Postponed FERS Retirement

 

A Postponed FERS Retirement is when you separate from service with at least 10 years of creditable service, and you have at least reached your MRA (Minimum Retirement Age). But instead of drawing your pension when you separate from service - you postpone it until later.

 

Why would you postpone drawing your FERS retirement pension?

Because if you started your pension right away, it would be subject to a hefty and permanent reduction of up to 35%. But if you postpone drawing your pension, you can reduce or eliminate that reduction.

We’ll talk more about that reduction in a moment.

It’s important to note that a Postponed FERS Retirement not the same as a Deferred FERS Retirement. Even though they sound the same, a Postponed FERS Retirement is much *better* than a Deferred FERS Retirement.

That’s because with a Postponed FERS Retirement you may be able to resume your FEHB coverage into retirement. But with a Deferred Retirement - you can not keep your FEHB in retirement.

To see a comparison of the two, check out our page on Postponed FERS Retirement vs. FERS Deferred Retirement.

Postponed FERS Retirement Rules:

In order to do a Postponed FERS Retirement - you must have...

  • At least 10 years of creditable civilian service before you separate
  • Have at least reached your MRA when you separate (if you have not yet reached your MRA - learn more about Deferred FERS Retirement )
  • You must leave your FERS retirement contributions in the system
  • Later, you can contact OPM and start your FERS pension

Essentially, to do a Postponed FERS Retirement - you must wait until you’re eligible for MRA+10 Retirement *before* you separate from service. That you were eligible for a type of immediate FERS retirement when you left is what gives you more perks than a Deferred Retirement. The biggest benefit being that you can turn on your FEHB again in retirement with a Postponed FERS Retirement. (if you were eligible to keep it when you separated)

In the FERS pre-retirement classes I teach, people often ask...

“But if you were eligible for an MRA+10 Retirement when you separated from service... why would you delay your pension? Why wouldn’t you start drawing your pension right away?”

Because with FERS MRA+10 Retirement... you have the option to start your pension when you leave - but it will be permanently reduced by as much as 35% depending on how far you are from reaching age 62. But if you wait - you can reduce or eliminate that reduction by postponing your pension.

If you were eligible for a regular FERS Retirement (ex: MRA+30, 60+20, 62+5) there is usually no need to do a Postponed FERS Retirement.

Postponed Retirement really only makes sense when you were eligible for a MRA+10 Early Retirement - but want to avoid the early retirement penalty.

How Does Postponed FERS Retirement Work?

Let’s say you have 10 years of creditable civilian service and you’ve reached your MRA. You want to leave federal service.

You know you could turn your pension on now with an MRA+10 Early FERS Retirement. But if you start drawing your pension now it will be permanently reduced by as much as 35%.

To get your full pension, you can do a Postponed FERS Retirement - but how does that work?

First - you want to be sure that you have at least 10 years of creditable service. And of those years, you must have at least 5 years that are creditable civilian service. (Bought back military time doesn’t count towards this 5 year minimum requirement).

Second - when you separate from service - you must leave your contributions in the system. If you take a refund of your FERS retirement contributions - you are no longer eligible for a Postponed FERS Retirement.

Later - when you wait to reach a specific age (usually 62) - you can contact OPM and file paperwork to start your FERS pension. 

How Long Do You Have to Postpone?

You’re postponing your pension until you reach the rules for regular FERS retirement. Once you reach those you are able to draw your pension without a reduction for MRA+10 Early Retirement.

The age requirement depends on how much service you had. The more creditable service you had when you left - the earlier you can begin drawing a FERS pension.

If you had....................You must wait to start your pension until...

  • 5+ Years............ Age 62
  • 20+ Years.......... Age 60
  • 30+ Years.......... MRA (between 55 and 57)

Since most people considering a Postponed Retirement generally have less than 20 years of service, it means they have to wait until age 62 to avoid the reduction.

This is actually quite similar to a FERS Deferred Retirement - except the big difference is that you were eligible for MRA+10 Retirement *before* you separated from service.

And in a Postponed FERS Retirement you the option to resume your FEHB coverage into retirement. But you do not have that option with a Deferred Retirement. 

Example of Postponed FERS Retirement with 10 Years of Service

Let’s look an an example. Let’s say Bob has 10 years of creditable civilian service. For easy numbers we’ll say his High-3 salary is $100,000. Bob has reached his MRA, which for him is age 56.

Right now, Bob is eligible to take an MRA+10 Early FERS Retirement . But if he does - his pension will be reduced by quite a bit. So Bob is considering a Postponed FERS Retirement. Let’s look at how much his pension would be if he starts it now with a reduction, or postpones his pension. 

Option #1) Bob Takes MRA+10 Retirement Now - With Reduced Pension

If Bob takes an MRA+10 FERS Retirement now, his FERS pension will be calculated as...

$100,000 x 10 years x 1% = $10,000/year 
....................................or $833/month

Bob is 6 years away from age 62 (62-56 = 6). Bob’s pension will be reduced by...

6 Years x 5% = 30% Reduction

If Bob chose to start his pension immediately - he would only receive...

