One of the most common questions among federal employees nearing retirement is, “How much will my FERS retirement be?” The answer to this question depends on numerous factors and can vary greatly from person to person. In this article, we will discuss the key components that determine the amount of your FERS retirement and provide you with a better understanding of what to expect regarding your retirement income.
What is FERS Retirement?
FERS, or the Federal Employees Retirement System, is a retirement plan for federal employees established in 1987. It combines three different retirement benefits sources: a basic pension plan, Social Security, and the Thrift Savings Plan (TSP). FERS is mandatory for most federal employees, who contribute a portion of their salary towards their retirement plan throughout their careers.
Calculating Your FERS Retirement
The amount of your FERS retirement is calculated based on three main factors: your length of service, your high average salary, and your contribution to the TSP. Let’s look at these factors and how they impact your retirement income.
Length of Service
Your service length refers to how long you have worked as a federal employee. The longer you work, the higher your retirement benefit will be. This is because you are contributing a portion of your salary towards your retirement plan, and the more years you contribute, the bigger the balance will be when you retire.
Under FERS, you are eligible for full retirement benefits at 62, provided that you have completed at least five years of creditable federal civilian service. If you retire before age 62 with at least 20 years of service, you will receive a reduced retirement benefit.
High-3 Average Salary
“high-3” refers to the highest three consecutive years of your salary. This calculates your retirement annuity, often called your “base salary.” The longer you work, the higher your base salary will be and, therefore, the higher your retirement benefit will be.
One important thing to note is that when calculating your retirement benefit, your high average salary is not based on the salary you earned when you retired. Instead, it is based on the highest average salary you earned during any three consecutive years of your federal service.
TSP Contribution
The TSP, or Thrift Savings Plan, is a federal government-sponsored retirement savings and investment plan. It operates similarly to a 401(k) plan and allows federal employees to contribute a percentage of their salary toward their retirement. The government also matches a portion of the employee’s contribution, making it a valuable addition to their retirement income.
The amount of your TSP contribution can significantly impact your overall retirement income. Ensuring that you are contributing enough to your TSP to maximize your retirement benefit is essential.
Frequently Asked Questions
Is there a cap on how much I can receive in FERS retirement benefits?
Yes, there is a cap on the amount of your FERS retirement benefits. For those who retire at 62 or later, the maximum benefit is 80% of your high average salary. For those who retire before the age of 62, the maximum benefit is reduced based on the number of months you retire before the age of 62.
Can I retire under FERS early?
Yes, you can retire under FERS before the age of 62. However, your retirement benefit will be reduced based on the number of months you retire before age 62. The age at which you can retire without a reduction varies based on your birth year and length of service.
What happens to my FERS benefits if I die before retirement?
If you were to pass away before retirement, your surviving spouse would receive benefits based on your length of service and high average salary. Your spouse would also receive a survivor benefit from your TSP contributions. The benefits would go to your designated beneficiaries if you do not have a spouse.
Conclusion
In conclusion, understanding the key components that determine your FERS retirement benefits is crucial as you plan for your future. Factors such as your length of service, high-3 average salary, and contributions to the Thrift Savings Plan play significant roles in determining the amount you’ll receive in retirement. By familiarizing yourself with these factors and making informed decisions throughout your federal career, you can work towards maximizing your retirement income and enjoying a comfortable retirement. Remember to regularly review your retirement plan and consult with a financial advisor to ensure you’re on track to meet your retirement goals.
