What Happens to Your Federal Benefits If You Leave Before Retiring?

What Happens to Your Benefits if You leave before you retire?  As many of us periodically think of leaving federal service for various reasons (the grass is greener or the boss from Hell are common reasons) this information is important and can help us make the right decision when or if the time comes.

You will get an automatic 31-day extension on your health insurance.  At the end of the 31-days you can convert to an individual policy or continue your current coverage for 18 months under temporary continuation of coverage (TCC).  Costs and coverage on an individual policy will vary.  The cost for TCC are your share + Uncle’s share + a 2% administrative fee.  In both situations, no physical is required and there is no ban on pre-existing conditions.

You can convert your life insurance to an individual policy.

If you leave your retirement funds on deposit, you will be entitled to a CSRS or FERS pension at a later date as long as you have at least five years of federal service.

Your annual leave, credit hour and comp time balance will be paid to you in a lump sum shortly after you leave.

Your sick leave will do you no good, unless you return to federal service.  If you return, you can have it re-credited.

You have many choices with your TSP.  You are not required to withdraw your TSP contributions and have the option of leaving them in the TSP.  You will still have the same ability you currently do to make interfund transfers.  You could also transfer the TSP to an IRA or a subsequent employer’s tax-deferred retirement plan.  If you choose the transfer option, make sure it is a direct transfer (directly from the TSP to the new plan) in order to avoid any withholding.

If you withdraw any money from the TSP before reaching the age of 59 ½, you will be subject to a 10% early withdrawal penalty in addition to taxes.

John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. The book is written in an easy to understand question and answer format and covers all areas of federal benefits from the perspective of an employee at various stages of their career. Order your copy at shoplrp.com.

© 2016 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.


About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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  1. Dsnymag says:

    I have been a Government employee for 23 years.  With all the uncertainty of  our jobs, I was wondering if it would be a good idea to become a contractor.  So my question is…….What would happen to my benefits if I decide to leave the government and become a contractor

  2. just a another number says:

    I just had a mid career retirement class with this author March 21 2013.  Excellent speaker. Gave me lots to consider 10-20 years before I retire (I have 21 years as fed employee as  of Feb 2013 and will also have met the SSA required  age for me of 67 years old at that time, IF IT DOESN’T RAISED AGAIN so it works out perfectly).  

  3. ImusJunkit says:

    wrt: “If you withdraw any money from the TSP before reaching the age of 59 ½, you will be subject to a 10% early withdrawal penalty in addition to taxes.” 
    I understand, that you can take out payments from your TSP and avoid the 10% penalty tax, but only if you take it in accordance with a formula based upon your life expectancy – i.e the yonger you are, the less you get…And, once you are 59.5 you can change the withdrawals to anything you desire (for what little money might be left…) 

  4. ImusJunkit says:

    A Serious Question John:  What happens to a person’s benefits if as a GS’r in the Executive Branch (any of the departments will do…) someone then goes to work as a Congressional Aide/Staffer? (WHY: obviously for better job security…)  What stays the same, and what changes??? I have found very little to explain. Thanks in advance for reading and responding…

    I have learned that most people realy don’t understand true sarcasm…

  5. Alleykat99 says:

    If a person leaves government service, but leaves FERS on deposit, do you also retain the government contribution portion, or is that lost? (I have 14 years of service).  It sounds as though I would take a 5% cut on the total for every year before age 62. 
    Same type of question for TSP.  If i leave to the private sector and roll my TSP over directly, do I retain the Agency contributions up to that point?

  6. Guest says:

    What happens to the money you paid in if you leave before 5 years in FERS? 

  7. Federico says:

    “If you withdraw any money from the TSP before reaching the age of 59 ½,
    you will be subject to a 10% early withdrawal penalty in addition to

    Unless you’re RIFF’D, then there is no penalty on withdrawls if you are 55 or older.  Also if you are under your MRA, you get severance pay.  Over the MRA you get a forced retirement.

  8. Confused About Early Outs says:

    I’m 58 yrs old; with 24 yrs of gov service; if I take an early-out or buy-out will I be able to get my pension.  (I was told I had to wait until I was 62 or I would be penalized) I would be 59 with 25 yrs at the time I would leave -in Sept. (my insurance needs are taken care of –my husband  also  works for Uncle Sam. ) How about TSP –would I be able to transfer $$ to a IRA  at the time I leave?

