Q: I’ve heard that there are two different computation factors that are used in computing the FERS annuity; 1% and 1.1%. What’s the difference between them?
A: Your FERS annuity is a defined benefit pension that is calculated by converting your years and months of creditable service into a percentage factor and then using that percentage factor to multiply your high-three average annual salary. Regular FERS employees have a 1% factor or a 1.1% factor depending on their age and length of service when they retire. Special Category Employees (e.g., law enforcement officers, firefighters, air traffic controllers, etc.) have different computation factors.
In computing the FERS annuity, every regular employee is entitled to 1%; in order to receive 1.1% per year times their high-three, two conditions must be met. First, the retiree must have at least 20 years of creditable service. Second, the retiree must be at least age 62 at the time of retirement. Many potential retirees consider waiting until they reach both of these criteria in order to get the higher computation factor, especially if they were planning on retiring close to the age of 62 anyhow.
I met a potential retiree who really disliked her job and was going to retire the first chance she got, when she attained 20 years of service. She would have been age 61 and 9 months old when she hit the 20 year milestone and was unaware of the fact that she could have a larger pension by waiting only three more months. After becoming aware of the 1.1% factor (in a pre-retirement seminar), she got out her calculator and decided that working the extra three months was worth her while, even if she didn’t like her job. She would receive an extra $375 a month by putting up with it for three more months.