FERS why it is so low.

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Vol
Posts: 17
Joined: Wed May 09, 2018 7:36 pm

FERS why it is so low.

Post by Vol » Wed Sep 12, 2018 6:29 pm

Hi. I just started a federal job. It has FERS. I went through the FERS calculator and it says that when I retire I will get a whopping 5k a year in retirement income. I don't get it. Is this for real? What is so great about government benefits if the pension pays 5k a year when you retire? It seems like a bad joke. Am I missing something? :oops:

delamer
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Re: FERS why it is so low.

Post by delamer » Wed Sep 12, 2018 6:36 pm

There are 2 basic components that determine your benefit — your salary and your years of service.

There also can be downward adjustments if you retire before certain ages. And an upward adjustment if you wait until 62.

So what will your final salary be, how many years of service will you have when you retire, and how old will you be?

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grabiner
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Re: FERS why it is so low.

Post by grabiner » Wed Sep 12, 2018 7:19 pm

Vol wrote:
Wed Sep 12, 2018 6:29 pm
Hi. I just started a federal job. It has FERS. I went through the FERS calculator and it says that when I retire I will get a whopping 5k a year in retirement income. I don't get it. Is this for real? What is so great about government benefits if the pension pays 5k a year when you retire? It seems like a bad joke. Am I missing something? :oops:
Are you 57 years old? If so, you will be eligible to retire with just five years of federal service (at age 62), and if you do that, your benefit will be only 5% of your high three years' salary.

Alternatively, are you young but a low grade? If you are 27, you will be eligible to retire with 30 years of service at age 57, and your benefit will be 30% of your high three years' salary. (And if you are older than 27 but younger than 47, you can retire at 57 with a reduced benefit, or wait until 60 with 20 years to get a higher benefit.) But if you are currently earning only $20K at age 27, then the 30% estimate would be only $6K. If you stay with the government for 30 years, you expect to be promoted several times; if you retire with a salary of $100K, your pension benefit will be $30K.

Finally, note that the pension won't be your sole source of retirement income. Contribute at least 5% of your salary to the TSP, so that you get a 5% match from the government; that 5% match, which didn't come from your own money, will also provide you income in retirement.
Wiki David Grabiner

Tdubs
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Re: FERS why it is so low.

Post by Tdubs » Wed Sep 12, 2018 7:31 pm

If you have less than 20 years of service when you retire, the equation for an annual pension is salary times years divided by 100. So, if you have 15 years and $100k average for the high 3 years, it would be: $100,000 * 15/100=$15,000 pension.

If you have 20 or more years it is salary times years times 1.1 divided by 100. So $100,000 times 20 * 1.1/100=$22,000 pension per year.

rxdawg21
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Joined: Thu Apr 23, 2015 9:18 pm

Re: FERS why it is so low.

Post by rxdawg21 » Wed Sep 12, 2018 7:33 pm

The 1.1% only kicks in if retiring at 62

ExitStageLeft
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Re: FERS why it is so low.

Post by ExitStageLeft » Wed Sep 12, 2018 7:51 pm

FERS is built as a three-legged stool. The pamphlet I got back in year 1 actually had a stool printed on it.

The three legs are the FERS pension, social security, and the Thrift Savings Plan. You'll need all three (at least) to have a reasonable retirement.

trueblueky
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Re: FERS why it is so low.

Post by trueblueky » Wed Sep 12, 2018 7:52 pm

Three-legged stool:

* Social Security (maybe 1/3 of your final salary -- high earners receive a lower percentage of a higher salary history; low earners, more)
* FERS -- 1/3 of your high-three salary at age 62 with 30 years of service
* TSP -- depends on how much you save

Morgan Dollar 1921
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Joined: Tue Jul 17, 2018 9:04 am

Re: FERS why it is so low.

Post by Morgan Dollar 1921 » Wed Sep 12, 2018 8:10 pm

I am far from being an expert on this topic, but I have a LP who is FERS retired last year, and I worked with a couple of car dealer techs who retired at age 58 & 59, others in family went at 59 all prior to the 59.5 threshold. A stool can still wobble if you lean the wrong way, I suggest four or five legs, a Roth and another personal equity, bond & CD sub-floor, a brokerage account from one of the top four or five( Vanguard, F, S or E-T or TD). It can take from three/six up to ten months for your FERS to be calculated once you retire(a QDRO/COBB will push it to the longer time frame) .The annual leave payout if they leave it alone can help for two to three months income, maybe more, but you need an emergency fund and at least six months of living expenses, I would suggest when you retire. The TSP is a five percent match currently if you put in that much at least, I suggest fifteen percent as both dealer techs said that is how they left so early. The Roth is important if you go before 62, (one may need to), never know how our health will hold up in our late fifties. The match has to go in the TSP traditional currently but you can put the rest in the Roth or do a five/ten split, which will equal ten% in both accounts. When you get to the later part of the year after retirement and you break thru a tax bracket ceiling like going from 12 to 22, plus applicable state, you will be smiling that you have some in a Roth to avoid the extra withdrawal you need to make to cover the additional 10 % tax payment. There is debate in Congress & OPM for budget changes that may roll your FERS contribution level from the current 3 or 4 percent up to maybe 7 % plus, employees hired prior to 2012 ( I think that was the year it changed) only paid something like 80 to 100 basis points of their gross check. Think about putting more away younger for compounding to blossom your retirement security. Good luck.
Last edited by Morgan Dollar 1921 on Wed Sep 12, 2018 8:22 pm, edited 1 time in total.

tulsuduke
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Joined: Sat Jan 06, 2018 10:34 am

Re: FERS why it is so low.

