Federal Retirement Questions – Part 1

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Federal Retirement Questions – Part 1.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker 1:
Welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. And as always, I really appreciate you taking the time out of your busy schedule to join us to view our content, because that's what it's here for. It's for you, the federal employee, that's looking for accurate information when it comes to your benefits and retirement situations. And as you've seen over the course of the many episodes that we have, and we have over 185 of them now, um, this is all information that we think is beneficial for you. And a lot of the topics are just basics, uh, when it comes to benefits and retirement. And, but a lot of them, a lot of the episodes stem from conversations that I've had with federal employees and questions that they've asked and we've compiled over all this time over the years, uh, questions that federal employees have asked. And we're going to devote our time. This next series that we're having is going to devote time to answering your most common questions. And instead of it being called FAQs, Frequently Asked Questions, these are FAQs. These are federal employee questions. And today is part one. And it's broken down in a couple of different sections. But I'm going to go through these questions and give you basically the 300 zero foot view of each of these answers. And we might dive into a little bit more specifics. But if these questions are pulling at you and say, I need to know more information and I want to ask this follow up question, please reach out to us.

Speaker 1:
Go to our website, federal retirement show.com, fill out the form. One of our experts. If it's not me personally, we'll be reaching out to you to answer the question that you have, get you more details, answer your follow up questions, do a full benefits and retirement review for you again, so you can see exactly where you stand and make sure you're in the right position as you get closer and closer towards retirement. So let's dive into today's FAQs, federal employee questions, and see what your answers are and what can benefit you going forward. So as I said, we're going to break this down into two sections for today. Now the first section is going to talk about retirement eligibility. And there are so many different questions that we get asked when it comes to when am I eligible to retire? Actually, it's probably the most frequently asked question. If I had to say of all of these questions that we get asked, the two main ones are when can I retire? When can I get out of here and what am I going to get? When can I leave and what am I going to receive? So when it comes to retirement eligibility, there are several questions that that you all commonly ask. And the first one is what am I eligible? One of my first eligible to retire with an immediate pension.

Speaker 1:
Now that's a key word immediate pension. So what I would equate this question to is when am I eligible to retire with full benefits? When am I eligible to retire with an immediate full benefit pension? Because there is a way that you can retire on an immediate pension without full benefits. But to answer this question, when are you eligible to retire on an immediate full benefit pension, you need to satisfy as a first employee, as a standard or regular Fers employee, you need to satisfy at least one of these three retirement requirements. You have to be age 60 with at least 20 years of service, 62 with at least five years of service, or have 30 years of service and reach your minimum retirement age. Now, if you're unsure of when your minimum retirement age is, it's between age 55 and 57. Depending upon your birth year, we can go into the specifics when we talk to you one on one. Question number two, should I retire as soon as I am eligible or should I work Longer now when we run benefits and retirement reviews. A lot of times people will say, please run it as if I'm retiring when I'm first eligible, because most federal employees want to see what is the minimum that I'm going to get if I at least wait until I satisfy one of those requirements that we just talked about.

Speaker 1:
What is the minimum I'm going to receive? What does that look like? And then we work on from there. So if you're eligible and able financially to retire when you're first hit those requirements, why not leave? Why not? If you're going to get an immediate pension and all of your other income sources, whether it's Social Security, TSP, supplemental accounts, et cetera. Et cetera. Et cetera. If those provide you enough guaranteed lifetime income and you're capable of retiring, then sure. Uh, blanket statement, I probably talk you, uh, not talk you into retirement. Just say, looks like you're the numbers make sense and you can retire. Now, just understand to the other part of that is every year that you work beyond once you're first eligible, is only going to add more service time to your pension calculation, which is going to increase your pension calculation. Chances are you're going to be getting pay raises along the way. So your high three is going to go up. We'll talk about that again in a little bit. But every year you add on is only going to add more income for you in retirement. So if you're capable, when it comes to your finances of retiring when you're first eligible, then maybe that's the right move for you. But just understand that the part of the second part of the question is, should I work longer? The longer you work, the higher your numbers are going to be.

