For some federal employees working until they’re eligible for the traditional FERS, retirement just isn’t in the cards. And while retiring after 20 or 30 years of uninterrupted service is usually uncomplicated, there is often confusion about what early retirement options are available. So, this week, we will review three early retirement options: postponed, deferred, and the Voluntary Early Retirement Authority (VERA). While all three options involve leaving federal service early, there are significant differences between them that must be understood before deciding which one is best for you.
The FERS Postponed Retirement
For the postponed retirement option, you must separate from service with at least ten years of creditable service and have at least reached your Minimum Retirement Age (MRA). However, instead of drawing your pension immediately, you postpone it.
Although you’d be eligible to start drawing your pension immediately upon separation, your pension would be subject to permanent reduction. This reduction is 5 percent a year for each year under age 62 or 5/12ths of 1 percent per month. To avoid any reduction, you’d have to postpone receiving your pension until you have 20 years of service and have reached age 60 or until you are age 62.
To be eligible for the postponed retirement:
- You must have reached your minimum retirement age (MRA),
- Have at least ten years of service before separation (at least five years of civilian service), and
- Not have taken a refund of your FERS contributions.
When Does Your Pension Start?
Your pension will commence once you have met the age requirement for your years of service, meaning the age your pension will start depends on your years of service upon separation.
For example, you’re eligible for an unreduced annuity at age 62 with five years of service or age 60 with 20 years of service. Since most federal employees retiring under the postponed retirement option have less than 20 years of service, they usually must wait until age 62.
The FERS Deferred Retirement
Like the postponed, deferred retirement allows you to separate from service before meeting the eligibility for normal retirement and still collect your pension once you meet the age requirement for your years of service.
Unlike the other FERS retirement options, deferred retirement does not have an age requirement that must be met before separation. Meaning you can leave federal service at any age and, if you meet the following minimum requirements, will be eligible for a deferred retirement:
- Have at least five years of creditable civilian service before separating.
- Not take a refund of your FERS contributions.
- Be under age 62 when you separate (if you’re 62 at separation with five years of service, you would be eligible for an immediate retirement).
When Does Your Pension Start?
Like the postponed option, the age that your pension will start depends on your years of service. So, if you have five years of service, you’ll have to wait until age 62; if you have 20 years of service, you’ll wait until age 60, or if you have 30 years of service, your pension can commence at your MRA.
You can also begin to draw your pension at your MRA with ten years of service, but as mentioned before, your pension will be subject to a permanent reduction of 5 percent a year for each year under age 62 or 5/12ths of 1 percent per month.
Voluntary Early Retirement Authority (VERA)
Lastly, VERA or Voluntary Early Retirement Authority, also known as the “Early Out” option, is a retirement option available for federal employees who work for an agency that is downsizing or restructuring. An agency approved for VERA will temporarily lower the age and service requirements presenting their employees the opportunity to retire sooner than they otherwise would have been eligible to do so.
Unlike the other FERS retirement options, VERA is only available at the request of any agency that needs to downsize; hence, this option is not available to every federal employee. If your agency is offering VERA, you must apply and meet the following minimum requirements to be eligible:
- Have at least 20 years of service and be at least age 50 or
- Any age with at least 25 years creditable Federal service,
- Held a position that is covered by the OPM authorization for a minimum period specified by OPM (according to OPM, this is “usually 30 days prior to the date of the agency request”);
- Hold a position that the VERA covers; and
- Separate within the period covered by the VERA
When Does Your Pension Start?
Unlike the other early retirement options, VERA does not require postponing your pension. Therefore, your FERS pension will commence the month following your retirement. Furthermore, there will be no reduction to your pension, meaning your pension will be calculated using the same formula as if you had retired under the regular FERS retirement option. You can learn more about the FERS pension formula here.
What’s The Difference?
The first significant difference between the three retirement options is that you can take a deferred retirement at any age, unlike the postponed and the VERA, which have age requirements.
The second difference is that only five years of service are required to be eligible for the deferred retirement, whereas ten years are needed for the postponed and a minimum of 20 years under VERA.
One of the most important differences to be aware of is that with the deferred option, you will not be eligible to reinstate your FEHB or FEGLI coverage when you apply for your pension. Contrast that with the postponed and VERA, which allow you to keep your coverages.; assuming you met the eligibility requirements when you separated.
Learn more about the requirements to maintain your FEHB coverage in retirement here.
Another important difference to note is while you won’t be eligible for the FERS Special Retirement Supplement (SRS) under the postponed or deferred retirements, you will be eligible under the VERA once you reach your MRA.
You can learn more about the FERS Special Retirement Supplement (SRS) here.
Lastly, since VERA is not always available, it’s important to remember that while you can plan to retire under the postponed or deferred retirement options, planning to retire under VERA can be ill-advised since its availability can be unpredictable.
If you’re thinking about leaving federal service early, it’s essential to understand your options so you can make an informed decision. Like most things in financial planning, there is no one right choice for everyone. The right retirement for you will depend on several factors, such as your current age, years of creditable service, and access to an affordable health insurance alternative. It is often helpful to calculate your pension under different scenarios to compare your options. Since financial planning involves many variables and your FERS benefits are only a part of your overall financial picture, consider consulting with a qualified financial planner if you’re not confident in creating your financial plan.
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2023 Legislative Change Notice
The SECURE ACT 2.0 passed and impacted many of the articles on this website. While the articles were correct when written, it’s impossible to re-write every article. Please consult a qualified professional (i.e., CFP®, CPA, or attorney) before implementing any strategy.