Post by tulsuduke » Wed Sep 12, 2018 8:16 pm

Vol wrote:
Wed Sep 12, 2018 6:29 pm
Hi. I just started a federal job. It has FERS. I went through the FERS calculator and it says that when I retire I will get a whopping 5k a year in retirement income. I don't get it. Is this for real? What is so great about government benefits if the pension pays 5k a year when you retire? It seems like a bad joke. Am I missing something? :oops:
Tough to say if it's accurate without knowing salary and number of years you intend to work in the federal government.

3504PIR
Posts: 588
Joined: Mon Jul 26, 2010 2:46 am

Re: FERS why it is so low.

Post by 3504PIR » Wed Sep 12, 2018 8:54 pm

Vol wrote:
Wed Sep 12, 2018 6:29 pm
Hi. I just started a federal job. It has FERS. I went through the FERS calculator and it says that when I retire I will get a whopping 5k a year in retirement income. I don't get it. Is this for real? What is so great about government benefits if the pension pays 5k a year when you retire? It seems like a bad joke. Am I missing something? :oops:
As previously mentioned, the accuracy of what you may get depends on what numbers you used to come up with that result. I’m retiring next year after 11 years and will get more than double what your result indicated.

High 3 avg salary x years served x 1% = FERS amount per year

Note as above if you work longer than 20 years and if you retire earlier than 62 it will shift your result somewhat.

If you used a calculator than imported your work history, you got a very different result than doing the math yourself.

SlowlySaving
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Joined: Wed Aug 02, 2017 7:49 pm

Re: FERS why it is so low.

Post by SlowlySaving » Thu Sep 13, 2018 5:34 pm

I recently started working for the feds also! You are correct the FERS isn't that great. The BIG benefit I have found is that you can stay on their group health insurance when retire!
For instance I would have to work 10 years and be 58 years old but if I do I would be able to stay on the federal health policy after retiring (I would pay the same amount for the health insurance policy as if I was still employed, The only other requirement is that you have their health insurance for the last 5 years before retiring. Health insurance is a big challenge for those who want to FIRE (Financial Independence/Retire Early), THIS is one of the solutions to that problem. :happy

rich126
Posts: 152
Joined: Thu Mar 01, 2018 4:56 pm

Re: FERS why it is so low.

Post by rich126 » Fri Sep 14, 2018 6:30 am

There are a lot of misconceptions with regards to federal employment, and especially, retirement. I've had people think it was like the military or police and you could retire after 20 years. I wish!

At one time there was the CSRS and that plan was generous although it presented the "golden handcuffs" situation. People hired under CSRS did not pay, nor collect social security. Also they received 2% times number of years of service times avg 3 year high pay. And I believe you could retire at 56. So after 35 yrs of working (assuming you started at 21) that would give you 70% of your pay.

The negative of CSRS was it tied you to the job. Once you left, you didn't have anything since there was no 401K. CSRS ended in the early 80s.

Now FERS came about with a 1% per year * years of service * high 3 average. Sometimes it can be more than 1% for years served in certain out of country locations. For that pension the government employee had 0.8% deducted from his pay. There also was a 401K plan. 1% was automatically given by the government, then for the first 3% the employee gave, the gov matched, then for the next 2% the government gave you 0.5%. And FERS employees pay and collect social security.

That plan is still good or generous in my view. What has made it substantially less generous is the employee's contribution. It went from a near negligible 0.8% to about 4% and now 5%. When you start doing the math, the current plan is much less attractive.

As far as health insurance goes, there was a post here that was incorrect but I don't see it anymore so I guess it was deleted. There are several retirements.

1. Deferred: This is when you leave the government before reaching your retirement age. If you are vested (I think it is 5 years but could be 3 yrs), then you would get a pension at your retirement age based on the years you worked and your avg 3 year high salary. And you CANNOT regain federal health insurance.

2. Immediate: This obviously means you have reached the age where you can retire. You start collecting either a full pension or a reduced pension. (penalty is 5% per year from age 62 and not what would be your MRA). In this case you can keep your health insurance (and life insurance) IF you have paid for health insurance for the last 5 years (60 months).

