Ask The Experts: Retirement

By Reg Jones

12 questions on VERA

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Q. I am a letter carrier, age 52, started in 1985 and have 28 years of creditable service.

If I understand what I’ve gleaned from the posts here and the Postal Service were to offer me a Voluntary Early Retirement Authority this year,

1.  Would I begin my annuity immediately?

2.  Would I have no reductions in calculations of my annuity? (average high-3 x 1 percent x 28)

3.  Would I receive credit for half of my sick leave and all of my annual leave? (How are these applied?)

4.  Would I receive the special retirement supplement beginning at age 56 (my minimum retirement age), and receive it until I reach age 62?

5. Would I be able to continue carrying my current health and life insurance at non-USPS rates? (I couldn’t find how long these could be carried. Until death?)

6.  Could I begin receiving Social Security as early as age 62?

7. Any withdrawal from my Thrift Savings Plan prior to age 59½ would be penalized 10 percent as per Internal Revenue Service regulations? (Can I continue to contribute to TSP after retirement?)

8. As a FERS annuitant, is there no limit to what I can earn after separation from the Postal Service as it pertains to my annuity payment?

9. At age 56 (my MRA), the special retirement supplement from Social Security would begin and would be subject to yearly income limits. Would supplement payments be reduced by approximately $1 for every $2 I earned above that year’s Social Security income limit?

10. At age 65, I’d be eligible for Medicare parts A and B? (Would this affect my health insurance coverage through Federal Employees Health Benefits?)

11.  Would there be cost-of-living increases at any point for my annuity?

12.  Is there a date during the year that maximizes the benefits of retirement?

Did I get this right, and are there any other things I should know before considering a VERA if it is offered?

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Annuity

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Q. I spent 22 years with the Postal Service and quit in 2010 to take another career. I was under FERS. Do I get a pension from the Postal Service, or is that what the Thrift Savings Plan is? And can I collect it at 55?

A. Reg: If you didn’t take a refund of your retirement contributions when you left, you can apply to the Office of Personnel Management for a deferred annuity at age 60.

Mike: If you left FERS service before the calendar year in which you reach age 55, you will be subject to the early withdrawal penalty rules.

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Directed reassignment

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Q. I am 46 with 22 years of service, and have been told that I will soon receive a letter of directed reassignment to a job in my same grade far outside my commuting area. When the letter arrives, if I should decline to move to the new position, what are my options for drawing retirement? How about insurance? Severance pay? What about my 401(k) in the Thrift Savings Plan? My performance ratings are not an issue.

A. Reg: Because you wouldn’t meet the age and service requirements to retire, you’d only have one option. If you didn’t take a refund of your retirement contributions, you could apply for a deferred annuity at age 60.

You would be entitled to severance pay only if you lost your job through no fault of your own. However, if you were to resign or decline a reasonable offer, you wouldn’t. A reasonable offer is defined as one that is in the same agency, in the same commuting area, of the same tenure and work schedule, and not more than two grades or pay levels below your current position. Note: If you are covered by a mobility agreement, the reasonable offer exception wouldn’t apply.

You would be given a month of free Federal Employees Group Life Insurance and Federal Employees Health Benefits insurance coverage. At the end of that period, you could elect private life insurance coverage at your own expense. You could also elect to continue your health insurance coverage for up to 18 months under the temporary continuation of coverage provision. For that coverage you would pay 100 percent of the premiums, plus 2 percent for administrative expenses.

Mike: Your circumstances will not affect the usual rules that apply to your TSP account. As long as you remain employed, you will be subject to the in-service withdrawal rules described at https://www.tsp.gov/planparticipation/inservicewithdrawals/basics.shtml. If you separate from service, the rules described at https://www.tsp.gov/planparticipation/withdrawals/accountOptions.shtml will apply. If you separate from service before the calendar year in which you reach age 55, you will be subject to the Internal Revenue Service’s early withdrawal penalty unless you meet one of the exceptions specified on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

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VERA

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Q. I’m 50 and have 21 years of federal government service under FERS. If my agency offers Voluntary Early Retirement Authority next year, which I expect it will, I’ll probably accept. My high-3 average is $100,000, I’ll have 22 years of service, and my Thrift Savings Plan is around $200,000.

1. Can I receive my FERS annuity ($22,000/year) as soon as I officially retire, without penalty?

2. Can I receive FERS supplemental annuity from when I’m 57 (minimum retirement age) to 62?

3. Can I receive my Social Security from as early as 62 (or, if I choose, 67 or 70)?

A. 1. Yes.

2. Yes

3. Yes, you can begin receiving it at age 62 when your special retirement supplement ends or postpone its receipt to a later date.

