VERA Unpacked: The Pros and Cons for Federal Employees

7.25.25: Audio automatically transcribed by Sonix

7.25.25: 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 taking the time out of your busy schedule to join us to view our content to check out today's episode. I will encourage you to check out our other content that we have. We've got over 140 episodes for you, the federal employee that's looking for information on your benefits and retirement situation. And it's very general in nature. It's not specific to you. There might be some parts that relate to you, but if you do want to go over your benefits in further detail, I'd highly recommend you go to our website. Federal Retirement show.com. Fill out the form one of our experts across the country, if it's not me personally, will be reaching out to you. Schedule time to go over your benefits and answer any questions that you might have. Just get you all the information that you're looking for. But if you do like this, subscribe to our our podcast, our radio show. Get notified when new content is out. And do me a favor, share it with your colleagues. There are other federal employees that need this information just like you. Do not keep it to yourself. Don't be selfish. Share it with others. They need it too. They may not have found it the way you did, or somebody may have shared it with you. Pay it forward.

Speaker1:
Share it with a colleague of yours. So that being said, I want to get into today's episode and we're going to talk today about Vera. Uh, Vera is the voluntary early retirement authority. When you see a Vera. It just means, hey, there's an opportunity for you to retire early. There's some stipulations in there. I'll go over that. But this episode stems from a recent conversation that I had with a federal employee that was going through this, was anticipating possibly another Vera coming about, and wanted to go over the pros and cons of making that decision and to determine for themselves and for their family if choosing the Vera was right for them. Now I'm going to give you my opinion on some things. This is not an end all be all. This is not saying that everybody who faces this situation should do this. But just hear me out here, the circumstances and maybe you agree disagree. I'd love to hear your feedback. Right? Go to our website. You can share that with us as well and tell me what you think. But when it comes to the Vera right, we saw within this past year we've had the deferred resignation. We've had some various pop up, we've had some VIPs pop up, we've had some circumstances and some things that came about that people had questions. People had concerns, you know, what should I do? What's the right direction? And within our time today, we're going to go over the basic pros and cons of what the Vera is, number one.

Speaker1:
And then number two, is it right for you. You make the best decision for you and your family. But I'm just going to give you my opinion and what I generally discuss with federal employees that are deciding this. So without further ado, let's jump into today's content and talk about the pros and cons. So first of all, what is the Vera and is it worth taking it? That was the question that I got. What is the Vera and is it worth taking it now? First of all Vera I said, is voluntary early retirement authority. Some agencies are given the authority to offer this. And what this does is allows them to reduce the requirements for retirement for eligible federal employees to take advantage of this. Now, normally you can go back and view our content on the first retirement system and the requirements that you need to satisfy in order to retire with full benefits from the first system. And I'm going to briefly go over those. So normally you have to be age 60 with at least 20 years of service, 62 with at least five years of service, or hit your minimum retirement age or MRA and have at least 30 years of service. Mra is between 55 and 57 years old, depending upon your date of birth, and those are the requirements that you need to satisfy in order to retire with full benefits.

Speaker1:
Normally, but when there's a Vera offered, those requirements get skewed a little bit, they get reduced and you're eligible for an immediate and reduced pension. If you are age 50 with at least 20 years of service, or any age if you have at least 25 years of service, you can leave immediately and not see your pension reduced, even though you didn't hit those requirements that I talked about earlier. So they reduced those. There's a couple of different caveats that we'll talk about. Um, you know, pros and cons. But that's what the Vera is. It gives the government the ability to lower the requirements temporarily. And there's normally a deadline for which you need to decide if you're going to do this or not, and then make that decision. And you usually have to be out by a certain date as well. Um, sometimes they also offer what's known as a v sip Visit with that. And that's an incentive payment that's given. And a lot of times it's around $25,000 broken up into two different payments. Usually in the first year it's 15,000, in the second year it's 10,000. There are taxes assessed in that. So it's not going to be the full 25 that you're going to get, especially if you're having the taxes withheld from that payment.

Speaker1:
So just understand they reduce the requirements under Avera. And sometimes they offer an incentive payment along with it to entice people. That 25,000 generally is not going to go that far when we're talking about retirement and total benefit to you over time. And that's what I look at when we talk about pros and cons. Which one is going to work out for you in the long run, and is it worth taking Avera now, a couple of things here. Uh, if you absolutely, 100% need to get out and you want to retire early and you're going to collect an immediate pension, and you maybe you have your dream job, you have something else set up, and you're going to continue to work, and it's going to be another place where you can go to get a pension or save more for retirement than maybe it's worth taking Isvara. Maybe again, everybody's situation is different. You win the lottery, you've got another dream job set up, you've got some other kind of, uh, gig that you're going to be jumping into that's going to be beneficial for you. Maybe it works out okay. Perhaps. But in general, I don't recommend folks taking the Vera, and I'll get into reasons why here in just a second. So what I want to compare with you today is what if I take the Vera? What does that entail? And then what if I stay till I'm first eligible for full retirement? So if you're a federal employee that's contemplating any kind of vera that's offered now or in the future, and we compare that to your first eligibility for full retirement, you got to see how the numbers differ.

