How many of us have thought about walking up to our boss and saying (in the words of the late country singer Johnny Paycheck) TAKE THIS JOB AND SHOVE IT?
Chances are, if you’re reading this article, you have resisted the temptation and are still a federal employee. From a financial perspective, that’s probably good. From a blood pressure perspective – who knows?
Just in case you are still harboring thoughts of emulating Johnny Paycheck, let’s take a look at what would happen to your pension benefits if you left federal service before becoming eligible for retirement.
First, you would be given the choice to withdraw your contributions to the CSRS or FERS retirement funds. This is usually not a good idea, especially if you are in the middle of your career or close to retirement eligibility. If CSRS employees withdraw their contributions and subsequently return to federal service, they may re-deposit the money (plus interest) upon their return. If FERS employees take their contributions out, they will not be allowed to re-contribute them if they return to federal service and will not receive credit for a future retirement for the time they worked prior to withdrawing their contributions, even if they do return.
If you think you might be able to do better investing your contributions, rather than leaving them in and later receiving a deferred retirement, make sure you carefully run your numbers.
If you left your contributions in the retirement system you would be eligible for a deferred retirement when you reached specified age and length of service criteria. For CSRS, there is only one set of criteria. You must have at least five years of service and be at least age 62. The five years is the easy part.
For FERS there are several sets of criteria.
- Your Minimum Retirement Age (MRA) and 30 years of service
- Age 60 with 20 years of service
- Age 62 with 5 years of service
- Your MRA with 10 years of service (with a 5% per year reduction for being under age 62)
(See Future Retirees: Do You Know Your MRA?)
If a FERS employee were age 53 with 30 years of service, they would have to wait for three years (until they reached their MRA which is 56) to apply for their deferred retirement.
If the above example were a CSRS employee, they would have to wait for nine years (until age 62) to apply for their deferred retirement.
In addition to having to wait to apply for and receive their retirement, neither employee would be entitled to carry their Federal Employees Health Benefits into retirement.
To top that, the FERS employee would not be eligible to receive the Special Retirement Supplement.
Perhaps now we know why we haven’t heard too many co-workers telling the boss what to do with the job.