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Military buyback, Social Security, high-3 and TSP

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Q. I have 33 years in and am under CSRS. I will be 60 years old in May. I served less than two years in the Army in my 20s. I am a WG-8 making almost $25 an hour. I receive correspondence statements from Social Security that if I retire at age 62, I would be eligible for approximately $300 based on a second job 12 years ago and jobs before joining the government in the 1980s.

1. Should I buy back the time I have in the Army?

2. Will the buyback help increase my Social Security? Or will the money from Social Security lower my pension?

3. Should I get a part-time job to increase my Social Security benefit? I know I am not eligible for disability based on not having 40 quarters, but will the small amount of time I have paid into Social Security help or hurt me when I want to retire at 62?

4. Is there anything current on whether the top three years will be changed to top five? And, if it gets changed, should I retire before it is implemented?

5. Are there any ways to increase my pension other than saving with the Thrift Savings Plan or getting a second job (see above question)? I have reservations with TSP because of the taxes. I have money in it but am not saving. My understanding is I can’t touch it without penalty until age 62. Is this correct?

A. Reg: Because you were first employed before Oct. 1, 1982, you’ll get credit for your active-duty service in determining your eligibility to retire and in your annuity computation. If you aren’t eligible for a Social Security benefit at age 62, your annuity won’t be affected. The Office of Personnel Management only checks once, at age 62, if you are already retired, or when you retire if it’s at age 62 or later.

If you take a job after retirement and earn enough credits to be eligible for a Social Security benefit, it will be affected by the windfall elimination provision. The WEP reduces the Social Security benefit of anyone who receives an annuity from a retirement system where he didn’t pay Social Security taxes, such as CSRS, and has fewer than 30 years of substantial earnings under Social Security.

Mike: You’ll have access to your TSP money, without any early withdrawal penalty, as soon as you retire from federal service.

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Special retirement supplement

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Q. I am a federal employee with the Department of Justice, non-law enforcement, and will have 30 years of service at age 54, approximately two years before my minimum retirement age. Can I leave the government before MRA with 30 years and still be eligible to receive my special retirement supplement and my FERS retirement without a penalty at my MRA? Would I still be able to collect my Thrift Savings Plan, without penalty at my MRA, or would I be required to wait until age 59½?

A. Reg: If you left government before reaching your minimum retirement age, you could apply for a deferred retirement. Because you have at least 20 years of service, you could apply for that benefit at age 60. However, as a deferred retiree, you wouldn’t be eligible for the special retirement supplement.

Mike: If you separate from service before the calendar year in which you reach age 55, the early withdrawal penalty rules will apply to your TSP account. You may avoid the penalty by taking a series of Substantially Equal Periodic Payments, however.

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Military buyback

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Q. I am 47 years old and worked for the post office for three years. During that time, I bought back my military service time of eight years. Am I eligible to someday get that retirement for the 11 years? If not, will I be reimbursed what it cost to buy back my time? Is the Thrift Savings Plan a separate entity, and when can I start receiving that? I’m currently working away from the federal realm.

A. Reg: No, you wouldn’t be eligible for an annuity because you didn’t have at least five years of actual civilian service. If you are planning to return to government service, you could pick up where you left off. Then the earliest you could retire would be when you reach your minimum retirement age. In your case, that would be 56 and two months. If you don’t plan on returning, you can ask for a refund of your retirement contributions, including the deposit you made to get credit for your active-duty service.

To do that, go to www.opm.gov, click on Find Form(s), and download a copy of Standard Form 3106, Application for Refund of Retirement Deductions.

Mike: The TSP is yours to maintain and manage for as long as you like. You may withdraw money from it whenever you are ready, but there are limits to how frequently you can withdraw your money. You are always free to withdraw all of your money in a lump sum, whenever you like. Your withdrawals will be taxed as ordinary income and may be subject to the Internal Revenue Service early withdrawal penalty until you reach age 59½.

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TSP, Social Security and annuity

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Q. When I retire under FERS, can I get all of my Thrift Savings Plan monies, Social Security and my annuity? Can I roll over my TSP monies without paying 30 percent of the total to the Internal Revenue Service? If so, what amount of tax-deferred monies, once rolled over, can I take out monthly without a penalty or have to pay taxes?

A. Reg: Yes, you can receive an annuity and, unless you retire under the MRA+10 provision, the special retirement supplement, when you reach your minimum retirement age. Unless you exceed the Social Security earnings limit from wages or self-employment, the SRS will continue until age 62 when you will be eligible for a Social Security benefit.

