Buying Back Retired Military Time Under FERS

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
margaritaville
Posts: 17
Joined: Wed Jan 30, 2019 12:59 pm

Buying Back Retired Military Time Under FERS

Post by margaritaville » Thu Oct 10, 2019 8:14 am

I know there’s quite a few Feds on the site, so I was hoping to get some advice. I’m currently a Federal employee and recently attended a retirement seminar where the presenter suggested looking at the benefit of buying back military time to increase the FERS annuity. I had always assumed that due to the fact that I retired from the military, the required deposit and waiving my military retired pay were obstacles too large to overcome through an increased FERS annuity. However, the presenter said she had seen cases where highly compensated (GS-14/15) employees that were not of a high rank in the military saw benefit to making the deposit and waiving retired pay. So, I went through the process of requesting an estimate and wanted to get some advice on whether or not I’m properly considering all of the facts. Here’s the details as I know them:
  • Projected retirement date: 8/31/2023
  • Age at retirement: 58 yrs, 3 months
  • Creditable years of FERS service at retirement: 16.5
  • Projected High 3 at retirement in 4 years (assumes 2.6% raises): 176,000
  • Current gross annual military retirement pay: $42,840
  • Military service: 21.5 years
  • 3% Deposit (prior to interest): $20,122
  • Deposit with interest: $26, 866
So, I used the details above to make the following calculations based on current dollars:

Separate pensions
  • Military pension: $42,840
  • MRA + 10 reduced pension (5% per year reduction short of age 62): $23,474 ((176000*0.01)*16.5)*0.80833
  • Total of both pensions: $66,314
Single Pension
  • Voluntary retirement with 38 combined years: $66,680 (176000*0.01)*38
So, it seems like a no brainer decision to forego the buyback. It will cost me $26,866 to get a $566 annual increase. Or, 47.5 years of payback. I’m thinking I won’t make it to see the benefit. However, there are a few other considerations.

Buying back my military time would make me eligible for the supplemental retirement supplement (SRS) which would amount to $775 a month until I turn 62. So, that would amount to an additional $34,875 over the course of the 45 months until I reach 62 when it would stop. More than enough to cover the cost of making the buyback deposit.

However, the biggest drawback I see in all of this is that my FERS annuity wouldn’t receive any COLAs until I reach 62. So, that’s 45 months where my military pension would have grown, but the FERS pension is stagnant. Based on a conservative 1% per year COLA, that could add $1,740 annually to my military pension.

The cost of survivor benefit coverage under FERS is also more expensive. I would pay 10% of my annuity for 50% coverage. I’m currently paying 6.5% on my military pension for 55% coverage. It’s also paid up when I reach 70 years of age. I could however keep paying for the SBP on the military pension even though I’ve waived retired pay, but would have less survivor coverage.

So, I guess I’m looking for anyone that can validate my logic and let me know if I’m overlooking anything in regards to my calculus. The loss of 4 years worth of COLAs seems to be the major drawback, however I know those aren't guaranteed. Based on what I know, I don’t see a benefit to combining. Thanks.

Dontridetheindexdown
Posts: 94
Joined: Sat Feb 14, 2015 10:08 pm

Re: Buying Back Retired Military Time Under FERS

Post by Dontridetheindexdown » Thu Oct 10, 2019 10:28 am

Retired military and FERS here, 20+ years military, 17 years FERS.

In your situation I would MOST DEFINITELY NOT buy back military time.

Most significant reason - military pension receives full COLA (same as Social Security and CSRS).

The FERS COLA is as follows: if the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase.

I would not give up the military pension in your situation.

Also, be sure to stay in FEHB during final 5 years of Civil Service and CONTINUE it into retirement.

Then, you can SUSPEND FEHB if you decide to use TRICARE OR CHAMPVA.

Ar 65, Medicare and Tricare for Life (TFL) are all you need - no copays, no deductibles - but it only works in U.S. and a couple of territories.

