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Understanding Retirement Plans and Options for Federal Employees

Federal employees can collect retirement income from three sources under one current federal plan.

Last Updated: 5/12/2022
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Employees of the federal government can plan for retirement using the Federal Employees Retirement System (FERS), which draws funds from three sources: a Basic Benefits Plan, Social Security and a Thrift Savings Plan (TSP). While all federal employees are eligible and automatically enrolled, there are certain requirements for receiving retirement benefits early and factors to consider, such as health insurance, when you retire. Some plan components can also be transferred if an employee leaves the federal government for another job.

Contributing to the Federal Employee Retirement System (FERS)

The FERS program offers federal employees a convenient and efficient way to save for retirement. In 1983, FERS replaced CSRS and has been the retirement program in place for federal workers ever since. Under FERS, retirement funds are drawn from three sources: an employee-and-employer-funded annuity, Social Security and a tax-deferred option, the thrift savings plan (TSP). Federal employees are automatically enrolled in FERS upon being hired, though there are several requirements an employee must meet to be eligible to start collecting retirement payments early.

How Does FERS Work?

Federal employees are automatically enrolled in FERS at a 0.8% contribution level toward their basic benefits. An employee’s basic benefit calculation is based on the length of employment and the highest pay earned during any three consecutive years of employment. Employees are able to contribute up to 11% of their salary toward TSP. Payments are fully vested after five years of service. Along with retirement income, FERS also provides disability payments and survivor benefits.

Military Service Credit and Retired Pay

Federal employees with military service are eligible for certain benefits. Service members must have received an honorable discharge and service must have occurred before they retire from their federal position. Military credits work through a buy-back system that begins once an employee makes an annuity deposit into FERS.

In order to be eligible to receive FERS benefits, service members must waive their military retirement and benefits pay. Exceptions do apply, such as if an employee developed a disability during a war or if they served in a certain branch of the military.

3 Sources to Receive Retirement Benefits

Public employees have three ways to pay into and receive retirement benefits: the Basic Benefit plan, Social Security income and the TSP. The Basic Benefit Plan is jointly funded by the employee and branch of the federal government for which they work, while Social Security works through a paycheck deduction — the same as it does for private-sector employees. TSP is a tax-deferred plan that works in much the same way as a 401(k) plan. Employees contribute a percentage of their income tax-free and the employer matches it up to a certain percentage. Each source provides retirement income and benefits to federal workers.

  • Retirement Source
    What Does the Source Entail
  • Basic Benefit Plan

    Employees contribute 0.8% of their pay and the employer
    contributes at least 10.7%. The Basic Benefit Plan provides
    retirement, disability and survivor benefits to its members.

  • Social Security

    Deductions are made from each paycheck and benefits are
    available beginning at age 62, or earlier if you are disabled,
    blind or have enough credits to do so.

  • Thrift Savings Plan (TSP)

    Depending on date of hire, employees contribute 3 to 5%
    toward their TSP account. Like a 401(k) in the private sector,
    employees can choose how their money is invested.

1. Basic Benefit Plan

The Basic Benefit Plan is an annuity that both the employee and federal employer contribute to. Federal employees are automatically enrolled to contribute 0.8% of their salary. The amount of the annuity is calculated using length of service and an employee’s “high-3” average salary. This refers to the highest pay earned during any three consecutive years of service. This number excludes any overtime or bonuses and refers only to basic pay. Pay will be slightly higher if you retire at age 62 and have worked for at least 20 years versus if you retire younger than 62 or at 62 but with fewer years of service.

If an employee leaves their federal job, they have a few options depending on how long they were employed. Employees who worked for at least five years can leave the funds in their account and apply for a deferred annuity when they have reached an eligible age or apply for a refund of their contributions. Employees with less than five years of employment can leave funds in the account if they believe they will return to a federal position or apply to receive a refund of their contributions.

2. Social Security

As part of FERS, employees pay into Social Security via tax deductions from each paycheck. These payments equate to credits that can be used to claim benefits upon reaching retirement age — as early as age 62 but in most cases when a worker turns 65. Taking benefits at age 62 can result in lower payments.

Full-time federal employees are automatically enrolled as they are in the private sector. If a worker leaves a government job to work at another job, previous payments made usually do apply toward their ultimate Social Security benefit.

3. Thrift Savings Plan (TSP)

The TSP is the third component of FERS. Federal employees are automatically enrolled when they are hired, though the contribution rate varies depending on the hire date. For example, employees hired in October 2020 or later are enrolled at 5% while employees hired back to August 2010 are enrolled at 3%. Contributions are vested after three years of service, meaning if you leave your job, you are entitled to keep your TSP contributions. You can also leave funds in your TSP account as long as your balance is at least $200. If you do withdraw funds, however, they are considered taxable income.

An illustration of a man understanding the differences between FERS and CSRS. FERS replaced CSRS in 1987.