Mike: Once you retire, you may withdraw your TSP money. If you retire during or after the calendar year in which you reach age 55, your TSP withdrawals will be exempt from the early withdrawal penalty. There is no withholding or tax due for TSP money rolled over to an IRA. If you are under age 59½, you will be subject to the early withdrawal penalty for withdrawals from an IRA. There are exemptions from the penalty, however, and they are spelled out in IRS Publication 590.

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MRA+10, special retirement supplement and early withdrawal penalty

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Q. I am a FERS employee, and I’m considering a June 1, 2013, retirement date. I will be 57 years old and have 29 years of service on that date. I understand that I would take a 5 percent reduction on my FERS pension for each year under age 62. Will I be eligible for the special retirement supplement? Can I take monthly withdrawals for my Thrift Savings Plan account without being liable for the early withdrawal penalty?

A. Reg: No one who retires under the MRA+10 provision is eligible to receive the special retirement supplement.

Mike: If you retire during or after the calendar year in which you reach age 55, your TSP withdrawals will be exempt from the early withdrawal penalty.

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Postal Service resignation

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Q. I am about to resign from the Postal Service as a carrier after 21 years. At my minimum retirement age of 56 years and six months, can I draw my retirement without penalty? Can I draw it early with a penalty?

A. If you resign from the government, you can apply for a penalty-free deferred annuity at age 60. Your annuity will be calculated using the standard formula, with your high-3 being the one you had when you left.

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Buyout questions

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Q. I qualify for a buyout with 25-plus years of service. If I take the buyout, it is my understanding that I must wait until my normal minimum retirement age of 56 to begin receiving the Social Security supplement. Would this prevent me from receiving increases in Social Security supplemental benefits that I would have received had I waited until 56 to retire? I believe I would get the increases at 62, in any event, when I could first draw reduced SS benefits.

Also, what happens to my Thrift Savings Plan account? May I purchase an immediate annuity and/or take a lump sum at the time even though I am below the MRA? Would this cause me to have to wait until I was 59½ to begin being able to access TSP if I took an early-out? Do you believe the $25,000 buyout and the extra six or so years of retirement payments I would receive with an early-out would make up for the growth in my TSP and the loss of the extra 1 percent a year I would have received for staying until my MRA? I am at about the top of the GS-12 scale. I have been contributing the maximum allowed to my TSP and will be eligible to make catch-up contributions soon. I know you may not want to make a prediction, but I would love your opinion based on what you have observed with others in this situation.

Reg: You can estimate what your special retirement supplement would be at age 62 by multiplying your estimated Social Security benefit at age 62 by your years of FERS service (rounded up to the next higher year) and dividing the product by 40. Your actual Social Security benefit at age 62 would be determined by the Social Security Administration based on such factors as your average indexed monthly earnings.

Mike: Once you retire, you are free to access your TSP in any way usually allowed for retirees. The MRA does not apply to the TSP. You do not have to wait until you reach age 59½ to take money from your TSP once you are retired, but withdrawals taken before reaching age 59½ might be subject to the early withdrawal penalty if you retire before the calendar year in which you reach age 55. It’s impossible to say whether the early-out income will be enough to offset the potential TSP gains in the future without knowing how you’ll invest the TSP money along the way.

I think that accepting the buyout/early-out offer will substantially reduce your maximum standard of living in retirement if you don’t continue to work, though. I think it’s reckless to make such a big, irreversible decision without a clear understanding of the financial implications. Based on your questions, I suggest that you keep working and skip the buyout offer. This is the safer bet without the right decision analysis and support.

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CSRS Offset

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Q. I plan to retire Nov. 2, 2013. I will be 66 years old, with 37 years of service. I am CSRS Offset for 30 of those years. I withdrew approximately $9,000 in 1982 (CSRS earnings) and will not be repaying it. (It’s now about $55,000 with a penalty of about $300 per month.) I know my retirement will be “offset” by about $800 in Social Security. My Social Security is estimated to be about $1,460 before the offset. Will I be able to collect the Social Security difference of approximately $600, or is my CSRS offset all that I’ll get? I do not have other substantial Social Security earnings. When I talk to my human resources department, they just shake their head and refer me to the Office of Personnel Management. I was told an estimate of my retirement would take five to six months. I can hardly wait to see how long it takes to get a check when I retire.

A. Your CSRS annuity will be offset by the amount of Social Security benefit you earned while covered by CSRS Offset. The amount you receive in total will be approximately the same; it will just come from two different places, OPM and the Social Security Administration. Any additional Social Security benefit to which you are entitled through non-CSRS Offset employment will be added to your Social Security benefit payment.