Speaker1:
Now, granted, yes, you have to work a little bit longer to get to that full retirement age. But what are the benefits for that? Again, we're talking about pros and cons. And this was the discussion that I had with this better employee. And we went down the rabbit hole and we ran two different scenarios. What if you retired today under the Vera? What if you retire down the road when you're first eligible? And we compared the difference and talked about the difference. And there's a number of things that you have to look at and should consider when taking this. Yes, it sounds awesome. And again, this is my opinion. I'm not trying to steer you. It sounds awesome though that you can leave service immediately on reduced pension reduced. It's an immediate deal. You're going to start getting it, but it's going to be less than if you were to be at your full retirement age. And there's a couple other things that you need to take into consideration also. So first of all, what are the benefits of taking the Vera. Well, I just mentioned it's your ability to leave service early and leave and receive an immediate reduced pension.

Speaker1:
It's not reduced because you're left early. You're not leaving early and you got to defer it until age 62. You are going to collect it immediately. Now, it's potential that you could also receive that incentive payment with that visit with it. And that could be generally around $25,000 broken up into two different payments. Okay. That might not be the driving force. You might just want to leave, but at least it's a little bit of an incentive, a little bit of a bonus, if you will, for leaving. If you're already committed to doing so, you are still in general fers supplement eligible, so people that leave early or take the VRA will generally and rules could change, but generally be eligible for the first supplement because most likely you're going to be under the age of 62 when you leave early. Um, the the problem with that is, though, it will not start until you hit your MRA, your minimum retirement age, which you're if you're born after 1970 is age 57. So if you said, hey, I could retire at age 50 with 20 years of service under this Vera, and let's say it was 50 years old, you're going to get this immediate pension, but you're and you're going to still be eligible for the first supplement, but you won't be able to collect it until age 57.

Speaker1:
And that could be a problem, because you've got this now seven year gap for this additional income to start. So you've got to fill it somewhere. Probably going to have to go work or take another job or whatever it might be. Again, situations are different, but that's in general why I'm, I'm I'm not normally recommending the Vera option. So what if you were to stay. Okay. I just mentioned you can collect an immediate pension, but it's going to be based on your years of service now. So let's say it was age 50 versus age 57. Your minimum retirement age. What what are the differences? Why wait? Why go until I'm first eligible? Well, there's a couple of things here, but let's let's take a look at this. So if you were to wait until your MRA and in this example, it's just it's seven years. I can start collecting now at age 50 with 20. We'll just say it's a 23 years of service. Right? 23 years of service Y. Because then I'd be first eligible at age 57 with 30 years of service. My MRA plus 30. Um, so let's say it was age 50 with 23 years of service. I've offered this. Vera, let's run the numbers. Well, number one, um, I'm going to be based on my current high three. Okay, current high three and current years of service. I'm going to collect an immediate pension.

Speaker1:
Yes, but it's current high. Three current years of service. No first supplement until I'm 57, so I'll have to wait seven years. If I wait until my MRA at 57, that's seven more years of service that are added on to my service calculation or my my pension calculation. And I'm going to be getting pay raises over the years. So my high three is going to be higher, hopefully significantly higher seven years later. So those are two things that are going to directly impact your pension calculation. More years of service more income or more high three. Greater high three to go into that calculation. So that's number one. You do have to work seven more years in this example to get there. But number one you're going to be collecting more in that pension. So same thing. Age 50. If you took the Vera it's an immediate pension, but it's less than the one that you're going to collect if you wait until your minimum retirement age in this example at age 57. So that's number one. Number two, you are eligible for the first supplement, and you can start collecting it immediately. Immediately. In this example you don't have to wait until your MRI. You're already at your MRI. So you can start collecting that first supplement immediately. So there's no gap there. Number three um, you're going to have more putting your TSB and you're going to have access to your TSB.

Speaker1:
So if you're retired at age 50 with 23 years of service, uh, you'll get the, the immediate pension. You have to wait for your first supplement and TSB will you'll stop contributing to it, but you won't have any access to it until you're 59.5. Why? Because you didn't retire after age 55. So in order to have access to your TSB without penalty, without penalty from the federal government, there's usually two things. There's usually you got to wait till age 15.5 to access it and you won't be penalized by the IRS. But there's a rule for federal employees if you retire full benefits at age 55 or later, you can access your TSB. Without that extra penalty. You still have to pay tax on anything, but without that extra penalty. Right. You can Google that, check that out. Fact check me on it. But you can access your TSB without penalty as long as you retire 55 or later. In this example here at age 50, you would not have access to it without penalty. You'd have to wait till 59.5 to access your TSB without penalty. So not only will you have seven more years of contributions, seven more years of government matching money and all the interest that you can be earning. Hopefully it's positive interest over those seven years. Your TSB should be a lot greater.

