Federal retirement systems (both civilian and military) are different from many employer provided retirement plans in the private sector in several ways – and that is a good thing.
First, many private sector retirement systems consist of a 401(k) type plan and that’s it. Less than 20% of employers offer a defined benefit plan like FERS or BRS. BRS stands for the military “blended retirement system”. Imagine how much less secure our retirement years would be without the security of a FERS or BRS pension. I didn’t mention Social Security here as it is a given; 96% of American workers are covered by Social Security including FERS, BRS and private sector workers.
Second, of the private sector systems, many do not guarantee monthly payments for life. These systems generally offer the retiree an option between a lump-sum distribution and lifetime payments, while FERS and BRS offer only a lifetime annuity (pension) and no lump sum. A lump-sum distribution represents the current value of future pension payments and is generally a large sum of money.
FERS and BRS provide a guarantee of lifetime income for the rest of the retiree’s life; neither system gives the retiree a choice of a lump sum distribution. Choice may be a good thing, but monthly checks, such as FERS and BRS retirees receive, give future financial security, and protect the retiree from the adverse effect of bad money moves. A recent MetLife survey showed that 1/3 of retirees who chose a lump sum blew through the entire amount within five years.
Admittedly, the financially savvy will bemoan the lack of choice they have in their defined benefit plan, but being financially savvy, they likely have money in the TSP and IRAs that they can invest. This group would certainly not have ended up in the 1/3 of lump sum recipients who spent all the money within five years.
Another difference between the private sector and FERS/BRS is that we get cost of living adjustments (COLAs). Many retirees from other levels of government (e.g., state, local, etc.) also have COLAs, but very few private sector pensions do.
We often do not appreciate how fortunate we are to be federal civilian employees or members of the uniformed services. Our retirement benefits offer us a reason to be appreciative.
