The Federal Government offers three important pieces for your retirement needs. These include your FERS pension, a thrift savings plan, and your social security. These tend to be a set amount that lasts for the duration of your life (including a spousal survival interest you can select upon your death.) The TSP (thrift savings plan) varies based upon your contributions. Your eligibility for retirement under FERS is based upon a few different factors including:
- Years in the program
- Your type of retirement plan
- Age
There are multiple FERS retirement options that have different rules for retirement eligibility. If you are at the minimum retirement age (MRA) with 30 years of service, you are immediately eligible to receive your FERS retirement benefits. You can also receive retirement benefits with less years of service, but at a higher retirement age.
The FERS Pension
The basic pension through FERS is a defined benefit retirement, where you will receive a check each month for the rest of your life. Through your working years, a portion of your salary will be taken out as a contribution toward your FERS retirement. According to the United States Office of Personnel Management, this tends to be 0.8% of your salary. When you retire and begin drawing your retirement benefit, you will begin getting a check that is fixed for the rest of your life (with annual cost of living increases.) Regardless of how long you live, you will always receive this check, even if it surpasses the amount you contributed while you worked.
The FERS pension is calculated based upon the highest three years of salary you received in all the years you contributed to the program. This can be a great feature, and is an incentive for people to want to move up the ladder earning more money. The pension is calculated by the average of the highest three years of salary, multiplied by your years of creditable service, multiplied by your percent pension multiplier. This will give you your FERS pension benefit. For most FERS members, the pension multiplier is at 1%, though it can be 1.1% if you are retiring at age 62 with over 20 years of service.
Because there is a cost associated with a FERS survivor annuity, you’ll need to remember that this cost comes from your gross pension payment. Taxes also come off the gross payment as well as other potential reductions. Make sure you pay attention to the “net” benefit instead of the gross. Just like during your working years, there is a difference between the gross and net amounts.
What About Social Security?
Social Security benefits were never intended to be the only source of income for a person, but rather a safety net when they reach retirement age. Federal employees that receive FERS benefits will also be able to receive a social security benefit. There may be a difference between your elected retirement age and the age of eligibility for social security, so understand that these two may not line-up at the same time.
Because Social Security is withheld from your paycheck during your working years just like your FERS retirement contribution, you are eligible to receive benefits for the remainder of your life once you are eligible. Your Social Security benefit is also calculated based upon your earnings through your working years and your number of years of service in a Social Security contributing occupation. You can visit the Social Security website to look at your statement online and use their tools to calculate your projected Social Security benefits.
To close the gap between your retirement (if before age 62) and your eligibility to draw a social security benefit, there is a supplement available for members of FERS. It is designed to cover a part of the missing income from social security. This is available to some, but not all members of FERS.
Thrift Savings Plan
Also known as the TSP (Thrift Savings Plan,) this is the part of your retirement plan that varies between employees. This plan was designed by the government to allow additional savings for retirement. The TSP is an individual account that saves money from your check before tax withholding. (The TSP also has a Roth component that will allow contributions that are post-tax and grow tax free.) This money is invested and those investments can be directed by the employee. There are limits as to how much can be saved in the TSP each year that are published on the Thrift Savings Plan website.
While the FERS pension and Social Security operate as a defined benefit plan that pays you a specified amount for the rest of your life, the TSP is based upon how much is saved as a result of the investments in the TSP. How you manage your TSP account, and how much you contribute will have a lot to do with the funds available when you retire. The TSP is completely optional and is not part of the pension fund. Some of the government entities will match contributions made by employees, so researching your options with the TSP is wise. Many employees find that the TSP funds are an excellent source of additional income for their retirement years.
The Bottom Line
There are a lot of components to the government retirement plan. Because of the size and scope of the federal government, it’s understandable that the retirement system will be very complex. The most important thing for you to do is communicate with the retirement plan manager for your particular office. No one else will do your retirement planning for you, but there are many people that can help guide you along the way.
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