Can you wave your military pension or purchase back your military time? In episode 109 of The Federal Retirement Show, Val dives into a topic that often confuses those navigating the complex world of military benefits: If you’re a retired service member or approaching retirement, this episode will clarify the options available to you when it comes to waiving your military retirement pay to claim more service time for other federal retirement systems like FERS or CSRS.
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10.4.24: Audio automatically transcribed by Sonix
10.4.24: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Speaker1:
Welcome back to the federal retirement Show. I'm your host, Val Majewski with American Benefits Exchange. I really appreciate you, as always, taking the time out of your busy schedule to join me here on this show and to gather or gain information that we put out for you, the federal employee. And that's what this channel, that's what this podcast, that's what this show is all about, is providing you all with information that we think is relevant, that we believe is valuable for you and your situation so that you can make the best decisions not only when you first get hired and go along towards your or through your working career, but as you near and enter retirement, we want to make sure that you have all the information so you can make the best decisions and ultimately set yourself up in the best position possible as you retire. Now, today's conversation is an admission on my part that I in the past, even though I consider myself an expert in federal benefits and retirement information, even experts, even people who claim to be experts can be wrong from time to time. And I am not ashamed to admit that I have been wrong on some things in the past. And that's how you learn. That's how you you gain additional knowledge. It's not that you have to be perfect all the time, but there is something that I was wrong about in the past that I want to make sure I share with you, because you may have a misconception about this as well.
Speaker1:
We have talked about previous episodes about misconceptions, things that federal employees get wrong. This is something that even experts can get wrong. So here's the scenario, um, recently and what I mean recently, within the last month, talking to a federal employee, a federal employee who is ex-military and is, uh, retired military, meaning they had at least 20 years of service and they retired and are currently receiving military retirement pay. And we were having the conversation around forgoing or waiving military pay in order to buy back his military service time for his civilian credit. So now, foregoing military retirement in order to buy back the 20 plus years of service now as a Fers employee and have it count towards his first retirement. Now let me back up several years ago where me knowing about military pensions and how military buyback time works. My misconception myself, where I'm not ashamed to admit I was wrong, is I did not believe number one years and years ago that you could even do this. My first thing was that okay, you retired as a military person. Thank you for your service. For those who served, by the way. And you retired as as military active duty, you put your 20 years in, you're going to get your military pension, and there's nothing you can do about it at that point. Right? I thought, that's where it was kind of set in stone that you're collecting your military pension.
Speaker1:
There's no other options or choices. You've made that decision. There's no reason for you to purchase back your military time, because now you're receiving a military pension. And I don't think you can ever do anything different to to change that. Now, that was the first part where I was wrong, where you can as former military, if you're collecting your military pension, you can waive your military pension in order to have your 20 plus years count towards your civilian service time. The next part of my my misconception where I was incorrect, I thought that 100% of the time this did not make sense. So I'm going to say 100% of the time I thought that this did not make sense. I thought it would always be beneficial even if you had the option. Once I learned that you did have the option, I thought 100% of the time it would be beneficial for you to keep both, have your military pension and then also, uh, work enough time as a civilian, say Fers employee to retire. Now you'll collect two different pensions. You'll have your military pension and you'll have your civilian pension. In this recent conversation, when talking to somebody now, I shouldn't say this, this misconception just changed. Recently, I did learn that there are circumstances over the years of running the scenarios where it did actually make sense. So two things I was wrong about first, years ago I thought that you could not purchase back military time.
Speaker1:
If you're receiving a military pension, that is incorrect. You do have the ability to waive that and there is a process for it. If you do have a question about what that process is or where you have to send a letter to or what you have to say, please reach out to us. We can walk you through that. Go to our website w ww dot Federal Retirement Show.com fill out the form. We will be in touch in order to get you that answer to your question. Walk you through that process if that's something that you want to do. Now a quick side note about the website. Also, if you go to the website, you can also request a personal benefits and retirement review. You can see all of the different options that you have, and we can go over your situation to determine the best direction for you. Maybe it is about purchasing military time or in this type of circumstance, forgoing your military pension, waiving it to then utilize that service towards your Fers side of the house. So then again, back to the things I was incorrect about. I thought that you could not do that at all. I was incorrect, I have I have learned over the years that yes, you can in fact waive your military, uh, service time in lieu of, um, using it for your federal service time as a Fers employee. And then just combining all of that to get one check instead of two.