There may come a time when you need/want to get back in to FEHB (overseas coverage, for example).

daheld
Posts: 738
Joined: Wed Sep 13, 2017 8:14 am
Location: Midwest US

Re: Buying Back Retired Military Time Under FERS

Post by daheld » Thu Oct 10, 2019 10:38 am

Others will give you much better info than I can on buying back military time, but I will say that the SRS is a benefit that could be taken away and I would not rely on it in making your decision.

Topic Author
margaritaville
Posts: 17
Joined: Wed Jan 30, 2019 12:59 pm

Re: Buying Back Retired Military Time Under FERS

Post by margaritaville » Thu Oct 10, 2019 10:56 am

Dontridetheindexdown wrote:
Thu Oct 10, 2019 10:28 am
In your situation I would MOST DEFINITELY NOT buy back military time.

Also, be sure to stay in FEHB during final 5 years of Civil Service and CONTINUE it into retirement.

Then, you can SUSPEND FEHB if you decide to use TRICARE OR CHAMPVA.

Ar 65, Medicare and Tricare for Life (TFL) are all you need - no copays, no deductibles - but it only works in U.S. and a couple of territories.

There may come a time when you need/want to get back in to FEHB (overseas coverage, for example).
Thanks for the advice! I just needed some confirmation.

Regarding the FEHB discussion. Our retirement seminar person said that Tricare qualifies for the 5 year requirement, but that I would need to enroll in a FEHB plan during my last month and then suspend after retirement to maintain access to the FEHB plans. The OPM website says that enrolling in Tricare is a reason to suspend FEHB, but I haven't found anyone that can tell me how the mechanics of that would work. Do I have to cancel Tricare during an open season, then enroll in a FEHB plan, then wait until the next open season to change?

Topic Author
margaritaville
Posts: 17
Joined: Wed Jan 30, 2019 12:59 pm

Re: Buying Back Retired Military Time Under FERS

Post by margaritaville » Thu Oct 10, 2019 11:00 am

daheld wrote:
Thu Oct 10, 2019 10:38 am
Others will give you much better info than I can on buying back military time, but I will say that the SRS is a benefit that could be taken away and I would not rely on it in making your decision.
Good point. It is one of those things I see on the proposed chopping block every year.

Dontridetheindexdown
Posts: 94
Joined: Sat Feb 14, 2015 10:08 pm

Re: Buying Back Retired Military Time Under FERS

Post by Dontridetheindexdown » Thu Oct 10, 2019 11:11 am

To the best of my knowledge, you need to enroll in FEHB during open season, or due to a life-changing event, before you retire.

After you retire, you can SUSPEND FEHB at any time, but need to wait until open season to get back in, unless you lose your Tricare coverage.

Be sure to understand the difference between SUSPEND and CANCEL!

THIS LINK IS THE SOURCE:

https://www.opm.gov/faqs/topic/insure/i ... 79fb9c3916

Topic Author
margaritaville
Posts: 17
Joined: Wed Jan 30, 2019 12:59 pm

Re: Buying Back Retired Military Time Under FERS

Post by margaritaville » Thu Oct 10, 2019 12:14 pm

Dontridetheindexdown wrote:
Thu Oct 10, 2019 11:11 am
To the best of my knowledge, you need to enroll in FEHB during open season, or due to a life-changing event, before you retire.

After you retire, you can SUSPEND FEHB at any time, but need to wait until open season to get back in, unless you lose your Tricare coverage.

Be sure to understand the difference between SUSPEND and CANCEL!

THIS LINK IS THE SOURCE:

https://www.opm.gov/faqs/topic/insure/i ... 79fb9c3916
Thanks for the link! Sounds like I need to retire at the end of January to take advantage of this effectively. I could enroll in FEHB during open season in November/December, have it become active in January, Retire Jan 31st, then suspend February 1st.

Post Reply