3. Postponed: This doesn't apply to a lot of people (although it does to me). Usually this applies to people who have left and came back to a government job. In this case you have reached MRA (in my case 56) but you don't have the years of service (I think 35 yrs) to get a retirement w/o paying the penalty, in this example the penalty would be (62-56) * 5% or 30%, and this penalty is permanent, it doesn't end when you hit 62. To qualify for a postponed retirement you need to be at MRA (varies based on birth year) and have at least 10 years of service. In this case you don't collect a pension or health insurance until you turn 60 or 62 (with 20 yrs of service, it is 60, else 62) and then you get your pension without penalty AND the health insurance (and life) can be re-established.

So compared to some jobs the benefits are great, but compared to others, not so much. Like most things in life, it depends.

And sure, if you go and work there 5 years and retire, well, what you do expect? 5% of 100,000 is $5K. Do you really expect more?

trueblueky
Posts: 1359
Joined: Tue May 27, 2014 3:50 pm

Re: FERS why it is so low.

Post by trueblueky » Fri Sep 14, 2018 11:01 am

rich126 wrote:
Fri Sep 14, 2018 6:30 am
There are a lot of misconceptions with regards to federal employment, and especially, retirement. I've had people think it was like the military or police and you could retire after 20 years. I wish!

At one time there was the CSRS and that plan was generous although it presented the "golden handcuffs" situation. People hired under CSRS did not pay, nor collect social security. Also they received 2% times number of years of service times avg 3 year high pay. And I believe you could retire at 56. So after 35 yrs of working (assuming you started at 21) that would give you 70% of your pay.

The negative of CSRS was it tied you to the job. Once you left, you didn't have anything since there was no 401K. CSRS ended in the early 80s.

Now FERS came about with a 1% per year * years of service * high 3 average. Sometimes it can be more than 1% for years served in certain out of country locations. For that pension the government employee had 0.8% deducted from his pay. There also was a 401K plan. 1% was automatically given by the government, then for the first 3% the employee gave, the gov matched, then for the next 2% the government gave you 0.5%. And FERS employees pay and collect social security.

That plan is still good or generous in my view. What has made it substantially less generous is the employee's contribution. It went from a near negligible 0.8% to about 4% and now 5%. When you start doing the math, the current plan is much less attractive.

As far as health insurance goes, there was a post here that was incorrect but I don't see it anymore so I guess it was deleted. There are several retirements.

1. Deferred: This is when you leave the government before reaching your retirement age. If you are vested (I think it is 5 years but could be 3 yrs), then you would get a pension at your retirement age based on the years you worked and your avg 3 year high salary. And you CANNOT regain federal health insurance.

2. Immediate: This obviously means you have reached the age where you can retire. You start collecting either a full pension or a reduced pension. (penalty is 5% per year from age 62 and not what would be your MRA). In this case you can keep your health insurance (and life insurance) IF you have paid for health insurance for the last 5 years (60 months).

3. Postponed: This doesn't apply to a lot of people (although it does to me). Usually this applies to people who have left and came back to a government job. In this case you have reached MRA (in my case 56) but you don't have the years of service (I think 35 yrs) to get a retirement w/o paying the penalty, in this example the penalty would be (62-56) * 5% or 30%, and this penalty is permanent, it doesn't end when you hit 62. To qualify for a postponed retirement you need to be at MRA (varies based on birth year) and have at least 10 years of service. In this case you don't collect a pension or health insurance until you turn 60 or 62 (with 20 yrs of service, it is 60, else 62) and then you get your pension without penalty AND the health insurance (and life) can be re-established.

So compared to some jobs the benefits are great, but compared to others, not so much. Like most things in life, it depends.

And sure, if you go and work there 5 years and retire, well, what you do expect? 5% of 100,000 is $5K. Do you really expect more?
CSRS required a 7% contribution and paid 1.5% for first five years, 1.75% for second five years, and 2% after that. An easy way for someone with more than ten years to figure it, is subtract two years from years of service, then multiply by two. (1 year, 11 months is more accurate). So, someone with 30 years would have 56% as their multiplier. That is multiplied by the highest three years of salary. So if the high three are $49,000; $50,000; $51,000, it would be a pension of $28,000/year. No Social Security unless from another job and then it can be reduced.

The same 20-year employee retiring at age 62 under FERS would get 33% for an $16,500 pension plus approximately the same from Social Security.

In 1984, the transition began to FERS, with full implementation in 1987. FERS paid 0.8% plus 6.2% Social Security (CSRS did not pay nor receive SS) for the same 7% contribution as CSRS. Both paid Medicare. FERS also receive an automatic 1% to TSP and up to 4% match if the employed contributes at least 5%. Congress raised the 0.8% contribution twice on new hires since 2000, so that it is now 4.4% for them.

FERS receive a supplement if they retire before SS eligibility, and have a 1.1% multiplier times years if they wait until 62 to retire. This creates a cliff. Retire at 61 with 35 years get 35%. Delay retirement one year, and get 39.6%.

* FERS plus Social Security is definitely better than CSRS for wage grade and lower GS because SS replenishes a higher percentage of low and moderate wages.
* TSP matching is free money (CSRS did not get this. TSP did not start until April 1987.)

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