Speaker1:
You can in fact do that now after I learned that you could do that, I thought that 100% of the time it was not beneficial to do that where it would still make more sense financially for you to get the two pensions, you'd get the military pension and then the civilian pension through the first system. I have learned since that many years ago that there are circumstances where it could be beneficial for somebody that is retired military and currently collecting a military pension, to then waive that pension, forego that service time with the military to then purchase it for civilian service. There's a number of things that you need to factor in here because, number one, um, you got to make sure it's beneficial. On the bottom line, you want to make sure that when you look at both scenarios, what if I kept them separate military and fers and combined, which one is going to work out better for me economically both now and in the long run? You got to look at the long run side of it also. So it's not just instant gratification, it's long run side. Why is that? Because you have to make number one a deposit, just like buying back regular military time. If you only served a few years or you served a lot of years, you have to make a deposit to purchase back that time and that deposit. If you don't do it initially when you first get hired as a civilian, is going to grow with interest over time.
Speaker1:
Okay. That's number one. Number two, once you make that deposit, okay, you've got to understand how that's going to then affect your your pension. On the combined side, if you put everything together and running the numbers, you got to put in all the all the different factors. Now what are the factors you need to know? Well, you need to understand your high three. And you got to understand what the calculation is going to be for the first side of the house. Now where have I seen that the scenario I'm describing works out to benefit the federal retiree. It's for those that retire from the military and then they get a government job, a job that is high paying. Now, how high does that job have to pay? I'm not exactly sure. Okay, there's it's a sliding scale for every person because it depends on how much you are getting from your military retirement. For it to overcome and be a better solution to combine all that time as a Fers employee. But let's say you are making a significantly higher amount of money as a Fers employee. Therefore, your high three is a lot higher in the calculation and adding that 20 years of service, which is at least going to add 20% or more depending on when you retire to your Fers calculation, it could be more beneficial for you could be, and you've got to run the numbers now without showing you slides here and going through an example, we can run this on a, you know, one on one scenario, right? I want to show you your numbers.
Speaker1:
If you want to walk through this and see if it's beneficial for you. But just understand that right. You've got to look at both sides. Now you said I said short term and long term. Now what's the short term? I said, you've got to make it a posit in order to purchase back that time. And if it's 20 plus years, it can be Is significant, depending on, again, how long it's been since you've retired, because there could be some interest in there as well. So in the short term is the extra money that I'm going to receive as a Fers employee. If it is higher, how long is it going to take for me to see a positive net benefit after the deposit? Right. Let's say just simple math, that it cost you $20,000 to purchase back that military time, and it was going to add an extra $4,000 to your Fers pension or combined total between the two. It's going to give you a positive $4,000. You can say, okay, well, just simple math tells me it's going to take me about five years to break even after making that deposit. And then I'm in the clear, right? I've paid off that deposit, and I'm making an extra $4,000 more than I would have if I just kept my military and first separate.
Speaker1:
Okay, so that's one thing. Then you're looking at long run implications when it comes to cost of living adjustments. Because as you can see historically, and you can look this up, the numbers for cost of living adjustments for military pension and the older system CSRs are a little higher than cost of living adjustments that are ongoing from Fers employees. So you've got the cost of living adjustments or Cola on one side versus the other. That's why sometimes they refer to the first cola as diet cola, because it's a little less than the one that's given to CSRs and military. So you got to weigh that in the long run, right? The long term, when eventually could that just keeping the military pension separate from the fers have caught up and then maybe passed the combined total of then your Fers in military. So those are some things now if it's significantly different, if you're going to run the numbers and it's significantly different by combining it compared to keeping them separate, then maybe this is the right move for you. I'd highly recommend that you talk to an expert. Talk to somebody who can walk you through this and plot it out. Look at one side versus the other because you want to make sure you know all the variables. You want to make sure that you've got all the proper numbers to make the best decision.