$833/month less 30% Reduction = $583/month

And if he starts his pension now - the reduction is *PERMANENT*. Bob will never get that reduction back. His pension will be $583/month until he's 62. When he's 62 it will *NOT* go back up to $833.

At 62 he could get COLA (if there is one that year). Let's say COLA that year was 2% - Bob's pension would then go up to $594/month after age 62.

But if he did do an MRA+10 Retirement, as long as he was eligible to keep it in retirement (which generally means having had FEHB for 5 years before separation) - Bob’s FEHB coverage would continue right into retirement.

But what if Bob didn’t want to take that 30% reduction? 

 

Option #2) Bob Does Postponed FERS Retirement - No Pension Reduction

Every year Bob postpones starting his pension, the reduction will be 5% less. So if Bob waits a year until he’s 57, the reduction will be 25%. If he waits until he’s 58, the reduction would be 20%, etc. etc.

And when Bob reaches age 62, he can start his pension without any reduction.

So Bob punches out at age 56. He leaves his FERS contributions in the system. A few months before Bob reaches age 62, he fills out paperwork for OPM to start his pension when turns 62 with no reduction.

If Bob waits until he is 62, he will receive the full amount of $833/month.

Bob will still have other reductions, like the cost of a survivor annuity, taxes, FEHB, etc. But his pension will not be reduced for age. 

The FEHB Gap

When you do a Postponed FERS Retirement - you will have a gap in FEHB coverage. You had FEHB up until you separated from service. And if you have your ducks in a row you can start FEHB again when you draw your pension.

But there might be several years between when you separate and when you draw your pension.

What happens during this time?

Before you do a Postponed FERS Retirement - it’s important to know how you’ll address this health insurance gap.

Because if you can't - it might be better to just do a regular MRA+10 Retirement and take your pension now *with* the reduction. 

Best Option - Coverage on Spouse's Plan

If your spouse is still working and has good health insurance through their employer that is usually your best bet. In most cases, your best bet is to get coverage on your spouse’s plan.

There are so many details and every plan might be different so we can’t cover every possibility here. But be sure that you keep your FEHB until you’re separated. And make sure you’ll be able to get on your spouse’s plan when you do separate. Whatever you do - be sure that you will not jeopardize your ability to pick up FEHB again when you start your pension.

OPM has several pages devoted to FEHB information. Check out this page on Frequently Asked Questions about keeping FEHB into retirement. 

More Expensive Options

These other options are not ideal - but I wanted to list a few more choices here for covering the health insurance gap.

These are worth knowing about - but odds are if you can’t get good health insurance on your spouse’s plan then it might make sense to start your MRA+10 FERS pension immediately even with the reduction.

Any which way - I think it always makes sense to know your options and run the numbers for your personal situation before making any decisions.

So with that in mind, here are some other ways you might cover the health insurance gap: 

TCC - COBRA

When you separate from service, you have the option to do Temporary Continuation of Coverage (TTC) (which is also sometimes called COBRA). You can typically do TCC for up to 18 months.

But TCC is *expensive* - compared to what you’re used to paying.

While you’re employed (and as a retiree/annuitant) you pay 28% of your FEHB premiums. That means that the government picks up the remaining 72%. When you go on TCC, you now pay 102% of your premiums. (That 2% is an extra administrative cost for TCC)

So let’s say you’re used to paying $410 for FEHB. That was only 28% of your total premium. Your total premium was actually $1,464. The government was paying the remaining 72% - which in this case was $1,054.

But when you to TCC, you’ll be paying 102% of the premium - which in this example would be $1,493/month.

Each plan and premium is different - but you get the picture... TCC is not cheap.

But in my experience, even though TCC is expensive, it is nothing compared to what you would pay for comparable benefits under you own individual plan or through a smaller group plan.

I’ve helped clients evaluate their health insurance options before... we can’t even get near the cost of FEHB-TCC and for much lower benefit levels.

To learn more about TCC and FEHB... check out the FEHB handbook on Temporary Continuation of Coverage 

Short Term Health Insurance Plans

You might also look into short term health insurance plans. These plans are generally good for up to 6 months, and can be renewed twice for a total of 18 months of coverage. These obviously aren’t a long term solution - but might be worth looking into depending on your situation. 

Considering a Postponed FERS Retirement?

If you’re thinking about doing a Postponed FERS Retirement, here’s what I would recommend...

  1. Make sure you’re eligible and double check your service history. It would be a shame if you thought you had 10 years of creditable service but really only had 9 years 11 months. Lots of federal employees have issues with their service history - but most don’t find out until they go to retire. Check out our page on reviewing your SF-50s.

  2. Write out your scenarios and estimate your pension for each case. Remember that the MRA+10 Early Retirement reduction is *PERMANENT*. However - if you don’t have good health insurance coverage through your spouse - it might make sense to take the reduction anyways. Run the numbers for your personal situation before you make any big decisions.
  3. Are you financially ready to retire? Just because you are eligible - doesn’t necessarily mean that you can afford to retire. Your federal benefits are just one piece of your bigger financial picture.

To learn more about Postponed retirement - check out OPM’s CSRS / FERS Handbook, Chapter 42 Look for “Part 42A4 Postponing Retirement Benefits”. 


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