Understanding the Difference Between Postponed and Deferred FERS Retirement
While heading to the office each day may feel pretty much the same no matter where you work, there are some big differences in the working lives of federal employees. One of the major things that set careers in public service apart is the retirement system. The Federal Employee Retirement System (FERS) is a major benefit for civilian workers in the federal government, but its rules are complex. If you don’t fully understand them, you could make a costly mistake that keeps you from maximizing your pension during retirement.
One of the most crucial rules to know is the one about early retirement. There are actually two types of retirement that are commonly confused with one another: postponed retirement and deferred retirement. Each method of early retirement has different rules, so you’ll want to be clear on the pros and cons of each to make a smart choice about when you finally turn in your ID badge and begin retired life in earnest.
FERS Basics
FERS Annuity is a defined benefit plan that guarantees a certain payout for each year of your retirement in exchange for required contributions during your working years. Unlike the Thrift Savings Plan, you’ll never have to wonder how much you can afford to withdraw from your TSP, because your FERS annuity is not subject to the whims of the stock market.
That’s the good news. The less good news is that a FERS annuity comes with a serious set of rules about when you can retire and what benefits you’ll be eligible for during your retirement.
Retiring after 30 or 40 years of uninterrupted service is pretty straightforward, but what if you want to retire early — before certain criteria are met? You have two choices.
FERS Postponed Retirement
To be eligible for a postponed retirement, you need to meet three big requirements:
- 10 years of creditable service in a position covered by FERS
- Reach your minimum retirement age (MRA) before you leave your position
- Keep all of your contributions in the FERS system
If you can do all three of these things, you can retire before age 62 — in fact, you can start to collect your pension immediately. However, doing so could shut you out of a big portion of your pension, since your benefits will be reduced by a certain percentage for each year under age 62 you are at retirement.
Choosing a postponed retirement lets you maximize your pension payments by holding off on collecting them. You’re essentially waiting to collect until you reach the age at which you would have been eligible for your full benefit — typically age 60 or 62, depending on your years of service.
The other major benefit of a postponed retirement is that you will remain eligible for Federal Employee Health Benefits (FEHB) and Federal Employees’ Group Life Insurance (FEGLI) when you do retire. You will not receive pension income or FEHB when you stop working until you apply for your benefits, but postponing them can help you maximize your pension income and provide excellent health coverage as you age.
The Bottom Line: If you are eligible for a MRA+10 retirement, you can postpone collecting benefits to increase your pension payout and reinstate FEHB when you do finally activate retirement benefits.
FERS Deferred Retirement
Though the words “postpone” and “defer” seem synonymous, they have very different meanings when it comes to FERS. To be eligible for a deferred retirement, you only need to meet two requirements:
- 5 years of creditable service in a position covered by FERS
- Keep all of your contributions in the FERS system
The big difference here is that you can take a deferred retirement at any age — you do not need to meet your MRA before you separate from service.
But there’s also a big drawback: You will not be eligible to reinstate FEHB when you apply for your pension. This means that you will need to secure your own health insurance until you are eligible for Medicare at age 65. You will also not be eligible for the special retirement supplement (SRS) benefit or to re-enroll in FEGLI when you do finally apply for your pension.
The Bottom Line: Deferred retirement allows you to collect your pension with fewer years of service and to retire earlier, but losing your FEHB eligibility can be a big blow.
Should You Postpone, Defer or Keep Working?
The right decision for you depends on many factors: your current age, your years of creditable service, whether you have an affordable health insurance alternative, and more. As you consider which form of early retirement to choose, it’s helpful to calculate your pension under several different scenarios to compare and contrast your options and make a fully informed decision.
Need help with the math? We can help you game out your FERS options and come up with detailed plans to cover you while you wait for your pension to kick in. Solid financial planning will help you make the most of your FERS benefits, so contact us today to get started.