Speaker1:
Because the last thing I'd want to do is put you in a spot where you've made a decision that there's no going back. Right? Once you put that waiver in, you submit that and you've given up now that military time to count towards your first. There's there's really no going back from that. If you've made a mistake and you want to make sure that you're making the right decision. So to go back to the beginning, number one, um, I too, as an expert and not always 100% right. And I would encourage you to make sure also, you give some of the experts out there some slack too, because we are not always 100% right. You know, we and I'm not afraid to admit when I've been incorrect. I've not been afraid to admit when I've talked to federal employees and, you know, found out new information or I was incorrect about something, I have no problem posting an update or sharing with everybody that I was. I was wrong, but I would encourage you if you see something that we've said that is incorrect, reach out to us too. We want to set the record straight and make sure that you are getting the most accurate and honest information so you can make the best decisions. So I was wrong initially about, you know, can a retiree waive their pension or count their military time if they're retired military towards Fers? Yes you can. And I was also wrong in thinking that it is 100% of the time not beneficial for the federal employee to do that.
Speaker1:
There really wasn't a scenario where that worked out. And there are there are some unique scenarios is it's not now 100% the other way that it's always beneficial. You have to run the numbers. You have to look at your scenario. You have to look at your situation to determine if doing that is right for you. And that said, there's a lot of factors when it comes down to the deposit, the high three that you're going to have as a Fers employee and how that compares. And then the long term effects when it comes to cost of living adjustments going forward, you know, is this the best move for you. Because once you make that decision, once you waive your military pension upon your retirement as a Fers employee. Now you're only going to get one check. You're not getting it from two different places. You want to make sure 100% that you are doing the right thing for you and your family going forward. So there's a number of messages in today's episode, but it's, you know, even the experts, sometimes we get it wrong and we're not afraid. At least on my side here with the Federal Retirement show and American Benefits Exchange to admit that, yes, we have made mistakes in the past, but we're quick to correct and want to make sure we're giving you the updated information. I've been wrong about things.
Speaker1:
There are misconceptions to that. We have that we want to make sure we're we're fixing and setting the record straight, but also when it comes to this misconception out there that, yeah, I know there's a lot of people that also think you cannot purchase back your military time once you are retired military and collecting a military pension, you can do that. Is it beneficial in all circumstances? All cases? No, but in some cases it is. And you need to make sure you're running the numbers, talking to somebody that can do that for you, and compare and contrast to see if it's the right move. So if that's you, if you've been contemplating that decision, if you think it might be beneficial, it's worth knowing instead of not knowing. So talk to an expert. Reach out to us. Go to our website, fill out the form. We'll be in touch. We'll not only talk to you about this, but we'll do a full benefits and retirement review for you. Go over everything. Talk about your family, your current pension system as a Fers employee, survivor benefits. We'll talk about your TSP, Social Security, the first supplement if you're eligible for it, and many more topics and items of concern that you might have. Also answer any questions that you might have. Make sure that you're pointed in the right direction going forward. So that way you can look at retirement with a big smile on your face, knowing that you're going to retire how you want, when you want, and with the lifestyle that you're going to want and desire in retirement.
Speaker1:
So again, if you do have questions on this, reach out to us, go to our website, fill out the form. We'd be happy to chat with you. Hopefully you found this this information today helpful? If there's just one of you that was looking for this and said, you know what, this is hitting the nail on the head for me. I needed to hear this today. Then great. Then we are doing our job in helping you, the federal employee out there. Hopefully there's multiple folks that watch this and say, hey, this is extremely helpful if there are topics and things that you do not find in our library of episodes, and we have over 100 now, almost 110, if there are topics that you want to hear that you're not seeing, if there are items or questions that you have that you want us to discuss, and that's another reason for you to reach out to us. We are just gathering information and providing information that we feel is beneficial. And if there's a topic that you need to hear about, let us know. We'd love to do an episode or several episodes about that so you can get the answers you need. Thank you again for viewing our content. I encourage you go back and watch our previous sessions, and I look forward to seeing you on a future episode.
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