In this episode of The Federal Retirement Show, Val explains how you can still work part-time and receive your pension during retirement. He breaks down benefit eligibility for FERS employees who want to work part-time in future. Plus, we share how to use the FERS part-time pension calculator.
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4.7.23: Audio automatically transcribed by Sonix
4.7.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Val Majewski:
Well, welcome back to the Federal Retirement Show. I am your host, Val Majeski, with American Benefits Exchange. I really appreciate you joining me for today's episode. And this comes from a conversation that I had recently with a federal employee who was a part time worker and had questions about how to calculate their retirement and pension due to the fact that they had worked part time. And you may have similar questions, you may be in a similar situation. And today we're going to go over and dive into what does it mean to be a part time worker and how do we calculate your pension and future retirement annuity if you're in this situation? So again, let's dive into the information. Let's start with part time work and retirement in the first system. So first of all, what does it mean to be a part time worker? What does it mean that you are working part time? Well, it doesn't have to be for your entire career. Sometimes there are people that work part time for a short period of time or maybe on their way out as a near retirement. But if you've averaged less than 40 hours per week for your career at any point in your career, then you are considered part time. And the way that you calculate your pension or look at the way that your pension is determined. It's based on the way in which you worked. And if you averaged less than 40 hours per week for your entire career.
Val Majewski:
Then you're considered part time or had worked part time at one point in your career. If you're full time, you worked consistently 40 hours per week for your entire career and your pension calculation is not altered. There's no change to the way we we calculate. There's no additional steps that we need to take in order to calculate it. But for those that did not work 40 hours a week for their entire career, you may have or you will have sorry, a portion of your working time that is going to be treated differently than the full time amount. So what do I mean by this again? And how do we calculate it? Well, let's take a look at eligibility, because the misconception is that eligibility is going to be altered if you work full time, and that's not really the case. So if you're a FERS employee, you've got to satisfy one of these three criteria in order to retire with full benefits on an immediate pension. From the first system, you have to be at least 60 with 20 years of service, 62 with at least five years of service or have 30 years of service and hit your mirror or minimum retirement age, which is anywhere between age 55 and 57, depending upon your birth year. If you hit any of these requirements, you can retire with full benefits.
Val Majewski:
Immediate annuity. Immediate pension. But you're probably wondering, what does it mean if I'm part time? Do I have to meet higher requirements because I didn't work the same amount of time? Technically, and the answer is no. The same rules, same requirements apply to those that have been part time workers. Let me explain. Let's say you are a 50% worker. 50% meaning you work 20 hours a week on average over the course of your career. And this is the year 2023. As of the recording of this session or this episode, let's say in 2003 is when you got hired and that entire time you were a 50% work 20 hours a week. And you want to retire at 20 years at age 60. You still can retire at age 60 with 20 years of service, even though it's 20 part time years, your years of service still count as if you were a full time employee for eligibility when it comes to retirement. So if you work from 20 to 23 or going back to 2003 until 2023 and you are 60 years old, you can retire with full benefits from the government. You're eligible to do so. What is affected is the way in which your fers pension, your FERS retirement annuity is going to be calculated. Now let's take a look at the traditional calculation. When it comes to a FERS employees retirement, everything starts with your high three.
Val Majewski:
Your high three, if you're not familiar, is the average of your highest three consecutive years of total base pay. Base pay plus locality. It doesn't matter if it's your first three Middle three. Generally speaking, it's normally the last three, but it doesn't have to be. They're going to take the average of those highest three consecutive years or 36 month period, and that's going to be considered your high three for your pension calculation. Now. Traditionally we're going to use a factor of 1 or 1.1%. When do we use that? Well, it's 1%. If you're under the age of 62, if you're 62 or older and have at least 20 years of service, we will use a higher factor of 1.1% and then multiply that result by your years of service and you will get your annual retirement annuity. Well, how is it calculated? If you were a part time employee or had some of your time during your working years as part time? Well, we're still going to calculate the pension the same way. Now, going back to the previous slide and talking about high three, how does high three work? Well, your high three is calculated as if you were a full time employee. So let's say as a 50% part time worker, you work 20 hours a week and your actual gross take home pay was $50,000. That means if you were a full time employee working 40 hours a week, you would have made $100,000.
