Q&A The Difference Between Postponed and Deferred Retirement
Hi. I'm Micah Shilanski from Plan Your Federal Retirement. Welcome to our video. We just finished teaching two days of federal benefits classes. They were eight hours a day, and we had a lot of great questions that came up, so we thought we'd share one of those with you.
One of the questions was, “What is the difference between a postponed and a deferred retirement?”
They sound similar, but they have really big differences in retirement times.
Let's get into it.
Let's learn about the deferred retirement first. What is a deferred retirement?
Well, in order to retire under the FERS, Federal Employee Retirement System, you've had to meet one of three criteria. You've had to be at your minimum retirement age, (MRA) and have 30 years of creditable service; be age 60 and have 20 years of creditable service; or be age 62 and have at least 5 years of creditable service.
Those are our requirements that we have to meet in order to retire with an immediate, unreduced pension.
Let's say I work with the Feds, I'm 50 years young, and I'm done. I want to separate. I've had 20 years of federal service, so I've paid into the FERS system and I'm vested. Vested for FERS employees means that they have paid into the FERS Pension plan for five years of more.
My pension is vested, so I could defer my retirement. I could separate from the Feds, I could go to the private sector, could do whatever I want, and I am deferring my pension to a future time.
When would I get the pension? Well, I have to be at least age 60 with 20 years of service and since I was only 50 when I left Federal Service I would have to wait 10 years. When I reached age 60, I would go back to OPM and say, “Hey, I used to work for you and I have 20 years of FERS time, I am now age 60.”
OPM would process your paperwork and start your pension, which is great!
You do not lose your pension when you defer, you stop contributing to the pension but you do not lose it in this scenario. I still had my pension benefit, I just deferred it.
In this scenario, I lost another great benefit, FEHB. Probably the best benefit you have as a federal employee is your Federal Employee Health Benefit, your insurance. Under a deferred retirement, you do not keep health insurance into retirement.
Let's take a look at a postponed retirement, and this is a big difference.
How does a postponed retirement work?
A postponed retirement means I am eligible for an immediate pension right away, but it has a penalty. I want to postpone receiving my pension so that I do not get a penalty.
What does that mean?
I could be Minimum Retirement Age (MRA - around age 55 and 57 contingent on when you were born) and have 10 years of federal service. In this scenario, I am eligible for an early retirement, with a penalty.
The penalty is because I do not have my 30 years of credible service at the MRA. Therefore, I have to pay a 5% penalty every year that I am under age 62.
Let’s apply this to a scenario. Let’s say that I am 57 years young and that I have 10 years of credible service with the feds and I chose to separate. If I turn my pension on right away, and I would be able to, I would be at a 5% penalty for the 5 years (62 minus 57 = 5 years) that I am under 62.
Years Until Age 62
Permanent Penalty Applied to Pension
5 years X 5% = 25% Permanent Penalty that never goes away in your retirement.
Maybe I do not want to do this? Maybe what I want to do is chose to postpone my benefits.
I could go and put them on a shelf and come back at a later time.
Well, when? I have ten years of service. That means I've had to be at least 62. At 62 I could go back to the OPM, I could turn on my pension and my FEHB, Federal Employee Health Benefits, which what makes a postponed retirement attractive.
Now, I had to stop getting health insurance if I chose not to get that pension at 57 for that MRA and 10 retirement, and I postponed it, but now I'm 62. When your pension comes on and your get your FEBH back the government keeps paying their approximate 72% of the FEHB premium and you have to continue to pay the 28% (just like most feds do now as an active employee).
What I like about this is that it gives you options as a federal employee. It makes it more flexible so you can choose the right plan that meets your financial needs.
My name is Micah Shilanski. I hope this information has been of benefit to you. Please go ahead and check out more information on our website, plan-your-federalretirement.com.
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You may be eligible for a FERS Disability Retirement at any age if you...
If you qualify for a Disability Retirement before age 62, your disability benefit will be calculated at three different times...
Let's take a closer look at the calculate for each of these times:
60% of your High-3 Salary - 100% Eligible Social Security Disability Benefit
It is important to note that your pension will be reduced by ALL of the Social Security Disability Benefit that you are *eligible* to receive. That means that even if you don't apply for it, your pension will be reduced by that amount anyways.
Also, some people might not think 60% of your High-3 is very much - but consider that you would have to work for 60 YEARS for the government to get 60% of your regular FERS pension.
40% of your High-3 Salary - 60% Eligible Social Security Disability Benefit
Your pension will be recomputed using the regular FERS retirement formula. But, for your Years in Service, you get to count all the years you worked for the Federal Government AND all the years you received a Disability Pension up until age 62.
