FERS-Military Buyback and Early Retirement

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
phatpat187
Posts: 8
Joined: Tue Mar 26, 2019 4:46 pm

FERS-Military Buyback and Early Retirement

Post by phatpat187 » Mon May 13, 2019 2:21 pm

Bogleheads,

I began employment at a Federal agency in March of 2019. I am 39 years old. I do not have any years or credible civilian service, but my agency has computed (and I agree) that I have 7 years and 10 months of credible military service.

In the next 2 years I must decide if I should conduct the military buyback of my active duty military time. This will cost me roughly $16,000. I must decide if I want to do this, but I have some questions on whether conducting the buyback is worth it. I have rental property income, a decent amount in IRAs and taxable brokerage and I maybe able to retire before the minimum retirement age of 57. I am also in the Army Reserves and will receive a pension from that when I am 58 or so.

My question is, if I work for the IRS until age 48 or 49, what type of annuity benefit from the FERS – FRAE system will I receive? At that age, I will have roughly 10 years of civilian service and maybe 8 years of military service.

Both the deferred annuity/retirement & postponed annuity/retirement seem to be options for this situation. Does anyone have any advice on my situation or have a pamphlet or resource that I could study? Thanks in advance for all of your knowledge.

renegade06
Posts: 50
Joined: Sat Jan 12, 2019 3:00 pm

Re: FERS-Military Buyback and Early Retirement

Post by renegade06 » Mon May 13, 2019 2:40 pm

I'm also still in the Army Reserve and bought back my time before I left federal employment (to move to the private sector). Your HR department should have the calculation for your expected annuity. I believe the formula is (Avg of your highest 3 years of Pay in Federal Service) x 1% X your total years of service (including the military buy back and civilian service). You'll want to double check to see if that formula is correct.

I bought back my military service a few years ago. You can do a payment plan - I did that for a few years and then paid off the full amount in one check. If you do a payment plan, be careful about moving to another agency. I moved from DoD to a non-military agency and it was a huge pain in the rear end to try to set up another allotment (the two agencies did not communicate well).

I'd be curious to see what others think about doing the buy back. I did it, because I could see Congress closing that loophole and so I wanted to lock it in. It's another pension that I can have coming in the door in later years. Do you plan to stay with the government for a while? If so, I'd probably do it and get that pension locked in. If you're debt free, have an emergency fund, and have $16,000 in the bank it might be easier to just do it all in one shot rather than paying it every month.

Lastly, if you do do it, make sure you get what they call a "paid in full" letter. It's basically a cover letter showing that you bought back your time and puts in writing how many years you have. I put that together along with the rest of the paperwork and have that in my files for future use....

I hope this was helpful.

Topic Author
phatpat187
Posts: 8
Joined: Tue Mar 26, 2019 4:46 pm

Re: FERS-Military Buyback and Early Retirement

Post by phatpat187 » Mon May 13, 2019 2:46 pm

renegade06 wrote:
Mon May 13, 2019 2:40 pm
I'm also still in the Army Reserve and bought back my time before I left federal employment (to move to the private sector). Your HR department should have the calculation for your expected annuity. I believe the formula is (Avg of your highest 3 years of Pay in Federal Service) x 1% X your total years of service (including the military buy back and civilian service). You'll want to double check to see if that formula is correct.

I bought back my military service a few years ago. You can do a payment plan - I did that for a few years and then paid off the full amount in one check. If you do a payment plan, be careful about moving to another agency. I moved from DoD to a non-military agency and it was a huge pain in the rear end to try to set up another allotment (the two agencies did not communicate well).

I'd be curious to see what others think about doing the buy back. I did it, because I could see Congress closing that loophole and so I wanted to lock it in. It's another pension that I can have coming in the door in later years. Do you plan to stay with the government for a while? If so, I'd probably do it and get that pension locked in. If you're debt free, have an emergency fund, and have $16,000 in the bank it might be easier to just do it all in one shot rather than paying it every month.

Lastly, if you do do it, make sure you get what they call a "paid in full" letter. It's basically a cover letter showing that you bought back your time and puts in writing how many years you have. I put that together along with the rest of the paperwork and have that in my files for future use....

