The Best Ways to Use Your FERS Pension

The federal government has a three-legged chair for pension payments. 

The Basic Benefit Plan is often known as the federal pension plan, the Thrift Savings Plan, sometimes TSP, and Social Security.

However, this post focuses on the Federal Employees Retirement System’s (FERS) Basic Benefit Plan.

FERS Pension Calculation

The length of creditable service is multiplied by a percentage (often 1% or 1.1%) and then multiplied by the “high-3” average salary to determine the FERS Basic Benefits package or pension. The 1% applies to those younger than 62 at the time of retirement or older than 62 but with fewer than 20 years of service.

If a federal employee quits with at least 20 years of reputable service and after turning age 62, the proportion rises to 1.1%. Typically, these three years are your last three in the military, but if your base pay is higher, they may be earlier. Here are examples of how the FERS pension is calculated.

Example 1

Age: Minimum Retirement Age

High-3: $50,000

30 years of service

0.01 x 30 x $50,000 = $15,000 (30% of high-3)

Example 2

Age: Minimum Retirement Age

 High-3: $50,000

 Service: 15 years

 0.01 x 15 x $50,000 = $ 7,500 (15% of high-3)

 35% reduction: $ 2,625 (7 years under 62) = $ 4,875 (9.75% of high-3)

It makes perfect sense to retire after earning the best salary in the federal government as a result of giving more weight to the three years of your top pay to optimize the pension benefit. You should also try to work till age 62 and have 20 years of experience to get 10% more of your lifetime pension savings to optimize your benefit.

Survivors’ Benefits 

The pension should also take the survivor’s benefit into account. This is particularly essential since, presuming you pass away before your spouse, you can give your surviving spouse up to half of your pension. The pension retirement income is 10% less, with a survivor’s benefit of 50%.

When evaluating your FERS pension payout, it’s common to forget the survivor’s benefit. You can offer the surviving spouse half of your annuity for a slight 10% reduction in the monthly annuity payment.

The Cost of Living Adjustments (COLAs)

COLAs are significant pension benefits. It allows you to balance your purchasing power as the cost of living increases for necessities like groceries, gas, and so forth.

There is a cost of living adjustment in the FERS pension. Raising your cost of living will be ideal if you are 62 years old.

As one of the major problems with many annuities that are not inflation-adjusted, the cost of living adjustment is a crucial component of the pension. Your purchasing power decreases over time, and you must find a way to balance your budget to make up the difference.

Tips for Increasing FERS

The following are the top four techniques to optimize your FERS pension:

1) Retire at least 62 years old and after 20 years of service. Your monthly pension income will grow if you can retire after more than 20 years of work. But keep in mind that you should be at least 62 years old.

2) Retire in your 60s with a maximum of three years of earnings. Before you retire, work toward obtaining your major federal government promotions. Your multiple is based on such a higher last three years of salary.

3) Hold off on taking the monthly allowance until you’re 62 to get the most out of the COLA. Use the COLA as an alternative. Then, if at all possible, retire at 62 or later.

4) If married, take into account the survivor’s benefit. You can provide your spouse with protection by purchasing a 50% monthly annuity for a slight decrease in your monthly annuity.

You should consult a financial counselor to acquire advice specific to your situation because these four general guidelines do not pertain to every instance. 

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M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementiong a sound plan for your retirement. We are commited to helping you achieve your goals. Visit us at M. Dutton and Assoiciates.COM. Tel. 212-951-7376: email: [email protected].