On this episode, Val discusses the benefits of federal employees buying back time for retirement purposes. He explains that military time and previous federal service time can be purchased to enhance pension calculations and allow for earlier retirement eligibility. He also highlights the cost-saving advantage of buying back time early to avoid accumulating interest. Finally, Val outlines the process for purchasing military time and re-depositing federal service time, urging employees to seek personalized advice to maximize their own retirement benefits.

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5.17.24: Audio automatically transcribed by Sonix

5.17.24: 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. Thank you for joining us. Thank you for tuning in and taking time out of your schedule to learn about various benefits and topics and things that we think are important to you, the federal employee. Be sure to go back to our previous episodes. You can go to our website, dot Federal Retirement Show.com, or go to any of the platforms you use for podcasts to listen to our previous episodes. Now, today's topic is or comes from a conversation in multiple conversations, actually, that I had with federal employees over the past couple of weeks. And it revolves around buying back time. And there's two types of time I want to talk about today. We've had previous episodes where we've mentioned this and gone over this, but it seems like these conversations, these questions come up every so often, and I just want to make sure that you understand all the factors involved and everything when it comes to buying back or purchasing back your time. And there's two types that I want to talk about today. The first is probably the most common, which is buying back military time. Now, if you're a prior military, you've had service in military and you've gotten now a civilian job for well, first of all, very much appreciate your service. Thank you for serving our country. Number one, I did not volunteer. I did not sign up.

Speaker1:
So I really appreciate what you all have done or whether you've served, you know, a little bit or a lot. You made a career out of it. Thank you so much for your your service to our country. Now let's say you are former military and you then got a civilian job with the government. You have the ability to purchase back that time. If you did not retire from the military to credit or add to your service time. Now as a civilian, that would be left the military service, right? You did not have the eligibility for retirement. You can now utilize that time for your civilian service and have it count towards your civilian pension. Awesome stuff. It's something I generally recommend. And then the second thing, when it comes to buying back time comes with breaks in service. And I've seen this a few times. Whether you were CSRs or Fers, let's say you worked as either employee, you worked for some time and then you left federal service, right? You got out and you got a different job outside the government. This happens. People leave all the time. And then let's say you are then rehired as a federal employee in some way, shape or form, either as a CSRS offset or Fers. If he you come back into that system. And where we're talking about buying back time is when you left the first time, some people didn't think they were going to come back and took all of their deposit.

Speaker1:
What does that mean? That means that money that has been coming out of your paycheck every pay period, for the time that you've been working and going towards the CSRs or first system, you took out that deposit, you took out that money when you left, and now as you got rehired, you no longer have any credit for that time that you previously had because you took out all of your deposit. So in order to get credit for that time, you have to buy it back. You have to make a re deposit and go back and put that money back in. And I've had, uh, comments with federal employees again asking, should I buy back my military time? Should I make a re deposit to get credit for that previous time? How much is that going to cost me? Is there interest charge to that payment? Questions, questions questions about trying to figure out is it beneficial? Now I will say this in both instances. Uh, I do recommend purchasing back your previous time, whether it is previous military or prior just federal service if you're making that redeposit. Why? Because it's going to not only increase the amount of service time you have and, uh, make your eligibility for retirement sooner, but it's going to increase your pension calculation. It's going to have these extra years on there that are going to be credited towards your service and towards your pension.

Speaker1:
In most cases, it is beneficial to buy back time. That's just a general statement. It's not a blanket advice for everybody, but in general, purchasing back prior military making a Re deposit for previous federal service time is something I would recommend. Now what would sway me from that decision? There's a couple things that we can talk about that may or may not factor into your ability to pay back, or your desire to pay back that time, or buy back that time. Number one is going to be the amount of time you've had to buy it back and did not. Why? Why do I say that? Because let's say you you got out of the military. I'm going to use the military for an example. You got out of the military, you got a civilian job right away, and you were wanting to purchase back that time if you didn't. In a relatively short period of time. Let's say within the first three years of leaving military service, you're not going to pay any interest on that deposit. You're just going to pay the amount that is necessary to purchase back that time, and you're not really getting penalized. And I say that with kind of air quotes. Penalized for waiting or delaying to buy back that time. You've you've made a determination. I want to utilize all that time I had. I'm going to make that payment right away as soon as I can or make it over time.

Speaker1:
You'll set that up with a payroll deduction, have money come out of my paycheck to pay off and buy back that military time, and there's no penalty for me to do that. What is the penalty? Penalty is just interest. And what is interest in this case? Interest is not something that does you any good. There's no extra time. You buy back with the interest. The interest is not something that benefits you in any way, shape or form. So if you can do this sooner rather than later, purchasing back either military time or previous federal service, the less interest you're going to pay and in some cases you can pay back zero interest, which is great. Now, what would be a deterring factor to buying back this time? Well, if you waited a long time to pay it back, a long time to pay it back, there could be a significant amount of interest that you owe on the deposit. I'll give you an example. There was a federal employee I talked to about ten years ago. She was a CSRS employee. So old system employee they were putting in, if you recall from previous sessions, they put in 7% out of every paycheck, went to the CSRS system. So CSRS employees will have a much higher deposit amount than Fers employees. You know, traditional Fers employee putting in 0.8%, 7% compared to a little less than 1%. That's a big difference.

