How FERS Regular Retirement Works
Before digging into postponed and deferred retirement, let’s first look at how FERS regular retirement works. Once you have at least 30 years of federal government service, you can retire at what’s referred to as Minimum Retirement Age (MRA). This is generally between 55 and 57, depending on when you were born.
If you have at least 20 years of federal government service, you can retire a little bit later, at age 60. And if you have at least five years of federal government service, you can retire at age 62. According to the rules for regular FERS retirement, if you retire and meet the criteria above, you’ll receive an unreduced pension, the Special Retirement Supplement (SRS) if you’re younger than 62, and the ability to continue receiving federal health and life insurance benefits after you retire.
There’s another regular retirement option referred to as MRA+10. If you’ve reached your MRA and have between 10 and 30 years of federal government service, you can retire with a reduced pension. Your benefit will be reduced by five percent for each year that you retire before turning 62, or up to a total permanent reduction of 35%. That is, unless you postpone your benefit
How Postponed and Deferred Retirement Work
By postponing your retirement benefit until you’ve achieved full eligibility, you can avoid this five percent annual benefit reduction. Your pension amount would be calculated using the standard FERS formula and based on your length of service and high-3 salary when you retire. You’ll be able to continue receiving Federal Employee Health Benefits (FEHB) for 18 months after you retire. After 18 months, you can’t receive FEHB again until you start receiving your postponed retirement benefits.
Also, while postponing retirement will forfeit your SRS, you will be eligible for a Social Security benefit and cost-of-living adjustment (COLA) on your FERS benefit when you turn 62.
Postponing retirement may be a good option if you have another private-sector job lined up after you retire from federal service. This job could provide the income and health insurance you need to meet your living expenses until you start receiving your federal government benefits at age 62 without suffering a loss of federal benefits.
Meanwhile, you can defer your retirement once you have at least five years of federal government service regardless of whether you have reached MRA or not. This will allow you to receive your federal government pension without having to actually work until you reach MRA. However, your benefit will be lower — and perhaps significantly lower — than it would be if you worked until you reached MRA.
Like with a postponed retirement, your pension amount with a deferred retirement will be based on your high-3 salary and years of service when you retire. Also, if you defer your retirement, you’ll forfeit both FEHB and Federal Employees Group Life Insurance (FEGLI), as well as your SRS.
Deferring retirement may be a good option if you’re relatively young and want to leave federal government service to work in the private sector. For example, let’s say you’re 40 years old and have worked for the federal government since you were 32 and you have an opportunity to accept your dream job at a privately owned business.
Instead of receiving a refund of your retirement contributions, you could select a deferred retirement and receive reduced federal benefits when you turn 62. Assuming you receive health and life insurance benefits through your new job, losing FEHB and FEGLI won’t be a concern.