Are you considering a FERS Deferred Retirement? Are you aware of the potential impacts that will occur if you do so? In this video, we discuss the FERS Deferred Retirement and what impacts it has on your other benefits as a Federal Employee.

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FERS Deferred Retirement: What Benefit Will I Give Up? (With Example)

Planning for retirement is an important aspect of one’s career. The Federal Employees Retirement System (FERS) provides federal employees with a robust retirement plan. However, circumstances may arise where an individual needs to defer their retirement. This could be due to personal reasons, health concerns, or an unplanned change in life circumstances. While the option to defer retirement is available, it’s crucial to understand the benefits that may be sacrificed in doing so. In this article, we will explore FERS deferred retirement and the benefits that may be affected.

Deferred retirement under the FERS occurs when an employee separates from federal service but delays their retirement annuity until a later date. To be eligible for deferred retirement, an individual must have completed at least five years of creditable civilian service. Upon meeting this criterion, employees can defer their retirement benefits to a later date to allow for continued participation in the FERS program at a later time.

By choosing to defer retirement, federal employees will continue to accrue creditable service for the next five years. This means that the employee retains credit towards their retirement calculation upon eventual retirement. Additionally, during the deferral period, the employee can continue health and life insurance coverage. However, there are some significant benefit adjustments that should be taken into account.

One critical aspect that should be considered is the reduction in annuity payments. When an individual defers their retirement under FERS, their annuity is reduced by a specific percentage for each year of deferred retirement. For example, suppose John, a federal employee, decides to defer his retirement for three years. In that case, his annuity will be reduced by 3% for each of the three years, resulting in a cumulative reduction of 9%.

Furthermore, if an employee chooses to defer retirement, they will not be eligible for supplemental payments until they reach the minimum retirement age (MRA), which varies based on the individual’s birth year. These supplemental payments can significantly impact one’s income during retirement, so it’s crucial to consider this when making the decision to defer retirement.

Another benefit that may be affected by deferred retirement is the cost of living adjustments (COLAs). While employees who retire at the normal retirement age can enjoy COLAs, those who defer retirement will not receive any COLAs for the period of deferral. This can result in a significant loss of purchasing power over time due to inflation.

Lastly, it’s important to note that by deferring retirement, employees may miss out on post-service employment benefits such as continued contributions to the Thrift Savings Plan, the potential for catch-up contributions, or the availability of TSP matching funds.

When considering deferred retirement under FERS, it is essential to weigh the benefits against the potential disadvantages. While continuing creditable service, health benefits, and life insurance coverage are advantageous, the financial implications of reduced annuity payments, lack of supplemental payments, limited or no COLAs, and missed post-service employment benefits should be carefully evaluated.

To make an informed decision, it is recommended to consult with a financial advisor who specializes in federal retirement benefits. They can assess your individual situation, help you understand the long-term impact of deferred retirement, and guide you in making the best decision for your future.

In conclusion, FERS deferred retirement offers flexibility to federal employees who may need to postpone their retirement. However, it comes with several trade-offs that need to be carefully considered. By understanding the benefits that may be given up, individuals can make informed decisions about their retirement plans and ensure long-term financial security.