What is the difference between an Immediate Retirement and an Early Retirement?
Let’s first define what an Immediate Retirement is, and what you need to do in order to qualify for it. Like the name suggests, an immediate retirement would mean that upon retirement, you immediately take the annuity, AKA the pension. Not everyone is eligible for this, and sometimes a reduced pension amount (penalty) will apply if retiring at an Early Retirement. In order to qualify for an immediate retirement without a penalty, you must retire under one of the following rules:
- Minimum Retirement Age (MRA) or older with at least 30 years of creditable service, or
- Age 60 or older with at least 20 years of creditable service, or
- Age 62 or older with at least 5 years of creditable service
If you retire at your MRA or older with at least 10 years of creditable service, you do qualify for an immediate retirement, but there’s a penalty if you choose to take the pension immediately and haven’t met one of the 3 requirements listed above. This is what is known as an Early Retirement. A person can only receive their pension once they have reached their MRA, and not sooner. This penalty is a permanent reduction of your pension of 5% for every year under age 62. As you can imagine, this can quickly become very steep for folks who leave their government job and don’t quite have the amount of creditable service needed to qualify for an immediate retirement with no penalty.
What is the difference between an Immediate Retirement and a Deferred Retirement?
The next category of retirement would be for those who do not meet any of the requirements for an immediate retirement: either the 3 for the immediate retirement without penalty, or the one for the early retirement. In order to qualify for the Deferred Retirement, you need to retire:
- Before reaching your MRA with at least 5 years of creditable service, or
- Retire having reached your MRA but younger than 62 with at least 5 years of creditable service, but no more than 10. (Otherwise you would qualify for an Early retirement).
Deferring retirement means that you can be retired from your government job at this time, but you defer when you receive the pension, either because you are forced to, or because you choose to. If you defer the pension to satisfy the rules to qualify for an immediate pension, then there is no penalty. If you defer the pension to satisfy the rules of being MRA with at least 10 years of service, then there will be a 5% per year penalty for every year younger than 62, unless you defer to age 60 and have at least 20 years of creditable service.
Example 1: Sue retires at age 59 (past her MRA) as a Federal Employee with 8 years of service. She is forced to defer her pension until age 62 to satisfy the rule of being age 62 with at least 5 years of service. She would not incur a penalty on her pension for deferring it.
Example 2: Bob retires at age 52 (younger than his MRA) with 22 years of service. Option A is for Bob to defer his pension until age 60 or older and not have a penalty on his pension amount, which satisfies the rule of being age 60 with at least 20 years of service. Option B is for Bob to defer his pension to his MRA or older (satisfying the rule of being MRA and having at least 10 years of service) and have a 5% per year penalty every year younger than 62.
Example 3: Chris retires at age 54 (younger than his MRA) with 9 years of service. Chris is forced to defer his pension until 62, and not incur a penalty.
What is the difference between an Immediate Retirement and a Postponed Retirement?
We now know what an immediate retirement is and how to qualify for it, as well as a postponed retirement. So what about the Postponed retirement? Is it the same thing as the deferred retirement?
It is not. In order to qualify for the postponed retirement, you need to retire at your MRA or older with at least 10 years of creditable service, which is the same requirements for an Early retirement. Instead of immediately receiving the pension upon retirement, you can choose to postpone it until the future, generally to reach either age 60 with at least 20 years of service, or age 62 with 5 years of service. Postponing the pension means you are still retired, but are temporarily not receiving the pension nor are you receiving the Federal Employee Health Benefit (FEHB) or the Federal Employee Group Life Insurance (FEGLI). The good news is that these extra insurance benefits resume as soon as you decide to take your pension.
How do I know which one is right for me to choose?
The main drawback about the deferred retirement is that it makes you ineligible for FEHB and FEGLI in retirement, as well as not being eligible to receive the pension supplement. We often say that the FEHB is the single best benefit that you have as a Federal Employee. Because these benefits are permanently surrendered in a deferred retirement, we generally like to see our clients choose to postpone their pension instead of deferring it so they can qualify for these added benefits. It’s a case-by-case basis, but if we can at least have our clients retire after reaching MRA and have at minimum of 10 years of creditable service, they will get the most bang for their buck when it comes to their FERS pension and benefits.