Hello, I appreciate your videos very much. I am active duty and retiring next year, intending on becoming a GS employee. Can you do one on the military to civilian transition with regards to TSP and other issues, besides buying back time? I have both Roth and Traditional military accounts, and I assume they will be separate from the civilian ones. Will the Rule of 55 apply to my military TSP if I retire at 48 and immediately join the federal service? Finally, I plan on working about years and buying back 4 years of Academy time to earn a 11% pension. My plan is to stop working at 55 and then take the deferred pension at 62 for no penalty. Can I elect the deferred pension before my MRA? I know the big risk of deferred FERS pension is loss of FEHB, but since I have TRICARE and VA, I assume that’s not a problem. Thank you! – Russ
Federal employees have several options when planning for retirement. This article explains key points about the Thrift Savings Plan (TSP), deferred retirement, and health benefits.
Thrift Savings Plan (TSP)
The TSP is a retirement savings and investment plan for federal employees and members of the uniformed services. If you transition from military to civilian federal employment, you’ll have two separate TSP accounts—one for your military (uniformed) service and one for your civilian service.
The “Rule of 55” allows federal employees to withdraw funds from their TSP account without the 10% early withdrawal penalty if they separate from federal service during or after the calendar year they turn 55. However, this rule applies only to your civilian TSP account; it does not apply to your military TSP account.
Retirement Options
To be eligible for immediate retirement benefits under the Federal Employees Retirement System (FERS), you must meet one of the following age and service requirements:
- Age 62 with at least 5 years of creditable federal service.
- Age 60 with at least 20 years of creditable federal service.
- Minimum Retirement Age (MRA), which ranges from 55 to 57 depending on your year of birth, with at least 30 years of creditable federal service.
If you leave federal service before meeting these criteria but have at least 5 years of creditable service, you may be eligible for a deferred retirement. This means you can begin receiving your pension at age 62.
More on FERS retirement eligibility
Health Insurance
To continue your Federal Employees Health Benefits (FEHB) coverage into retirement, you must:
- Be enrolled in FEHB at the time of your retirement.
- Have been continuously enrolled in FEHB (or covered as a family member) for the 5 years of service immediately before your retirement, or for the full period of service since your first opportunity to enroll if less than 5 years.
If you opt for a deferred retirement, you are not eligible to continue FEHB coverage. However, if you are eligible for TRICARE due to your military service, you can use that as your health insurance in retirement.
Buying Back Military Time
Time spent as a cadet or midshipman at a military academy is generally not creditable for retirement purposes under FERS. However, you may be able to make a deposit for this time to have it count toward your civilian retirement.
Additionally, if you did not retire with an active-duty military pension, you might consider buying back this time to count under your FERS retirement. It may be possible to “double-dip” this time if you are part of the Guard or Reserve.
This can increase your total creditable service and, consequently, your retirement benefits. The deposit amount is typically a percentage of your military academy pay and is usually a great choice to increasing benefits in retirement.
If you do buy back any military time, you will need a minimum of 5 years of Civilian or “boots on the ground” time under FERS in order to be eligible for a FERS retirement.
Military service credit information
Planning for Retirement
If you plan to leave federal service before becoming eligible for immediate retirement benefits, it’s important to consider how you’ll manage financially during the interim period before your pension begins.
You might consider using funds from your Roth TSP or Individual Retirement Account (IRA). Be aware of potential early withdrawal penalties and strategize accordingly to minimize tax implications. Consulting with a financial advisor familiar with federal retirement benefits can provide personalized guidance.
References
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.