Speaker1:
You'd have access to it right away if you need it. And that can be an immediate thing. You don't have to wait even longer to have access to it. So look at the positives here for waiting until you're first eligible for full retirement. And in this example, we're just looking at age 50 to age 57. Um, all of these positives, all of these things that would benefit you, greater pension calculation because you have more years greater high. Three, um, immediate access to the first supplement, immediate access to TSP. Plus that TSP should be greater because you've got more years, more matching money, more time to earn interest. So those are the the rationales and the reasons why I would say it's beneficial or more beneficial to wait until you're eligible for full retirement instead of taking the voluntary early retirement. Now, what are the cons in this? You've got to work seven more years in this example, right? You have to work more. I'm not forcing you to do that. But if you're okay with your job and you can put up with it, I'd rather be putting more time into a job where I'm collecting or generating more for my pension. Um, I'm going to actually increase your first supplement because you're going to be putting more into Social Security. Hopefully your Social Security benefit goes up too by working more years. The first supplement will increase.

Speaker1:
And and now I'm putting more into TSP. So I'm putting it I'm keeping it all into the same system. Again if you've got the dream job, if something else more beneficial occurs outside and it's it's worth it for you to take advantage, by all means go for it. But in general, general, these are the reasons why I wouldn't recommend it because of what I'm listing here. It's going to be greater benefit for you to wait. You're going to collect more in your pension. Immediate access to the first supplement, which will probably be greater at that point, and TSP will be greater if you have access to it immediately. Now, the other situation that we can run into too is, well, why? Why not just stop at your MRA? What about waiting until age 62? And I get that question a lot too. So this wasn't part really of this conversation that I had with this federal employee. We were really just talking about taking the VRA versus when they're first eligible. But I'll throw this in here as well because it's it's worth talking about if you can do it. If you can wait until age 62. Now, let's say in this example, they were first eligible at 57. Now we're talking about waiting until 62. Five more years. They may not want to wait five more years. But what are the benefits of doing so? Well, the first two things that I mentioned on the last slide are still the same.

Speaker1:
High three is going to go up and it's more years of service. Great. But the other part of that pension calculation, you get a little bit of a 10% boost when it comes to the pension calculation because of being age 62 or older with at least 20 years of service. Your factor from the pension calculation goes from 1% to 1.1%, a little bit extra. So that is a main benefit. Number two, the first supplement, which is generally a lot less than what you're going to be getting at age 62 with Social Security. If you wait till 62, your Social Security eligible immediately, and you're not going to get a less of a benefit using the first supplement so you're immediately eligible for Social Security and then TSP. Same thing. You're just going to build up more TSP. It's more years that you contribute, more years that you get the matching. More years that hopefully you get positive interest. It'll be a greater benefit for you. So if we look at those three things, right, if I'm looking at those three and I'm saying, uh, should I take a Vera. Should I wait until I'm first eligible? Should I wait till at least age 62? Obviously, the longer you can wait, the better. It's like taking Social Security. Also, the longer you wait, it's going to be a greater benefit for you.

Speaker1:
Um, but is it is it feasible for you? Is it the best thing for you? That's where you got to sit down and talk to a professional, talk to an expert when it comes to benefits and retirement to determine which situation would be right. In general, I'm not normally recommending the Vera. I'd say at least wait until you're first eligible. Um, and I can say if you can stomach it, if you can do it, if you can take it, wait until 62 because you're at least 62, because you're going to get a bump in the calculation. That's not as much of a a big swing for me as the gap between. Should I do the Vera and should I do a full retirement? I'm normally 9,095% of the time leaning towards waiting until full retirement. And we'll run the numbers. We'll run both of them so you can see it in black and white. That's some of the reporting that we do for federal employees is we can run the Vera calculation. You can see what that looks like. And we can wait until you're first eligible for full retirement and run those numbers. And you can compare you can see it in plain English and black and white. So you can determine which situation is best for you and your family. So that's the Vera pros and cons right? I mean in my opinion I'm not normally recommending it.

Speaker1:
But everybody's situation is different. I will say that this is not a blanket statement, that this is what you should or shouldn't do, but it's important that you run the numbers. You know, all the the ins and outs, you know all the variables. So when the government does offer something like this, it might look enticing and it may be right for you, but you need to do your research before you do it, because the last thing I want you to do is decide on it. Start collecting money in retirement and be like, this is not what I wanted. This isn't what I thought it was going to be. Know everything ahead of time. Be as educated as possible so you can make the best decision. As I mentioned earlier, if you like this content, subscribe. Get notified when new episodes come out and share this with your colleagues. They need this information to view all of our other episodes. Instead, there's over 140 of them. A lot of information out there for you, the federal employee. And if you want more info, you want to go over your personal situation. You want to get your questions answered, reach out to US federal Retirement show. Fill out the form. We will be in touch. Thank you again for taking the time out of your busy schedule and viewing our content. We look forward to seeing you on a future episode.

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