Speaker 1:
Again, more pension calculation. The longer you delay Social Security, the greater that's going to be. The longer you work, the more you're going to put into TSB, which that in turn can then generate more income for you as well. Question number three what happens if I retire before age 62? Before age 62? Well, a couple of things there. First, if we're just let's just talk about the first question again, retirement on an immediate full benefit pension. So full eligibility. Two of those requirements age 60 with at least 20 years of service and 30 years of service at your minimum retirement age. Could retire you prior to age 62. Now, why is this? A big question is because 62 is when you're first eligible for Social Security. So I'm retiring on full benefits prior to age 62. You're entitled to the Fers supplement, which is like a Social Security bridge. It's a gap filler. You can go back and view other episodes that we have on the Social Security or sorry fers supplement and get a lot more information that way. So we don't have to take up a ton of time here. But if you retire prior to age 62, uh, two things happen. Number one is this first supplement can kick in for those that are fully retired, full requirements prior to age 62. The other thing is that your pension calculation is slightly less for those that are before age 62, so it's high three times 1% times years of service.

Speaker 1:
That's a general Firs calculation for those that are under age 62. If you're 62 and older and have at least 20 years of service now it's high three times 1.1% times years of service, you get a little bit more of a bump in the pension calculation. If you're 62 or older and have at least 20 years of service. Okay. Next question. Is it worth working until age 62 or beyond? And that's where I get back to that 1.1% question when it comes to retirement calculation. So a lot of people I've talked to over the years ask me to run different scenarios. You know what, if I retire when I'm first eligible? What if I wait till 62? What if I wait till my social security, full retirement age, etc., etc.? Um, the big thing, if you're looking at retiring 61, 62, maybe even maybe even as early as 60, I will like to run the numbers and show you what waiting until age 62 looks like, because it is a decent little jump, a decent little increase in. And I say that that kind of counteracts itself, right? Contradicts a decent little. But it's a good enough increase to make you think about waiting a little longer when it comes to that 1% factor versus 1.1 in the pension calculation, I said it's high three times a factor of 1 or 1.1%, again, 62 or older with at least 20 years of service, 1.1%.

Speaker 1:
So it's that little bump times years of service. So if you want a little bit more in your pension calculation and you have at least 20 years of service, waiting until age 62 would be beneficial for you. So that's the retirement eligibility section, right? So we broke this down into several different sections. And we'll talk about that as we go into different parts of this series. But for part one today, we're talking about retirement eligibility and then about the federal pension, the pension itself. So question number one in this section was how much will my monthly pension be? What will my retirement income look like? And specifically the pension. I said the two most common questions that we get asked are, when am I first eligible? When can I leave? And then how do you calculate the pension? What am I going to receive? So I'll recite this again. The pension calculation Fers pension calculation. You need to know your high three. That is the the average of your highest three consecutive years of total base pay base pay plus locality. We've got a question about that coming up. Multiply it by the factor of 1 or 1.1%. Take that result and multiply it by your years of service. Now years of service are not only your fers service years, but any military time that you've purchased back, and also any leftover sick leave at the time of retirement, all that gets counted towards your service years for your pension calculation Purposes, and that would be your annual retirement annuity, your annual.

Speaker 1:
Fers annuity, your annual Fers pension. I told you about the high three question what is my high three salary and how is it calculated now? High three again general terms here. It's the average of your highest three consecutive years of total base pay, base pay plus locality. And for some special group employees out there, there's some other things that can count and factor into that high three calculation. But just general a base pay plus locality. It's the average of your highest three year period, consecutive three year period. So picture it doesn't have to be January to January. It's a 36 month period. So if you look at your highest 36 month period while you're working, and then take the average of that highest consecutive 36 month period, and then take the average of that, it doesn't have to be your last three years. It can be somewhere in the middle as well. Whatever your highest 36 month, consecutive 36 month period is take the average of that and that is your high three, your annual average of that. So that is how they calculated and what factors into it. Next question. Will unused sick leave increase my pension again I already jumped the gun.

