Ask The Experts: Retirement

By Reg Jones

Frequently asked questions

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1. Best retirement date

Question: Which is best day to retire?

Answer: I have the feeling that the last question I answer before I leave this world will be, “What is the best day to retire?” And my answer will be, “There is no best day to retire. It all depends.” However, if you are a FERS employee, you need to know that you have to retire no later than the last day of a given month in order to be eligible for an annuity in the following month. If you are a CSRS employee, you may retire up to the third day of a month and be eligible for an annuity payment in the same month. However, your payment for that month will be reduced by one-thirtieth for each of those three days that you aren’t on the annuity roll. And, whether FERS or CSRS, if you have a lot of unused annual leave, retiring as close to possible to the date on which new salary rates go into effect will increase the amount of your lump-sum leave payment. That’s because unused annual leave is projected forward and paid at the hourly rate that would be in effect if you were still employed.

2. Annuity computation — CSRS

Question: I’m a CSRS employee, and before I make a decision on retiring, I’d like to know what my annuity would be.

Answer: Your CSRS annuity is the sum of: 1.5 percent (0.015) of your high-three (the average of your highest three consecutive years of base salary), multiplied by your first five years of service; plus 1.75 percent (0.0175) of your high-three, multiplied by your next five years of service; plus 2 percent (0.02) of your high-three, multiplied by all remaining years of employment.

3. Annuity computation — FERS
Question: I’m a FERS employee, and before I make a decision on retiring, I’d like to know what my annuity would be.
Answer: Multiply your high-three (the average of your highest three consecutive years of base salary) by 1 percent (0.01), then multiply the product you get by your total years of creditable service. Multiply your high-three by 1.1 percent (0.011) if you retire at age 62 or later with at least 20 years of service.

4. Annuity computation — your high-three

Question: How do you determine your high-three?

Answer: Your high-three is an average of your highest rates of basic pay over any three consecutive years of creditable civilian service, regardless of when they occur in your career, with each pay rate weighted by the length of time it was received. That three-year period starts and ends on the dates that produce the highest average pay. Therefore, the counting doesn’t have to start on Jan. 1, the first day of the month or the date of a pay change. It starts on the first day that leads to the highest three-year average. Basic pay is the amount from which retirement deductions are taken. It’s made up of the salary you receive for your position and level as shown on an official pay table, including locality pay for the 48 contiguous states. It may also include night or environmental differentials, premium pay and special pay rates for recruiting and retention purposes. It doesn’t include bonuses, military pay, cash awards, holiday pay, travel pay outside the regular tour of duty, nonforeign area cost-of-living adjustments or lump-sum payments covering unused hours of annual leave. Nor does it include any salary supplements provided to employees covered by workers’ compensation.

5. Annuity computation — sick leave credit

Question: How are unused sick leave hours credited at retirement?

Answer: Only those of you with CSRS service will have any unused sick leave added to your years of service in your annuity calculations. Once you are eligible to retire, your years of service will first be calculated using your years and full months of service. Any leftover days will be added to your unused hours of sick leave. To compute sick leave credit, a 360-day calendar is used. To determine the value of each day of leftover service credit and each day of sick leave credit, the Office of Personnel Management divides 360 into 2,087 — the number of hours in an average work year. Therefore, for retirement purposes, a day isn’t eight hours long, it’s 5.7972 hours. After rounding, a 30-day month of sick leave is approximately 174 hours. Unused sick leave days are added to any leftover service credit days to make 30-day months. Any hours that don’t equal a full month are dropped. Because unused sick leave increases the amount of service used to compute a CSRS annuity, each month it adds to your service credit is worth about 2 percent per year in your annuity. That increase becomes a permanent part of your annuity.

6. Retirement eligibility — CSRS

Question: When am I eligible for retirement under CSRS without a penalty?

Answer: The rules for retiring under CSRS without an age-related penalty are as follows: age 62 with five years of service, age 60 with 20 years of service and age 55 with 30 years of service.

7. Retirement eligibility — FERS
Question: When am I eligible for retirement under FERS without a penalty?
Answer: The rules for retiring under FERS without an age-related penalty are as follows: age 62 with five years of service, age 60 with 20 years of service, or at your minimum retirement age (MRA) with 30 years of service. MRAs range from 55 for those born before 1948 to 57 for those born in 1970 or later.

8. Government pension offset; windfall elimination provision

Question: What is the government pension offset? What is the windfall elimination provision?

Answer: These provisions of law reduce the Social Security benefits of some federal employees. The government pension offset reduces the Social Security spousal benefit of anyone who is receiving an annuity from a retirement system under which he didn’t pay Social Security taxes, such as CSRS. The effect is severe because it reduces the Social Security spousal benefit by $1 for every $3 that such a retiree receives in his annuity. In most cases, the Social Security spousal benefit is eliminated. Under the windfall elimination provision, the Social Security benefit of anyone receiving an annuity in whole or part from a retirement system where he didn’t pay Social Security taxes, such as CSRS, and has fewer than 30 years of so-called substantial earnings under Social Security will have his annuity computed under a modified formula. The first multiplier in that formula — 90 percent — is reduced by five percentage points for every year of substantial earnings fewer than 30 until it reaches 40 percent for those with 20 or fewer years.

9. Health insurance after retirement

Question: If you keep federal heath insurance when you retire, is the health benefit the same in retirement as when you are a full-time employee? And, does the premium cost change in retirement? How does Medicare affect health insurance if you have federal health insurance after retirement? Is there any benefit to having Part B Medicare?

Answer: The benefits for FEHBP plans are the same. The premiums are the same, unless you are retired from the U.S. Postal Service. In that case, your premiums will go up. That’s because the Postal Service subsidizes the premiums of its employees, but postal retirees pay the same rates as all other federal employees and retirees. For most retirees, the combination of an FEHBP plan and Medicare A and B results in their having few if any out-of-pocket costs. Whether it is worth the premiums you’d have to pay for Part B is a decision you’ll have to make.

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