Your High-3 will also be recalculated to include all of the COLA that you would have received during your time in service until your 62nd birthday.
We covered just the basics of FERS Disability benefits, but there are other details that need to be considered.
You can find more information on FERS Disability at OPM's site.
Are you looking for a financial planner to help you plan your federal retirement? Someone who knows your federal retirement benefits - and can help you with all aspects of your financial picture?
Micah Shilanski, CFP®, is a financial planner for federal employees. Micah helps federal employees understand their benefits from a financial planning perspective and helps them make the best choices for their personal situation.
But Micah is not right for everyone. Let's take a closer look at what Micah does and how he helps his clients to see if Micah is the right financial planner for you.
As a federal employee - you know your benefits are complex.
You can find lots of information about financial planning. But federal employees really do have unique financial planning considerations that generic financial planning doesn't address.
And you can find lots of information online about your federal retirement benefits. But it usually is geared towards educating a group - which makes it difficult to sort out how to make the best choices for your situation.
It is rare to find a financial professional who really knows the ins and outs of federal retirement. Rarer still to find one who actually does full financial planning.
But Micah is unique. Not only does Micah know CSRS and FERS retirement benefits - more importantly, he has had the privilege to help his clients through the entire retirement process.
That combination of teaching pre-retirement classes *and* having real life experience helping federal employee clients is a rare combination which makes Micah one of the top financial planners for federal employees.
Micah looks at all the pieces of your financial puzzle and helps you put them together in a way that achieves your goals.
Micah is different because he looks at your entire financial picture, not just one piece of the pie.
Micah can help you with...
Some financial professionals will only look at your stock portfolio. Or perhaps an insurance agent only looks at how much insurance you might need.
But in reality - these things are not separate. One area of your life can have significant impact on other areas.
You wouldn’t go to 4 different doctors and get different prescriptions from each one without telling every doctor what other medications you were taking, would you?
But even if you did tell the other doctors what medications you were taking... what if the doctors didn’t really understand the side effects of those medications? Or how each medication interacts with the others?
Yet many people see several different financial professionals who have no idea what the other professionals are doing.
Each professional seems to operate as if their ‘piece of the pie’ didn’t affect the other pieces - but they do.
That’s why it’s important to have a financial professional who understands all the different pieces of the pie, and how they interact with each other.
Micah is different because he understands ALL the pieces of your financial pie, including your Federal Retirement benefits.
Not everyone is right for our firm. We are very selective of the people we choose to bring on as clients, because we have a long-term planning relationship with them. And we only work with people we like and care about.
If you just want to open an IRA and manage it yourself, Micah's not for you. There are plenty of bank representatives who can help open an account.
If you only want to buy an insurance policy, Micah's not for you. There are plenty of insurance salesmen who would be happy to sell you a policy.
But if you're looking for a trusted advisor who understands both your Federal Retirement benefits, and the finer points of advanced financial planning, then you should talk with Micah.
If you're thinking about hiring Micah, the first step is to schedule a personal consultation.
Call our office, Shilanski & Associates, Inc., at (907) 278-1351 to schedule your personal consultation with Micah Shilanski, CFP®.
During your consultation, you can ask Micah any federal retirement questions you have - and talk more about how he might be able to help you.
Initial consultations generally last 30 minutes; but many people are amazed at how much helpful information they learned from Micah in that time.
There is a fee for a personal consultation, but aside from that, there is no further obligation.
Micah is an independent, fee-based financial planner.
Micah's clients pay a flat fee - based on their situation - for his financial planning services.
The fee for a personal consultation with Micah is $400. During your consultation, if you're interested in moving forward, Micah will be able to quote you a flat-fee based on the level of help you'd like and discuss the next steps.
Micah's fees are not cheap, because he provides great value to his clients.
Haven't you found that in life, you get what you pay for? Do you really want the 'cheapest' financial planner charting your course?
We want our clients to happily pay Micah's fees, because they are delighted with the Micah's help and services.
We want you to be happy - period.
During your consultation, Micah will ask if you felt the time has been valuable. And if you felt like you didn't get your questions answered or didn't learn anything new - you won't owe us a thing for the time. We just think that's fair.
We want you to be happy. Most people come away from the consultation feeling that $400 was a bargain for the information and insight Micah gave them even in that one consultation.
And that's how we want it to be - we want you to be happy about paying Micah's fees because you are delighted and impressed with the value you received.
If you're looking for a financial planner who...