What’s the Difference: FERS vs. Civil Service Retirement System (CSRS)

The Civil Service Retirement System (CSRS) was the retirement program in place for federal employees until 1987 when FERS replaced it. It began in 1920 when the Civil Service Retirement Act was passed. Employees contribute up to 10% of their basic pay, which is matched by the employer. They can also pay into a TSP account without an employer contribution. CSRS employees don’t pay Social Security tax but do pay the separate Medicare tax.

  • Key Factors
    Federal Employee Retirement System (FERS)
    Civil Service Retirement System (CSRS)
  • Description

    Provides retirement income
    through jointly funded plans
    and Social Security

    Provides retirement income
    through one plan that is
    jointly funded with option
    for an employee-funded TSP

  • How does it work?

    Through regular employee
    contributions matched by
    an employer

    Through regular employee
    contributions matched by
    an employer

  • Benefits include

    Survivor and disability benefits,
    Military Service Credits

    Survivor and disability benefits,
    Military Service Credits,
    Cost-of-Living Adjustments

  • How enrollment works

    Automatic

    Voluntary

  • Minimum retirement age

    62

    62

  • Average contribution

    0.8%

    7-8%

  • Military Service Credit
    and Retired Pay

    Can make a payment toward
    retirement credit; can waive
    retired pay and have added to
    civilian service.

    Can make a payment toward
    retirement credit; can waive
    retired pay and have added
    to civilian service.

CSRS Benefits

Federal employees who pay into CSRS can take advantage of full employer matching for their contributions. The benefit of CSRS over FERS is that CSRS was designed around one plan while FERS consists of three. Typically, CSRS employees receive a larger pension than those receiving Social Security. This one-plan system compensates for not receiving Social Security or other supplemental income. The Office of Personnel Management (OPM)’s handbook outlines CSRS and FERS coverage and benefits.

An illustration of a man on his laptop, researching and planning his retirement.

Planning Your Retirement

It’s extremely important to plan for retirement during your working years, when many employees have access to contribute to programs such as FERS and Social Security. Making contributions toward retirement accounts now can provide you with income when you retire. It can be helpful to take steps based on milestones, such as when you’re five years, one year or months away from retiring.

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STEPS TO TAKE BEFORE YOU RETIRE

Though the path to retirement can seem overwhelming, staying organized can help simplify the process. The OPM offers helpful guides for those who are nearing retirement within five years or less. When you are ready to retire, be sure to submit your retirement application.

Including Life and Health Insurance Benefits

The best health insurance options are those that provide affordable coverage for yourself and your family. The Federal Employees Health Benefits (FEHB) program offers health insurance to employees and their families, as well as to retired employees and their survivors and certain temporary workers. Former spouses can also enroll. Several plans are offered with varying levels of coverage and deductibles. The OPM compiled a health care fact sheet providing a basic breakdown of plans offered and created a comparison tool for current coverage options.

Life insurance is a key benefit that ensures the employee’s assets, debts and beneficiaries are covered after the death of an insured member. The Federal Employees’ Group Life Insurance (FEGLI) offers basic life insurance coverage. The OPM offers a FEGLI calculator to determine premiums and plan value.

How to Calculate Your Retirement

You’ll need to know your length of service and highest average salary over three consecutive years in order to calculate how much you’ll earn in retirement under FERS. Keep in mind there are special circumstances that will affect your calculation, which are noted in the OPM computation guide.

FERS Calculations

Your “high-3” refers to the highest pay you received in any three years of service, excluding overtime and bonuses. These may be your last three years of service, but it’s helpful to maintain complete records in case you earned a higher average salary in earlier years. If you received a raise, this is included. The only pay excluded is anything extraneous like overtime payments or a bonus. You can find your FERS calculation by following the steps below.

1

Determine your highest average pay

While this is likely your last three years of service, examine your records to be sure you’re calculating the highest basic pay over three consecutive years.

2

Count your years of service

This will be the total number of years you worked as a federal employee. Your years of service will affect your calculation, as reflected in the next steps.

3

Determine if you retired under a special provision

Special provisions apply for certain types of federal workers, which are noted in the OPM’s computation guide.

4

If you are under age 62 or older than 62 with less than 20 years of service

The basic formula for your retirement benefit is 1% of your highest average salary for each year of service.

5

If you are 62 or older with 20 or more years of service

The basic formula for your retirement benefit is 1.1% of your highest average salary for each year of service.

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FERS REAL-LIFE SCENARIO

Carl has worked as a civil servant for 10 years. He is 65 when he retires. His highest average salary over three years was $70,000. Because he is retiring over age 62 with less than 20 years of service, we will calculate 1% of his highest average salary for 10 years. Carl’s gross retirement benefit would be $7,000.

CSRS Calculations

Just like for FERS, you’ll need to know your length of service and highest average salary over three consecutive years in order to calculate how much you’ll earn in retirement under CSRS. Keep in mind there are special circumstances that may reduce the amount you collect, which are noted in the OPM computation guide. You’ll also receive periodic cost-of-living adjustments to your retirement benefit. You can find your CSRS calculation by following the steps below.

1

Determine your highest average pay

While this is likely your last three years of service, examine your records to be sure you’re calculating the highest basic pay over three consecutive years.