  9. ktk says:

    What if CSRS with 30 years and age 53?  At what age will deferred retirement be available? What reductions will be made?

    • Guest says:

      Under CSRS, separated employees are eligible for deferred retirement at age 62.  (FERS allows earlier receipt of a reduced deferred annuity, but CSRS has no such provision.)

    • Mick says:

      You may be able to retire immediately under a Discontinued Service Retirement (DSR) but your annuity will be reduced for every month you are under 55.

  10. Tom C. says:

    Does the fact that some of the years are creditable from military service.  I have 9 years Active Duty and 6 years Federal service, for leave computation that puts me at 15 years.

    • Guest says:

       Yes, with some few exceptions, you should receive credit for your active duty military service toward your rate of annual leave accrual.

    • GiGe says:

      Believe you must buy back your military time to get credit toward retirement but not leave.

  11. Maggie says:

    Thank you for your information.  Are there any other resources to read more about MRA-10 and deferred retirement?

  12. Maggie says:

    I read your high 3 is based on Your Form 50 or equivalent form

  13. Anonymous says:

    Comp time is not paid out upon separation…regardless of what type of separation. 

    • Scion dePublius says:

      It may be if you are non-exempt (usually pay grade or band equivalent of less than GS 10 over 10).  No Comp Time credit or payment for exempt employees — Use or loose.

    • Guest says:

       Both comp time and credit time MAY be paid in a lump sum upon separation.  It depends on the employee’s status and the basis for the comp/credit time.  In many instances, both types CAN be paid to the employee.

  14. Seabird66 says:

    I am FERS, plan to leave next year at age 58 (post-MRA), but with only 25 years of service.  I plan to defer receipt of retirement until age 62.  Will my sick leave be credited to my years of service?

    • Guest says:

        The applicable Benefits Administrator Letter (10-101) states that “individuals separating with title to an immediate annuity” will receive the sick leave credit.  If you separate “with title to an immediate annuity” but choose to postpone receipt, you will receive the sick leave credit when you elect to receive the annuity in the future.

  15. Maggie says:

    What happens if you have 20 years, not yet 60,  you are FERS , and you have been fired.

  16. Annonymous says:

    I think there might be two things wrong in this article. First, I don’t believe your credit hours are paid out. Second, I believe your sick leave will be credited towards your retirement computation (so it does some good).

    • John Grobe says:

      Wrong on both counts.

        • OldRet says:

          The title of the article is “What Happens to Your Federal Benefits If You Leave Before Retiring?”. Sick leave is now credited to FERS employees AT RETIREMENT so the link does not apply unless you are RETIRING from the Federal government.

          • Annonymous says:

            The author of this article states the following:

            “If you leave your retirement funds on deposit, you will be entitled to a CSRS or FERS pension at a later date as long as you have at least five years of federal service. Your annual leave, credit hour and comp time balance will be paid to you in a lump sum shortly after you leave. Your sick leave will do you no good, unless you return to federal service.  If you return, you can have it re-credited.”

            The author is correct about the pension at a later date but incorrect on the sick leave doing no good since it is credited to your pension. I am sorry that the title of the article I referenced does not align with this title. However, it is still relevant in the fact that the last sentence I quoted above is not accurate.

          • OldRet says:

            I was under the impression that sick leave would NOT be credited as service time unless the employee retires under an immediate annuity but I could be wrong.

          • johnfgrobe says:

            Perhaps I can ease some of the confusion.  Sick leave is credited for all retirements except deferred retirement.  Therefore the statement in the article, which referred to deferred retirements is correct.

          • Guest says:

            Sick leave is credited toward the amount of your annuity when you are eligible for an IMMEDIATE annuity only. If you are eligible for only a DEFERRED annuity, the sick leave will not be credited.

          • Fed Up says:

            Your sick leave would be crdited at 50% if you leave prior to 2014. A FERS employee would need a huge sick leave balance to get any additional credit for a retirement increase. You would be better off burning it if you can. If you are not retirement eligible, you would not be able to carry your health insurance into retirement one of the big things retirees look for.

