Retirement planning for federal employees under the Federal Employees Retirement System (FERS) requires understanding how part-time work affects pensions. This guide explains the main rules for eligibility and pension calculations in simple terms.
Important Terms
The Minimum Retirement Age (MRA) is the earliest age you can retire, based on when you were born. Creditable service is the time you worked for the federal government that counts towards retirement. Your High-3 salary is the average of your three highest-paid years in a row.
Retirement Eligibility
To get a full pension under FERS, you need to meet one of these requirements:
- MRA and 30 years of service
- Age 60 with 20 years of service
- Age 62 with at least 5 years of service
Part-time work counts fully for eligibility. For example, if you worked 30 years, even with some part-time hours, you could still retire at your MRA with a full pension (OPM, 2023).
Eligibility vs. Computation for Pension
Now that we know that part-time work counts for ELIGIBILITY for retirement, we have to know how to compute this time when calculating what the pension will be.
Proration Factor for Part-Time
The Part-Time Proration Factor adjusts your retirement benefits to account for any part-time work during your career. This factor ensures that your pension reflects the actual time you worked compared to a full-time schedule. To calculate it, divide the total hours you worked by the total hours you would have worked if you had been full-time. This gives a percentage representing your Part-Time Proration Factor.
Example:
Consider Bob, who is retiring after 30 years of service. For 20 of those years, he worked full-time (40 hours per week), and for 10 years, he worked part-time at 20 hours per week.
- Calculate total hours worked:
- Full-time: 20 years × 2,087 hours/year = 41,740 hours
- Part-time: 10 years × 1,043.5 hours/year (half of full-time) = 10,435 hours
- Total hours worked: 41,740 + 10,435 = 52,175 hours
- Calculate total full-time equivalent hours:
- 30 years × 2,087 hours/year = 62,610 hours
- Determine the Part-Time Proration Factor (Rounded to Nearest Percent):
- 52,175 hours ÷ 62,610 hours ≈ 0.83 or 83%.
Calculating the Pension Using the Proration Factor:
High-3 Salary × Years of Service × Multiplier
For most FERS employees retiring under age 62, the pension multiplier is 1%. If retiring at 62 or older with at least 20 years of service, the multiplier increases to 1.1%.
Bob’s Pension Calculation:
- High-3 Salary: $100,000
- Years of Service: 30
- Multiplier: 1% (assuming Bob retires under age 62)
- Part-Time Proration Factor: 83%
Now, applying the formula:
$100,000 × 30 × 1% × 83%
= $100,000 × 0.30 × 0.83
= $24,900 per year
So, instead of receiving the full $30,000 per year based on 30 years of full-time service, Bob’s pension is adjusted to $24,900 due to his part-time service. This ensures his pension accurately reflects the time he worked part-time during his career.
Why This Matters
Part-time work offers flexibility, but it’s important to know how it affects your pension. Check your Certified Summary of Federal Service to make sure all your years of service are correct.
Next Steps
If you have questions about your FERS pension or need help planning for retirement, think about talking to a retirement specialist. Taking action now can help you make good decisions about your future.
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.Micah Shilanski 00:03
Part time work can be a great way to either transition in retirement, enjoy more time with a family while you still have a paycheck coming in, but it does change your pension a little bit, and it can be confusing on what are eligibility versus computation rules, and if you think this might affect you, then stay tuned for this, FERS Federal Fact Check, I’m Micah Shilanski, and we have a great question that came in from Martha about one of our YouTube videos we put together, and albeit probably some ambiguity we had in our video, and so wanted to take some time to make sure we clarify that. Martha did go ahead and call in with her question, which is fantastic, listen to what she has to say.
Martha 00:39
Yes, my name is Martha, and I tune into as many of your podcasts as I can for your valuable information, I have a question regarding part time work, previously, I thought that each year of part time service counted as a full year towards my years of creditable service, but I was listening to a recent podcast by JT titled “How to ensure your years count towards creditable service”, and at around timestamp, 4 minutes and 14 seconds, he says something that goes against what I previously thought, so I have several years of part time work, I could retire at my minimum retirement age and 30 years, even though I have all those years of part time work, as long as I paid FERS and FICA every year, of course, but he makes it sound like it’s more of a proportional thing with the gradual years of service, I do plan on hiring your company to do my retirement application processing about a year before I retire, but now I’m not sure when I should be contacting you for that process, can I get some clarification? I do appreciate your help, thank you.
Micah Shilanski 02:00
Martha, that is a wonderful question. Thank you so much for calling in with it, and thanks for the great comments, I really appreciate it. One of the things we strive to do is put out great information, but albeit, sometimes that can be a little confusing, and I really appreciate you guys writing in with comments and calling in with questions, being like, hey, could you clarify this just a little bit, and so let’s talk about that comment that JT was making regards to creditable service and how it’s going to work with our retirement. So let’s talk about your credible service and how it’s going to work, and let’s go through with an example. Let’s say Martha as your example, right? Let’s say you had 30 years of service, which is fantastic, by the way, and let’s just say for discussion, this is going to be part time service, and on your part time service, we’re just going to say you’re working half time because it makes our mouth really easy, so what are our rules for eligibility and retirement? Well, rules for the eligible retirement is going to be one of three dates for an immediate, unreduced pension. Number one is your MRA minimum retirement age and 30 years of service. You can be age 60 and have 20 years of service, or you can be age 62 and have 5 years of service. Those are our primary gates, the three criteria we have to meet one of these three in order to be eligible for a full and immediate pension. So when it comes to part time work, we got to sparse that into two things. Number one, what makes you eligible, and number two, how are we going to compute your annuity, or, better said, your pension? So when it comes to your computation, if you have part time work or 30 years, great news, every year of part time work, there’s a half time or more, whatever that combination is, is going to count as a full year of service for eligibility to retire, so Martha, in your case, you have 30 years, wonderful, that means you’re going to meet this first case right here, 30 years, once you hit your MRA, you’re eligible for a full, unreduced pension. But now it comes to the second part, which is the computation, and this is the part that we left out the details in the video, and I apologize for that, let’s get this information. When it comes to computing your pension, that’s where we’re going to take this proportionate aspect of it and say, hey, well, you had 30 years of service however that was at 50% of work, therefore it’s going to act like it had 15 years of service for your pension computation, so 15 years of service times 1% because you get 1% for every year you work is going to equal our 15% is what your pension is going to be, so if you had a high three of $100,000 because it makes my math super, super easy, and we times that by 15% you’re going to have a $15,000 pension divide by 12, round down that to the whole dollar, that is going to be your monthly pension amount. So that’s how we’re using those two different rules, your years of service, your bet, when you ask for your credible service, your certified summary of federal service, when you go and look at your records, it’s going to say, yeah, you really been working for 30 years, and that’s great, that’s step one, step two is how many of those 30 years were full time service or part time service, if you had a mix of that, let’s say you had 20 years full time and 10 years part time, well, then great news, you’re 20 years, you get that full 1% for every year for that 10 years, let’s say you work half time that 10 years really counts as 5, so you’d have 25 years for your pension computation, not your eligibility. Martha, I hope that sheds a little bit more light on this topic. If you have questions like this, to pick up the phone, give us a call, leave us a question, we’d love to hear your voice, we’d love to answer the question they have. If you think it might be a little more detailed, you want a little more one on one, help then reach out to us, our job has helped transform the lives of another one employees with retirement, and sometimes that means you need to pick up the phone and call so we can hear your personal situation and see if we can help, till next time, Happy Planning!