Val Majewski:
They're going to use that full amount that assumed full salaried amount as if you worked 40 hours a week. They're going to use that as your high three or in the calculation of your high three. So they're going to take a number, assuming you would have been a full time worker and that is going to be used in your high three calculation. They're going to calculate your pension the exact same way. So high three assumed high three as if you were a full time worker multiplied by 1 or 1.1%, multiplied by your total years of first service. All the years. So in that example, I said 2003 to 2023, that's 20 full years. So we're thinking full salaried, high, three full number of years of service. That's the calculate your annual retirement annuity. Now you're wondering, okay, where does the reduction come in? Because I was a full time worker. You're talking full time, high three and full time service years. This sounds like a dream come true. I worked part time and I'm going to get a full time retirement. Not so fast. I'm sorry to burst the bubble, but here's how we're going to take another step in order to calculate what your actual retirement annuity is going to be based upon your full time or sorry, your part time employment. So they're going to now multiply that result your annual retirement annuity by a factor.
Val Majewski:
And the way we determine the factor is the number of hours that you actually worked over the course of your career, divided by the potential number of hours that you would have worked if you were a completely full time employee. This helps factor in even fractions of a time that you work part time or fractions of years in which you work part time. You may have had 40 years of service in the last two were part time. Well, it's going to be relatively calculated, right? There's going to be a weighted calculation. So let's look at an example and I'm going to keep this really simple. Let's say you averaged 30 hours per week. You can see on the right side of the screen and we just averaged the weekly amount just to make this an easier calculation, your average hours per week during the course of your entire career was 30. Well, a full time employee would have worked 40 hours, let's say your high three to keep the numbers round and easy to calculate, your high three would have been $100,000 if you were a completely full time, 40 hour a week worker would have been 100,000 and you're at least 62 and you've got 30 years of service. So the factor is 1.1%. Multiply it by 30 full years, even though some of that was part time. We've got an annual retirement annuity of $33,000.
Val Majewski:
As a result. But we've got to multiply it by the factor that we determined based upon the amount of hours you worked compared to the total hours you could have worked if you were a part time, if you were sorry, if you were full time instead of part time. In this example, it's 75% of the time you are or your factor sorry, is 0.7, 5 or 75%. We're going to multiply that by your annual retirement annuity and get instead of $33,000 a year in retirement, you're going to be taking home or making $24,750 per year. So we calculate your pension just to review. Calculate your pension. If you are a part time worker as if you were a full time, full time. Hi three full time number of years. But we're multiplying it by a factor based upon the amount of years you actually worked compared to the amount of hours you could have worked if you were a full time. And that shows you your reduced amount. Based upon that factor. So I hope that this makes sense. I hope that you're looking at this like, okay, I get it. I can run the numbers. It doesn't sound as difficult as I thought it would have been. Now, if you did work a fraction of the time, like you had 33 years that were completely full time and you worked two and a half years, that was 50%. Then you worked three years.
Val Majewski:
That was at 70% full time. We're going to have to do some deeper calculations here, a little bit more advanced math in order to come up with your number. But it's not impossible. We can we can work that out. So where would you go next? If you are a federal employee and you have part time within your working history and you need assistance and you want to know what your future or projected retirement pension, your retirement annuity is going to look like, Reach out to us, go to federal retirement. Show.com fill out the form, request some information and we'll be happy to help you walk you through your retirement projections, go through all the numbers so you can see what your expectation is and that way it's realistic. So you're not thinking it's going to be way less then you were hoping or it's not going to be more. I'd rather give you the ballpark number so you can plan properly and make sure you're on the right track. So I really appreciate you joining us for this episode to learn more about part time employment, part time retirement calculations and what those eligibility requirements are. Again, if you do have questions, reach out to us. We'll be happy to help. Our website again is federal retirement. Show.com well again, really appreciate you joining us. Thank you for tuning in and look forward to seeing you on a future episode.
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