✔ Understands your unique benefits as a Federal Employee
✔ Can help you with all the pieces of your financial puzzle
✔ Wants to have a long term planning relationship to help you achieve your goals and dreams
Then call our office, Shilanski & Associates, Inc. to schedule your personal consultation with with Micah Shilanski, CFP®.
To schedule your personal consultation with Micah, call our office in Anchorage, Alaska, at:
Please note that Alaska time is 4 hours behind Eastern time - so 12 noon on the East Coast is 8 am Alaska time.
When you call to schedule your appointment, please note that Micah's calendar is typically booked 2 - 6 weeks in advance.
For in-person consultations, you'll meet with Micah at our office in Downtown Anchorage:
Shilanski & Associates, Inc.
431 W. 7th Avenue, Suite 100
Anchorage, Alaska 99501
Telephone consultations can be arranged if you're not able to meet in person. In this case, please be sure to let our office know your time zone when scheduling your appointment.
If you have additional questions about Micah, or about scheduling a personal consultation - please feel free to call our office and ask (907) 278-1351.
Be prepared! Your Federal Pension check may be delayed.
The Office of Personnel Management (OPM) is having more and more responsibilities outsourced. Retirement checks could take longer than expected to be distributed.
Even if you have turned in all of your paperwork on time - in does not guarantee that you will immediately receive your Federal retirement check.
Your Federal Pension may be effective in 30 days - but that does not mean it is payable.
In my experience, most Federal Employees will not receive their first retirement check until 3 months after they retire.
But you need to know that the first checks will only be about 80% of your monthly pension.
You will not receive 100% of your monthly pension until OPM has reviewed your file and officially calculated your benefits. It may take approximately 3 more months for that to happen.
In most cases, when you finally do receive your first 100% check, you will also get a check with the difference between your 80% checks and 100% of your monthly pension.
So you will eventually get all of your pension money - it just takes time.
For example - if you retire on January 1st, your 80% check will probably start arriving around April 1st. But your 100% check will probably not arrive until July 1st!
Remember, these are just estimates. It all depends on how backlogged OPM is.
I have seen it take 8 months for a Federal Employee to receive their *first* retirement check! Than means if they retired on January 1st - their first check didn't arrive until September 1st!
What if your first check takes that long to arrive? Do you have enough money in savings?
There is no way to know exactly how long it will take to receive your first Federal Retirement check. You need to make sure you have enough money in savings to bridge the gap.
During your career, I encourage you to have at least three to six months living expenses in cash reserves.
But when you are getting ready to retire - you want to have 2 years of living expenses in a savings account. Not in stocks, or bonds - in a plain old savings account or money market account.
This way, if you do not receive your Federal retirement check for several months, you will still have enough money to pay the bills.
Are you having a hard time finding information about an aspect of your Federal Benefits?
Click here to suggest a topic for us to discuss.
As a federal employee, you have one of the best benefits systems out there. But as you know - there are lots of exceptions, caveats and details to keep track of.
There's so much to know about your benefits - and it's important to make sure you're not missing anything.
I've taken my experience as a Financial Planner for Federal Employees, and created a do-it-yourself
program that's designed to walk you through planning your federal retirement.
It's called FERS Route to Retirement.
With FERS-Route-to-Retirement, you'll ...
✔ Learn How to Maximize Your FERS Benefits
✔ Understand Your Retirement Income
✔ Use Custom FERS Retirement Calculators
✔ Learn One Step at a Time
✔ Get Instant Access – Available 24/7
Are you ready to start planning your retirement? You can get started today, choose your rate and click Subscribe.
This website was created by Plan Your Federal Retirement as just one tool for your use in retirement planning. This website is a do-it-yourself process; no one is verifying your information or monitoring your progress. You are responsible for your retirement. All information herein is solely for educational purposes and is not intended to replace or supersede other retirement planning information. Any tax or legal information mentioned is from a financial planning perspective. No tax or legal advice is given nor intended. Neither Shilanski & Associates Inc., Summit Brokerage Services, Inc., nor any of its affiliates assumes any responsibly or warranty, expressed or implied, as to its accuracy or completeness. This is not an offer to buy or sell securities. Plan Your Federal Retirement is a dba of Shilanski & Associates, Inc., an Alaska Registered Investment Advisor with securities offered through Summit Brokerage Services, Inc., Member FINRA/SIPC. Shilanski & Associates, Inc. is not affiliated with Summit Brokerage Services, Inc. Plan Your Federal Retirement is not employed by the federal government and does not represent the federal government. Shilanski & Associates, Inc., is an Alaska Registered Investment Advisory Firm.