At the Brink of an Irreversible Mistake

(This is a real story; we’ve changed some details to protect privacy)

Robert was a federal employee who had had some rough years. He was looking forward to retirement, but at the last minute found out he wasn’t eligible for the retirement he had planned on.

Robert had spent the last few years caring for a family member who had serious health issues. Not only had he exhausted all of his leave, he was exhausted with all of the emotional and personal stress that came with it.

He enjoyed his job, but he wanted to retire and have time to focus on his family.

Planning to Retire with MRA+30

He was planning to retire on 12/31. By that day, he would be eligible for a regular full retirement under FERS MRA+30 rules. By New Years Eve, he would be 57 (so he had reached his MRA). And he had bought back his military time so he would have just over 30 years of service.

He had received several Benefits Estimates from his HR over the years, and he felt everything was in order.

As his retirement date approached, along with the holidays, Robert was ready to retire. Those last few weeks were tough, but he felt a sense of relief that he would soon be able to devote more time to caring for his family.

The week before Christmas, he gets a copy of his retirement package that his HR would be sending to OPM.

He flipped through it thinking everything was in order. He almost didn’t bother to look over the Benefits Estimate because he was sure it was just the same as all the previous estimates he’d seen.

Thank goodness he did look at it.

Unpleasant Surprise

As he looked over the estimate, his stomach started to churn as he saw a 25% penalty being applied to his retirement.
It turns out that Robert’s first six months of time in federal service did not count towards his retirement. Those first 6 months he was not paying into the FERS system, therefore his time didn’t count towards his retirement (and the time was not eligible to buy back).

So Robert didn’t actually have 30 years; he had 29 years and 6 months of creditable service.

He had reached his MRA, so technically he was still eligible to retire – but under MRA+10 rules which apply a 5% penalty for every year you are under age 62.

Making a Tough Decision

Even though Robert was fortunate enough that he *could* have afforded to retire on that reduced pension – he just couldn’t bring himself to give up 25% of the pension he felt he had worked so long and hard to earn.

Robert made the gut wrenching decision to pull his retirement paperwork just days before his planned retirement date and work another 6 months.

Learn from Robert’s Story

There are several things to take away from Robert’s story…

#1) Even If You’re *Sure* – Please Double Check Your Creditable Service
Robert swore up and down that all of his time counted towards retirement. He was sure of it. While he requested a Certified Summary of Federal Service several times – he never received one. But he didn’t spend the time to follow up because he was busy caring for his family and he was *sure* all of his time counted anyways.

So, before you retire – before you settle on your retirement date – get a Certified Summary of Federal Service. If you can’t get one, you MUST take the time to review all of your SF-50s.

#2) Benefits Estimates Are Only Estimates
All the previous Benefits Estimates that Robert had received from his HR showed all of his time counting towards retirement. Benefits Estimates can be helpful – but they are not official and (unfortunately) are often wrong and/or missing important information.

#3) Robert’s HR Would Have Processed Paperwork As Is
Robert’s HR didn’t call him to let him know there was a big change in his Benefits Estimate. They didn’t call him to suggest that if he worked for 6 more months he would avoid a 25% penalty (or discuss postponed retirement to avoid the penalty). Your HR can be a helpful source of information – but they won’t (and can’t) give you retirement advice. Even if it’s as simple as “Hey – did you know that if you worked for 6 more months you wouldn’t have a 25% penalty?”

They were going to process Robert’s paperwork as it was submitted.

Almost an Irreversible Mistake
As difficult as that was – Robert was very fortunate that he found out *before* he had retired. Imagine what would have happened if his retirement paperwork would have been processed?

Robert would have found himself in an irreversible mistake.

© 2016 Micah Shilanski, CFP®. All rights reserved. This article may not be reproduced without express written consent from Micah Shilanski, CFP®.

About the Author

Micah Shilanski is a Certified Financial Planner™ professional who specializes in helping federal employees get the most out of their retirement benefits. Micah helps his clients with tax planning, retirement planning, federal retirement planning, estate planning, and investment advice.

Plan Your Federal Retirement is a dba of Shilanski & Associates, Inc., an Alaska Registered Investment Advisor, with securities offered through Summit Brokerage Services, Inc., Member FINRA/SIPC.

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