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Early withdrawal penalty

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Q. I plan to retire at age 58 with 22 years of service. My human resources department is penalizing me 20 percent, or 5 percent for each year under 62. They are quoting me information from a 1998 Federal Retirement Handbook.

The gentlemen who taught the retirement seminar that I attended in June 2011 tell me that I should only be penalized 10 percent. That is 5 percent for each year under 60 with over 20 years of service. I think 10 percent of my future paycheck is too much to forfeit.

Who is correct, please?

A. Your agency HR department is right. Either the person who taught the retirement seminar misspoke or you misheard him. What he may have said is that the reduction is 5 percent for each year you are under age 62 unless you have 20 years of service and retire at age 60 or later.

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Retiring before vs. after VERA

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Q. I’m 57 years old, started with the Postal Service in June 1987, bought back five years and nine months of military time. What would be the difference in benefits between retiring if a VERA is offered and retiring before a VERA is offered? Would I be penalized on my Thrift Savings Plan? Can I get the Social Security supplement? Would I be able to collect Social Security supplement either way?

Reg Jones: There wouldn’t be any difference. Since you already have the right combination of age and years of service, you can retire whenever you want to. Voluntary Early Retirement Authorities are only useful for those who wouldn’t otherwise be able to retire on an immediate annuity.

Mike Miles: Since you’d be retiring during or after the calendar year in which you reached age 55, you would have access to your TSP account without incurring the early withdrawal penalty.

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Penalty?

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Q. I am under the FERS retirement plan. In four years, I will be 57 with 30 years. Will I be penalized in any way? Also, will I be able to tap into my Thrift Savings Plan?

A. Reg Jones says: Because you will be retiring at your minimum retirement age with at least 30 years of service, you’ll receive a full, unreduced annuity.

Mike Miles says: You’ll have access to your TSP account after retire without penalty.

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MRA penalty

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Q. Does the 5 percent annual penalty for retiring under the MRA at age 56 cover the lifetime of distributions, or only until one reaches age 62?

A. If you retire under the MRA+10 provision (minimum retirement age with at least 10 but fewer than 30 years of service), your annuity will be permanently reduced by 5 percent (5/12 percent per month) that you are under age 62.

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Retirement timing and the survivor benefit

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Q. I am 59 and have 14 years of federal service under FERS. I plan to retire around the end of April. I turn 60 on Oct. 10, and am wondering if I should retire on the 10th of the month in order to avoid an extra month being added to the annuity reduction. Also, if I choose a 25 percent survivor benefit, will my wife have to pay more in health insurance premiums (than with a 50 percent survivor benefit) in the event of my death?

A. You can retire on any day of the month you want to. However, if you retire after the last day of a month, you won’t be on the annuity roll until the following month. For example, if you retired Sept. 30, you’d be on the annuity roll in October. If you waited until Oct. 10, you wouldn’t be on the annuity roll until November. On the other hand, every month you wait to retire will reduce the age penalty you’ll face. That reduction in your annuity will be 5/12 of a percentage point for every month you are under age 62. You’ll have to figure out which retirement date is financially best for you.

As for health benefit premiums, they will be the same for your wife regardless of the amount you jointly elect. (I say jointly elect because by law you must provide her a full survivor annuity unless she agrees in writing to a lesser amount or none at all.) If the survivor annuity amount turns out to be less than the required premiums, she can make up the difference out of her own pocket.

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When should I begin my annuity?

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Q: I was a Federal Employees Retirement System employee and left the government in September 2005 under the Minimum Retirement Age +10 provision. I postponed my annuity to avoid the 5 percent penalty per year. I will be 62 in two months. Is there any advantage to waiting even longer to receive my annuity? Is it at all like Social Security, where the longer you wait, the more you receive?

On the flip side, what are the downsides of applying at age 62? I understand that if I am re-employed by the government, my salary will be offset by my annuity. I also understand that some places may not be as willing or able to hire an annuitant. Are there other disadvantages?

A: There isn’t any advantage to delaying the annuity. Whether your annuity begins at age 62, 65 or 70, the dollar amount you get will be the same: 0.01 x your high-3 x your years and full months of service on the day you left government. As a rule, if you return to work for the government, your new salary would be offset by the amount of your annuity. If you worked for at least one year, you’d be eligible for a supplemental annuity; if you worked for at least five years, you’d be eligible for a redetermined annuity. If, by chance, you were hired into a position that allowed you to keep both your annuity and the unreduced salary of your new position, you’d get no further retirement credit.

By the way, I’m not aware that agencies have any reluctance to rehiring annuitants, nor is there any bar to an agency doing so.

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