Retirement benefits for federal employees are governed by the Federal Employees Retirement System (FERS), which is a three-tiered system designed to provide financial security during retirement. Understanding how these benefits work can help federal employees plan effectively for the future. Here’s what you need to know.
The Three Components of FERS
The FERS system comprises three key components: the Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP).
Basic Benefit Plan: This portion of your retirement benefits is determined by your salary and length of service.
Federal employees contribute a small percentage of their pay toward this plan, and it provides a monthly pension once you retire. The pension amount is calculated based on your average salary during your three highest-earning years and your years of creditable service. You must have at least five years of service to qualify for this benefit.
Social Security: Like most American workers, federal employees contribute to Social Security. Upon reaching retirement age, they receive Social Security benefits based on lifetime earnings. The amount you receive depends on when you start taking Social Security benefits and your total income during your working years.
Thrift Savings Plan (TSP): The TSP is a defined-contribution plan similar to a 401(k) offered in the private sector. Federal employees can contribute a portion of their salary to this tax-advantaged savings plan, and the government offers matching contributions up to 5% of your salary. The amount of your retirement savings from the TSP depends on how much you contribute, the government’s match, and how your investments perform over time.
Eligibility for Retirement
Eligibility for retirement under FERS depends on several factors, including age and years of service. There are multiple retirement options, including:
Immediate retirement: Available if you reach your minimum retirement age (MRA) with 30 years of service, or age 60 with 20 years of service.
Early retirement: Possible for employees with 25 years of service who are at least 50, or 20 years of service at any age under specific agency conditions.
Deferred retirement: For those who leave federal service before qualifying for immediate retirement but have at least five years of creditable service.
Health and Life Insurance in Retirement
Federal employees who are enrolled in the Federal Employees Health Benefits (FEHB) program can carry their health insurance into retirement, provided they have been continuously enrolled for five years before retiring. Life insurance coverage under the Federal Employees’ Group Life Insurance (FEGLI) may also be continued into retirement with certain conditions.
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