencies may have different regulations regarding early retirement.
Voluntary retirement, also considered a “regular” retirement, is available to employees who have completed a minimum of five years in the service and reached the age of 62 when they finalize their retirement.
Retirees under this category are entitled to an unreduced annuity. The agency will not reduce their retirement benefits as long as they reach the required age and years of service.
Deferred retirement is applicable for former federal employees covered by Federal Employees Retirement System (FERS). Federal employees who completed at least five years of service may receive an annuity when they reach 62.
However, deferred retirement is also subjected to age reduction, similar to early retirement.
Factors To Consider When Retiring From Federal Service
Now that you know the different types of federal service retirement, it’s time to look into other things you need to consider before leaving the federal workforce:
Certify Your Federal Service and Monitor Your Service History
Some federal services may go unaccounted for, leading to several complications in the process. Because of this, it’s critical to certify your service and check for any discrepancies in your records.
It might take you a few days or even an entire month to resolve any existing issues. But, fixing these discrepancies a few years early will be worth it to avoid any headaches and delays in the future.
Update Your Documents
It’s critical to keep necessary retirement documents, such as beneficiary designations, wills, and estate planning up to date before finalizing your retirement. Make sure to review your retirement plan and make changes where needed.
You should also take the time to update your personal contact information with your agency. This process will ensure that the agency can reach you quickly in case there are any changes or updates to your retirement application.
Undergo Retirement Training Opportunities
Federal agencies offer retirement training to employees who are nearing the end of their careers. These programs provide an excellent opportunity to learn more about the retirement process and what to expect after leaving federal service.
Not all agencies offer retirement training, but it’s definitely worth looking into if your agency does. These courses will help you understand the different aspects of retirement and make informed decisions about your future.
Many federal retirees are surprised by how much they miss when they fail to educate themselves about the retirement process. You can prevent committing the same mistake by taking advantage of these retirement training programs.
Assess Various Retirement Programs
Although The Office of Personnel Management offers a sustainable and efficient retirement program for federal employees, it’s not wise to rely solely on this program.
There are countless retirement programs available, and it would be in your best interest to learn about as many of them as possible. One of the well-known federal retirement programs is the Thrift Savings Plan (TSP).
The TSP is a retirement saving and investment plan available for federal employees and other uniformed personnel. This tax-deferred retirement savings plan yields the same benefits comparable to that of 401(k) plans.
Understand Tax Implications
Many federal retirees are astonished by the taxes they have to pay upon retirement. It’s essential to be aware of the different tax implications of leaving the national service to help you devise an effective retirement plan.
It’s important to know that almost 90% of your FERS and CSRS are taxable. Moreover, your Social Security benefit and TSP savings will also be taxable when you retire.
Retiring Requires a Thorough Consideration
Retiring is a natural process that any employee, federal or private, goes through. By understanding the different types of federal service retirement and taking the time to assess your options, you can make the best decision for your future.
Planning for your future is a tedious process with multifarious facets to consider. To others, this may come as a challenge, especially for those who have limited knowledge of the retirement process.
As mentioned, not all federal agencies provide retirement education programs. If your agency does not offer this type of training, there are other ways to educate yourself about the retirement process and ensure that you make the best decision for yourself and your family.
One of the most effective ways to learn about federal service retirement is to seek professional services. Financial advisors who specialize in retirement planning can provide you with the information and guidance you need to create educated decisions about your future.
These services can be beneficial, especially if you have questions about your specific situation.
Seek Professional Services With My Federal Plan
My Federal Plan has a network of highly-trained and certified federal finance professionals that can help you understand the different aspects of the retirement process and devise a plan that meets your specific needs.
We understand that retiring from federal service is a big decision, and we are here to help you every step of the way. Contact My Federal Plan today to schedule your free appointment with one of our expert financial planners.