Speaker 1:
And I kind of said that before when it comes to your pension calculation. But yes, any unused sick leave time at the time of retirement will get converted into service time, months and days or years, months and days. And that gets added to your service credit for your pension calculation. Now, general rule of thumb, you know, 2087 hours is one full year. So if you had 2087 hours, they would add one year of service time to your pension calculation. So if you're retired with 30 years of service at the time of retirement and you had one year of calculated sick leave, now your pension will be calculated as if you had 31 years of service. So yes, any leftover unused sick leave time at the time of retirement will get added to your service. Credit for pension calculation. Should I buy back my military time now? This is one of the mistakes that federal employees make. I went through our series of top ten mistakes made by federal employees. Not purchasing back prior. Military time is one of those mistakes. So in general, I can't say this for every single situation, but I'd say most 95 plus percent of scenarios I've seen it is beneficial to buy back military time. Number one, thank you for your service. If you served and you do have military time, I never served, so thank you very much for your service. And yes, you should get credit for that.

Speaker 1:
If now you're a civilian federal employee and you're working towards retirement, buying back, your military time will add to your service years, which will get you closer to your eligibility for retirement sooner. And it will increase your pension calculation because of those years. So in most cases I would recommend. Yes, purchase back your military time. Um, if you have questions about that again, reach out to us. We can go over your particular situation. How does part time service affect my pension. Now this depends on the type of part time. But let's just say that, um you worked 20 years of service and ten years of that was part time. You had 20 full years of service based on your hire date to retire date. But ten years of that was part time. This is the best way I'll know how to explain it. Instead of trying to go into detail, let's just use an example. So 20 total years from higher date to separation date. But ten of those were part time. Let's say it was 50% part time, right? It's not eight hours a day. Let's say it was four hours a day part time. Those ten years are discounted based on the level of part time you're at. If it was 50%. Now those ten years turn into five. When it comes to the the calculation and your pension is going to get calculated as if you had 15 total years.

Speaker 1:
So it's it's weighted based on the level of part time that you're at here. This is pretty simple. Let's just say you've got 20 years of service ten. We're part time at 50% part time. Those ten years are now discounted down to five for for pension calculation purposes and plus the ten full time. So your pension is calculated as if you had 15 years of service. So it's just discounted time based upon your level of part time service. Okay. Next question. Will my pension keep up with inflation? Now that depends. I can't say a 100% guaranteed yes, because we don't know where inflation is going to be going down the road. But your pension does get cost of living adjustments. So each year you should and I can't. It's not a guarantee, but you should see cost of living adjustments when it comes to your pension, and that way it could potentially keep up with inflation. You know, assuming inflation does not skyrocket like we've seen it at some point over the last several years. So just understand that you should be getting cost of living adjustments. But to answer the question is it going to definitely keep up with inflation. Well, it just depends on the rate of inflation. But you will see an increase in your your pension amounts year to year. So when it comes to, again, your frequently asked questions, I talked about today being FAQs, federal employee questions.

Speaker 1:
We're going to, you know, keep this train rolling. We're going to have several other parts after this one, this just being part one where we talk about retirement eligibility and then the pension and specifically pension calculation and things that factor into that. But this series, the goal of it is, hey, let's just pile up and compile all of the most frequently asked questions that federal employees are asking and put them all together in this in this series. And again, if there is not a question that we answer throughout this series, reach out to us. I mean, I highly recommend you reach out to us anyway to get your personalized benefits and retirement review done and get that completed so you can see where you stand. But if, if for some reason you're just saying, I want to wait till all the questions are asked and I want to see if all my questions get answered. If we do not answer a question that you have, get a benefits review done, or reach out to us and ask the question and we'll create a new episode about that. Because if you have that question, then chances are other federal employees are asking the same thing. So I hope you enjoyed our first installment, part one of FAQs, Federal Employee questions. Again, my name is Val Majewski with American Benefits Exchange. You've been watching the Federal Retirement Show, and I look forward to seeing you on a future episode.

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