I hope this was helpful.
Thanks much appreciated. Will you do the deferred or postponed annuity? Will you expect to start receiving something when you are 57 or 62? (or somewhere in between)

renegade06
Posts: 50
Joined: Sat Jan 12, 2019 3:00 pm

Re: FERS-Military Buyback and Early Retirement

Post by renegade06 » Mon May 13, 2019 3:24 pm

Thats a good question... I was just looking at my paperwork and I don't see an option to pick from. I assume that I would take it at 62 since I won't have 20 years of government service before aged 57. I also forgot to mention that I think your days of annual reserve training (AT) count towards that time. I didn't mess with it because it was a huge pain in the pass just to get credit for my active time, but I think you can claim it.

ClassySDLivin
Posts: 22
Joined: Sat Jan 28, 2017 8:25 pm

Re: FERS-Military Buyback and Early Retirement

Post by ClassySDLivin » Mon May 13, 2019 3:41 pm

I did not "do the math" to calculate the difference between retiring with 10 years (no-buy back) or 18 years (with buy back), but one additional consideration. You can buy back your time later than the first three years of civilian service - but you will also be charged an accrued interest amount (the accrual does not become due until the end of year three). As someone else said, you can set up an installment payment plan to pay the buy back over time (and this will include interest).

hale2
Posts: 215
Joined: Sat Feb 15, 2014 5:54 pm

Re: FERS-Military Buyback and Early Retirement

Post by hale2 » Mon May 13, 2019 4:13 pm

For me it was a no brainer. I bought back 12 years. When I did it you didn't pay interest for the first 1 or 2 years (I can't remember). I paid it off before interest began to accrue. I calculated my break even point of 16 months into retirement. Remember, the years are added to the minimum number of years you need to work to be eligible for retirement. So if you are required to do 20 years until retirement eligibility, you still need to complete that.

User avatar
friar1610
Posts: 1473
Joined: Sat Nov 29, 2008 9:52 pm
Location: MA South Shore

Re: FERS-Military Buyback and Early Retirement

Post by friar1610 » Mon May 13, 2019 4:26 pm

Here's one other thing to look at (may or may not be a consideration for you): If you buy back the years, you will presumably have a higher pension when you retire. If, at the time you retire, you opt for the Survivor Benefit Plan for a spouse, you would be able to provide more income for her/him in the event you are the first to die.

I'm retired military and worked around a lot of civilians who had various amounts of military active duty short of that required for military retirement. I can't recall one who did not buy back the time (but I don't know if the rules are the same these days.)
Friar1610

Dontridetheindexdown
Posts: 75
Joined: Sat Feb 14, 2015 10:08 pm

Re: FERS-Military Buyback and Early Retirement

Post by Dontridetheindexdown » Mon May 13, 2019 4:50 pm

Yes, buy it back!

It is the best double-dip you will ever be offered.

The active duty time you "buy back" will count toward your FERS service.

It will also continue to count for your reserve retirement, which is going to be significant with the amount of active duty you have.

Just let your agency set up a long-term payment plan.

They will not charge interest if you start within the correct window, and they can stretch out the payments so they are painless.

3504PIR
Posts: 772
Joined: Mon Jul 26, 2010 2:46 am

Re: FERS-Military Buyback and Early Retirement

Post by 3504PIR » Mon May 13, 2019 5:36 pm

Basic calculations can be found on the OPM website under FERS. However, to begin to do the math, the basic calculation is:

High 3 Salary Average x # of years service x 1% = annual FERS annuity. Through the OPM website you can find variations of the 1% based on years of service or for first responder type calculations, but the minimum is 1%.

The earliest you can take an immediate annuity (pension) is 56 years old with 10 years of service. There are also variations on this calculation based on the number of years service on the OPM website. 56 years old with 10 years of service is the minimum. The annuity (pension) will be reduced by 5% each year taken prior to your 62d birthday prorated by monthly calculations, but again the baseline for simplicity is 5% per year. So if you are not a first responder and you decide on an immediate annuity (pension) at 56 your payout will be reduced by 30%. Or 5% x 6 years = 30%.

Using basic calculations, say you serve 15 years with an average high 3 of $100,000 at age 62 your payout would be: $100,000 x 15 x .01 = $15,000 per year. If you buy back 8 years with the same scenario, that will be comparable to $100,000 x 23 x .01 = $23,000 per year.

This simple calculation should give you a reasonable understanding of the value of buying back your time assuming you can project out to what grade and step you think you will be at retirement.

Post Reply