            My advice to most employees, is if you are not retirement eligible, you will have to stick it out. If you are retirement eligible, go ahead and go, because it is not going to get better, and in fact will get worse as the government increases contribution requirements (.8% to 3.1% of salary, switch from high 3 to high 5, elimintion of the SSA supplental for new employees, decrease in the factor for 1.1% to 1%) and cut the overall anount employees can get.

    • PaigeM says:

      You are paid for credit hours.

  17. thanks need more info says:

    What happens if you leave as FERS with 22 years and have reach your MRA but are not 60 yet?

    • John Grobe says:

      You would qualify for MRA+10 retirement.  5% per year reduction for being under 62.

      • postponed till 60 says:

         if I leave now at 58 with postponed retirement i think i get only 10% deduction and get check at 60 not 62

        • johnfgrobe says:

          If you mean deferred retirement that is correct.  Why, however, would you want to take deferred retirement if you are eligible for an immediate annuity and FEHB with MRA+10?

          • thanks for more info pls says:

            i do not want 5% to get deducted since i am only 58 withh 22 years of FERS service.  i want retirement in full for my years plus annuity at 60.   i can quit and eat canned food for 2 years but eating it for 4 years is too long specially if they take 20 percent out just cuse i want to quit so bad. i have worked since i was 15 and i am tired of work in any full time capacity.

        • Guest says:

          You didn’t mention how much service you have, but if you have at least 20 years and postpone receipt of your annuity until age 60, there would be NO reduction in your annuity.

          • thanks need more info says:

            wow-that is great…will I also get the annuity at age 60? I am 58 with 22 years of continuous FERS service and do not want penalty for leaving now at 58 but want my retirement at age 60 plus the annuity which is to last until i am 62 and it ends as annuity but i would get ss and retirement…right?  please say yes so i can run to HR Monday.

      • seabird66 says:

        And what happens to your sick leave?  Do you get credit at the time you do take postponed retirement?

        • johnfgrobe says:

          No sick leave credit for deferred retirement.

          • seabird66 says:

            I’m confused by your terms.  I thought “deferred retirement” was leaving before your MRA, and a “postponed retirement” was after MRA.  Are you saying you do not get sick leave credit regardless of whether you leave before or after your MRA (assuming you have 10+ years)?

          • johnfgrobe says:

            Yes, the terms are confusing.  As there is no such thing as “postponed retirement”, I assumed you were referring to deferred retirement.  It shows that the old “when you assume” statement is still true.  Those of us who labored many years in the vineyard of Human Resources are used to using the formal OPM terms.  Your “postponed retirement” is, in OPM parlance, either “reduced retirement” or “MRA+10 retirement”.  You are correct that S/L will be credited with that type of retirement.

  18. Justusphotography says:

    Watch how everyone is bailing out of federal service who are close to retiring.  This latest round of “screw the employees” is hard to take.  20% reduction in pay means a reduction in retirement benefits if it changes your Top 3 salaries…this is NOT good for our economy at all…

    • theinnerring says:

      no, it does not impact your high 3.  it’s based on your salary, not what you’re actually paid.  there’s something here in the archives addressing that very issue.

    • ImusJunkit says:

      Overtime on the weekend does NOT affect your High 3 (wait.  wait..  wait…  High 5!)
      So why would unpaid days off count?

      It is based upon your highest average salary rate over a running 36 month period…

  19. Dennis#3D says:

    What happens if you have 10 years of creditable service but leave before your MRA, do you just loose everything?
    Or can you take retirement once you reach MRA?

    • Duncan says:

      I was looking at that option due to BRAC.  If you leave prior to MRA that is considered a deferred retirement.  When you take the retirement, there is a 5% penalty for every year under 62.  Since your retirement is based on the high-3, which would normally increase over time, inflation will eat into the pension.  The main disadvantage is that you will not get health benefits in retirement.  In my case I rejoined the government.

      • Fed_Peasant says:

        Good job of explaining the deferred pension!!  The discontinued service/early pension deserves more attention too.  Too many feds work at least 5 years, leave, & have no idea of the pensions that they have earned.  Typically, they are not told a word as they outprocess.