Speaker1:
When she left the service, she she worked for about ten years as a CSRS employee and then left. When she left, she took out all of her deposit. Ten years of being in the CSRS system, took all that money out, did not think she was going to come back. Got hired. A good gap in service there. Got hired again by the government. And was a considered a CSRS offset at that point, but had to pay back the previous deposit that she took out in order to get credit for that time. Now, what did she do? Did she pay it back right away? Unfortunately, no. And she worked another 15 to 20 years without paying that back. Now, what happened over that 15 or 20 years? The original deposit amount was a good amount, but there was interest tacked on. So now we were looking at 3 or 4 times as much as as she would have paid if she paid it back right away because of all the interest. And it was so significant of an amount that her husband, who was also a better employee, decided it was best to take a withdrawal from his TSP in order to pay back her deposit. But she was an old school. Csrs didn't participate in TSP. He was a first employee, had money in the TSP, took it out to pay her deposit. It was a significant amount, but it made sense still for her to get credit for that time.

Speaker1:
So her pension down the road would be significantly higher for the rest of her life. So that's a unique example where, look, she delayed a long time. This federal employee delayed a long time before paying back that deposit. But it's still it's still left. The question should you do it or should you? Shouldn't you do it? We ran the numbers both ways, and ultimately her, her husband and me. We all determined that it was best to find a way to pay for it, right? To buy back that time, even if it hurt, if it was 3 or 4 times what she would have paid if she did it right away, it was still worth doing. So there are reasons to do it. There are reasons not to do it in general. Again, I will say that it is. It is best to buy back that time if you're able to do so. So go into military military buyback time and you served in the military, did not qualify for a pension, because if you're if you're getting a pension from the military for uh, is your retired from the military, then you are not eligible to buy back that time. Right? You're getting a pension. So that time is already being spoken for. You cannot purchase that time back. We get that question also. Hey I'm I'm collecting military pension. Can also buy back my military time for my civilian service.

Speaker1:
No, that would be a double dipping type of deal. You're already getting the pension and utilizing that time, so you can't also utilize it as a Fers or civilian employee. But let's say you served whether it was three years or ten years, you did not qualify for pension as a military personnel. So you decide to buy back that time. There is a process involved. And without going over the entire process here, um, you can reach out to us, go to our website again dot Federal Retirement Show.com fill out the form. We'll be in touch and we can answer those questions. If you have, you know specifically about buying back your military time, but you have to start with your dd214 and walking through, going to your appropriate military finance center to find out what that deposit amount is. And once you figure out what that deposit amount is that you owe to buy back that time, then they can set it up where it will come incrementally out of your paycheck. You can purchase that back over time. In order for it to count towards your pension. It has to be completely paid back or bought back prior to your retirement. So in order for it to fully count now, you might see on your leave and earnings statement that your retirement service computation date is bumped back to show to or to reflect that hey, my military time is included in this, but if it's not fully purchased back then it's not going to fully count towards your pension calculation, right? So make sure that the deposit is completely made so that it will count.

Speaker1:
Now there is a process as I mentioned. Um, I can walk you through it. We can send you the email with all the steps, reach out to us again and we can walk you through that process. If you want to purchase back your military time. The other kind of deposit or purchase back is if you had time with the government, you left. You took out your deposit as a Fers or CSRS employee, so you no longer have any credit for that time. And then you get rehired by the government and you want to get that time back. You have to make a re deposit. That's the original amount again, plus interest. And the longer it's been, the more interest there's going to be. So I highly recommend that if this is something that you have done, you've been rehired and you're looking to get back that time, make that payment or start that payment plan as soon as you possibly can to avoid paying too much in interest. The interest, like I said, does not do you any good. It's just extra money that you have to pay to buy back the same amount of time. So start that process sooner than later. That way you can see, uh, the least amount that you have to pay, and you'll still get credit for the same amount of time.

Speaker1:
And now that that time will count towards your retirement eligibility. Same with military buyback. And that time will count towards your pension calculation. Win win on both ends. So you can retire sooner and you're going to get more in your pension. Now, how much more? Well, if you understand the way your pension is calculated as a Fers employee, I'm just going to say Fers because the bulk of you that are watching this are Fers employees. They're not making any new CSRS employees. So I apologize if you are CSRs. Please reach out to us. We can walk you through your situation. But as a Fers employee, you're going to get approximately 1% of your high three extra per year that you have. So if you buy back four years of military service or four years of prior federal service, you're can expect an extra 4% of your high three in your pension. Now, that could be pretty significant, right? Depending on how much time you're purchasing back. If you're high, three is $100,000 and you're buying back an extra four years, that's at least an extra 4% or $4,000 that you're going to be getting in your pension for the rest of your life as a starting point, plus cost of living that you're going to see on your pension, things like that. So each year, I think is extremely valuable for you. And in most cases, just generally speaking, I would say that it is wise to purchase back your prior military service time or prior civilian time.

Speaker1:
If you took that deposit of your pension payments of your your pension deposit when you left service. So if you have questions about this, please reach out to us, fill out the form on our website and give us a shout. And we'd be happy to walk you through your personal situation. Make sure that you've got all of your ducks in a row and everything is looking good so that you can retire. Maximizing or optimizing your benefits and your pension, your income amounts, things like that. I really do appreciate you. As I said earlier, joining us and checking out our previous content, go back and view all of our other episodes. Really it's it's there for you, your benefit. We want to make sure that we're answering all of your questions and giving you information that we feel is valuable. If there is something that you have not seen that you want to hear again, reach out to us. We love taking suggestions. We love hearing about topics that we should be talking about. Uh, go to our website again, fill out that form. We'll be in touch. If it's not me personally, one of our reps across the country will be reaching out to schedule time with you. Thank you again and look forward to seeing you on a future episode.

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