Two alternative options for folks wanting to take a break from work before finishing their entire career are Deferred Annuities and Postponed Annuities. This article will serve as a primer on both of these financial vehicles.
Deferred Annuities
An immediate annuity is available to those who leave the government before reaching their retirement age and service requirements, so long as they’ve completed at least five years of creditable civilian service and did not request a refund of their retirement contributions at the time of their leaving. A deferred annuity is available to those who have served at least five years of creditable service at age 62, 60, or at their Minimum Retirement Age (MRA) with 30 years of service. A person’s MRA might be anywhere from 55 to 57 years old, depending on their birth year (refer to my column of two weeks ago for the chart if you are unsure of your MRA). You’d only be eligible for a delayed annuity at the age of 62 under CSRS guidelines. A delayed annuity is also available to FERS employees with as few as ten years of service. Unless you have at least 20 years of service and your annuity begins at age 60, your annuity will be lowered by 5% for every year (5/12 of 1% every month) if you are under the age of 62 under the MRA+10 clause. FERS and CSRS annuity formulae are used to determine deferred annuities, and your years of service and high-3 are taken from the day you leave government. You’d begin getting yearly cost-of-living adjustments (COLAs) at 62 under both retirement schemes. The special retirement bonus, which roughly approximates the Social Security income earned while covered by FERS, would be unavailable to you as a deferred retiree. The Federal Employees Health Benefits (FEHB) and Federal Employees’ Group Life Insurance (FEGLI) programs would be terminated if you were under FERS or CSRS, and you would not be entitled to reenroll when your annuity begins.
Postponed Annuities
Only FERS workers can access this. Because of the MRA+10 clause, you can postpone receiving your annuity to lower or eliminate the 5% per year age penalty. Your annuity will be determined using the normal FERS method based on your years of service and high-3 on the day you retire. Once the annuity begins, you’ll get that sum less any remaining age penalty. It is possible to rejoin the FEHB and/or FEGLI programs after retiring if you have been enrolled in those programs for the previous five years.
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