“I am currently age 32 (a bit away from retirement) and I have been with USPS for 6.5 years now. It says you are fully vested in FERS after 10 years, but I don’t think I will retire with the USPS. If I were to wait for the 10 years before separating from USPS, would I still be entitled to that FERS going into retirement later on? Or what would my options be? The vesting after 10 years might make it worth it for me to stay, but if I’m not going to see any of that money down the road then I may be leaving sooner than that.” – Derek.
Retirement may seem far away, but planning early is essential, especially for federal employees under the Federal Employees Retirement System (FERS). This article explains key aspects of federal retirement, including what it means to be vested, how pensions work, and what happens if you leave federal service before retirement.
What Does “Vested” Mean?
Being “vested” in FERS means you have worked long enough to qualify for a pension when you retire. Most federal employees become vested after five years of full-time service in a federal position. For example, Derek, a U.S. Postal Service (USPS) employee with six and a half years of service, is already vested.
If Derek leaves his job before reaching retirement age, he will still be eligible to receive a pension later (deferred pension) because he has met the vesting requirement.
How Long Does It Take to Be Fully Vested?
Unlike some retirement systems that require 10 years of service for vesting, FERS requires only five years. Once vested, you are entitled to a pension. However, the amount of your pension depends on your salary and how many years you worked in federal service.
How to Qualify for an Immediate Pension
To start receiving your pension immediately upon retirement, you must meet specific age and service requirements:
- Minimum Retirement Age (MRA) with 30 years of service: Your MRA is between 55 and 57, depending on your birth year.
- Age 60 with 20 years of service: You can retire at age 60 if you have at least 20 years of service.
- Age 62 with 5 years of service: If you are at least 62 years old and have five years of service, you can retire with an immediate pension.
What Happens If You Leave Before Retirement?
If you leave federal service before meeting the requirements for immediate retirement, you can still receive a deferred pension if you are vested. For example:
If Derek leaves his job at age 32 after six and a half years of service, he can leave his contributions in the system. When he turns 62, he will begin receiving his pension.
Derek’s pension would be calculated using this formula:
High-3 Average Salary × Years of Service × 1%
If his high-three average salary is $100,000:
$100,000 × 6.5 × 1% = $6,500 per year
This means Derek would receive $6,500 annually starting at age 62.
What If You Stay Longer?
The longer you work in federal service, the higher your pension will be. For example:
If Derek works until age 42 and accumulates 16.5 years of service, his pension will increase significantly.
If he reaches 20 years of service by age 52, he could retire at age 60 instead of waiting until age 62. This is because he has reached 20 years of service, where 60 years old is now the age you can retire.
Deferred vs. Postponed Retirement
- Deferred Retirement: If you leave federal service before meeting the age and service requirements for immediate retirement, you can defer your pension until later. For instance, Derek could leave at age 32 but wait until age 62 to start receiving his pension.
- Postponed Retirement: If you meet the service requirement but not the age requirement for immediate retirement, you can delay starting your pension to avoid reductions. For example, if Derek has at least 20 years of service by age 52 but waits until age 60 to claim his pension, he may receive a higher amount.
Key Takeaways
- Vesting: After five years of federal service, you are eligible for a FERS pension.
- Retirement Options: You can retire at your MRA with 30 years of service or at age 60 with at least 20 years.
- Deferred Pension: Leaving federal employment before retirement doesn’t mean losing your benefits; you can defer them until later.
- Postponed Retirement: Working longer than the minimum required time allows flexibility in when to start your pension.
Conclusion
Understanding how vesting and pensions work under FERS is critical for planning your financial future as a federal employee. Whether you’re just starting out in the federal system or considering leaving federal employment early, knowing your options ensures that you make informed decisions about your retirement.
ABOUT THE AUTHOR
Micah Shilanski, CFP®, is a distinguished financial planner known for his deep commitment to providing exceptional advisory services to his clients. As the founder of Plan Your Federal Retirement, Micah has dedicated his career to helping federal employees understand and optimize their benefits to ensure a secure and prosperous retirement. His expertise is widely recognized in the industry, making him a sought-after speaker and educator on financial planning and retirement strategies.
Micah’s approach is client-centered, focusing on creating personalized strategies that address each individual’s unique needs. His work emphasizes the importance of comprehensive planning, incorporating aspects of tax strategy, investment management, and risk assessment to guide clients toward achieving their financial goals.