2

Count your years of service

This will be the total number of years you worked as a federal employee. Your years of service will affect your calculation, as detailed in the next steps.

3

Determine if you may receive a reduction

Certain circumstances may reduce your annuity amount, which are noted in the OPM’s computation guide.

4

For your first five years of service

Calculate 1.5% of your highest average salary for each year of service.

5

For your next five years of service

Calculate 1.75% of your highest average salary for each year of service.

6

For all proceeding service years

Calculate 2% of your highest average salary for each year of service.

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CSRS REAL-LIFE SCENARIO

Maria retires at age 62 from her position as an air traffic controller, a position she’s held for 35 years. Her highest average salary was $110,000. Because Maria’s retiring after 35 years, we will multiply 1.5% of her highest average salary for the first five years, then 1.75% for the next five years, and then 2% for her remaining service years. Maria’s gross retirement benefit would be $72,875.

4 Types of Retirement

There are four types of retirement for federal employees that differ depending on an employee’s circumstances around retiring. Early and voluntary retirement both carry minimum age requirements, for example. Documentation is also needed to retire due to a disability incurred during your time of service.

1. Disability Retirement

If you have a medical condition that qualifies you for disability retirement, the first step is to provide your employer with documentation of the condition. You also must meet requirements for disability retirement, including having served for at least 18 months and apply for Social Security disability benefits. You then must fill out and submit an application for immediate retirement and documentation in support of disability. Both forms can be obtained by your employer.

2. Early Retirement

To retire early, you will be subject to deductions depending on your age at time of retirement. You will also need a minimum years of service, typically 10. The OPM details your minimum retirement age based on your beginning date of service.

3. Voluntary Retirement

If you choose to voluntarily retire, such as if your company reorganizes, there may be requirements depending on your age and length of service. Learn if there are any special requirements you should be aware of as well as how to calculate your minimum retirement age. Like with early retirement, your annuity may be reduced under voluntary retirement.

4. Deferred Retirement

Deferred retirement refers to former federal employees who may still be eligible for an annuity. If you paid into FERS and left your federal position, you can apply for a deferred annuity when you reach age 62. You also may do so at an earlier age but may receive a reduction in your annuity payment. The OPM outlines the minimum requirement age and other information you’ll need to compute your benefit.

How Does the Survivor Annuity Work

It’s not uncommon to experience financial challenges after the death of a loved one. Understanding death benefits and final expenses is important to factor into your benefits. FERS provides a death benefit for surviving and former spouses of employees who die within 18 months of service. The death benefit is payable if the spouse meets certain requirements, including having been married to the employee for at least nine months. The basic death benefit is 50% of the employee’s final salary, plus $32,423.56 as a cost-of-living adjustment.

Surviving and former spouses and children are also eligible for a survivor annuity. The OPM outlines the full list of requirements to be eligible to receive the survivor annuity.

An illustration of a man holding a large question mark.

FAQs About Federal Employee Retirement

Federal employees have many options for retirement under FERS. There are varying requirements for each type of retirement and the benefits offered. As long as a worker meets certain requirements and completes the proper documentation, they are usually able to start receiving benefits.

Expert Insight on Maximizing Your Retirement

MoneyGeek spoke with industry leaders to provide expert insight on financial retirement planning for federal employees. Glean their insight on maximizing your retirement income and savings.

  1. How can federal employees maximize their retirement benefits through FERS?
  2. What are some steps federal employees should take in the years leading up to retirement?
Kevin Dugan
Kevin Dugan

Investment Advisor and CFO at Dugan Brown

Kenneth Chavis IV
Kenneth Chavis IV

Certified Financial Planner and Senior Wealth Manager at LourdMurray

Frankie Fegurgur
Frankie Fegurgur

Service Member Under FERS and Financial Literacy Teacher at Frank Money Talks

Resources to Help You With Your Retirement Plan

If you are looking for more information on FERS, CSRS or any of the plan specifics, there are several resources available. You can find guides on withdrawing funds, for example, and calculators to compute your benefits.

  • CSRS/FERS Handbooks: The OPM provides a list of documents that go over every aspect of CSRS and FERS, including refunds, spouse, former spouse and children’s benefits and computation of benefits.
  • FEGLI Calculator: Determine the cost of your premiums and face value of the life insurance plan you selected using this calculator.
  • FAQS: Thrift Savings Plan: If you need to make a change to your TSP account or withdraw funds, learn how to do so.
  • Retirement Service: My Annuity and Benefits: Learn how to withdraw money from your TSP and who to contact if you have specific questions about the plan.
  • Social Security Benefits for Federal Workers: A small number of workers hired before a certain date might be ineligible for Social Security. This page details who may not be eligible.

About the Author


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Cheryl Wagemann has more than seven years of experience creating content for digital and print media companies. She most recently covered economics and banking terms for The Balance and previously was the shopping editor at Finder, where she developed a love for personal finance. Prior to that, roles ranged from a Samsung copywriter to a local news editor. Cheryl is currently also an updates editor for Byrdie, a Dotdash vertical.


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