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The Federal Pension and What to Know

The Federal Pension and What to Know

| January 14, 2018
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  If you work for the Federal Government and qualify for this pension (aka “FERS Annuity”), chances are this will be the largest and most important piece of your retirement.

Our team works with many VA medical professionals and post office workers throughout the country.  Many are unaware of how this pension plan works and, most importantly, how to best utilize this vehicle for their golden years.

Common questions we receive include:  When can I start receiving my pension? How do I calculate the pension amount I will receive?  Does overtime work count towards the pension formula?

The answers can be found in this article written especially for hard working Government Employees.  As an independent CERTIFIED FINANCIAL PLANNER™ I help many FERS and CSRS employees successfully retire and stay retired.



  1. CSRS vs. FERS Definitions


  1. FERS Annuity Basics


  1. Your Retirement Picture



  1. FERS vs. CSRS

As a refresher, those that started Federal employment before January 1st, 1987

are part of the Civil Service Retirement System (CSRS), after this date, all employees are automatically under the Federal Employees Retirement System (FERS).  As a result, most people we help are FERS employees.

There are differences with the Federal pension based on which system you are in. 

CSRS employees will have larger pension checks since they were not offered the more modern Thrift Savings Plan (TSP) or even Social Security. 

The TSP is similar to a traditional 401(k) plan.  CSRS members may actually contribute into the TSP but are excluded from receiving matching contributions like their FERS counterparts.

Since CSRS employees do not contribute to Social Security, a larger portion of their paycheck (7-9%) is automatically contributed towards the pension.  CSRS employees may begin taking their pension as early as 55 years old.

Chances are most readers are part of the FERS system.  For that reason, I will discuss the FERS pension for the rest of the article. 

Lastly, as a CSRS retiree or offset member, beware of the Windfall Elimination Provision (WEP) and Government Offset Pension (GPO) that may affect you and/or your spouse’s Social Security Benefits.  For all CSRS members you may contact us below to learn about these crucial implications.


  1. Annuity Basics

The FERS annuity is technically called a defined benefit plan otherwise known

as a pension.  The benefit a retiree receives is a defined amount based on a formula the Federal government created.  I will refer to the annuity as a pension moving forward.

There are five different types of retirement eligibility. 

For those that retire voluntarily before 62yo, make sure to check if you qualify for the Federal Annuity Supplement.  You may be eligible for extra money in addition to yours FERS pension.

Now to the most common retirement method, the deferred retirement election.  FERS retirees under this event may take their pension at 62yo with 5 service years or 60yo with 20 service years.

The formula to calculate the pension is based on the average of your highest 3 basic pay salaries.  Typically, your last three working years.

A common misconception is that overtime work is added to your pension.  That is FALSE!

Both bonuses and overtime are not included in the pension formula.  However, your AUO (Administrative Uncontrollable Overtime) is included.

There is a key bonus of 10% in the pension formula for FERS employees that wait to retire at 62 years old.  I’ve seen a difference of thousands of dollars per year for those that wait!

Employees may request a FERS pension estimate from their HR.

Let’s fast forward to when a retiree completes the pension paperwork. 

A FERS retiree has various survivor payment options to elect. (example- 50%/25%/no survivor annuity). 

Calculations should be made on which election choice is best for your specific situation. 

Ask yourself these below questions to help decide the best election:

  • If married, how much are both Social Security benefits?
  • What other guaranteed income sources are you projected to receive?
  • How much can you safely withdraw from other retirement assets (401k, TSP, etc.)?

Whichever election you select it requires a notarized spousal signature. 

Keep in mind this is an irrevocable decision, similar to deciding when to start receiving Social Security benefits.  Retirees are unable to change this election once made.

Because FERS employees contribute into Social Security, most retirees do not have to worry about the infamous Windfall Elimination Provision (WEP) or Government Pension Offset (GPO) that may reduce you and/or your spouse’s Social Security benefits.

If a FERS employee dies with less than 10 years of creditable service, your designated beneficiary will receive all your pension contributions with interest. 

On the other hand, if you die with over 10 years of service and were married at the time of separation from service, your surviving spouse may elect the pension payments or lump sum benefit.

CSRS retiree pensions are essentially linked to inflation (80-year average is 3%).  However, FERS retirees have the cost of living adjustment (COLA) capped at 2% per year. 

This means your FERS pension may fall behind the cost of living and present a gap because of inflation (goods/services increasing in price each year).  It is critical to know how to fill that gap properly in retirement.

FERS retirees over 62 years old will receive a cost of living adjustment (COLA) to their monthly pension check if there is a COLA determined for that calendar year.

COLA is determined by Congress, similar to Social Security.  As mentioned, COLA ranges anywhere from 0-2% per year. 

FERS retirees under 62yo may qualify for their annual COLA if they are on disability, worked as an air traffic controller or law enforcement official.


  1. Your Retirement Picture

There are many “icebergs” out there to avoid sinking your retirement ship. 

From selecting the wrong pension survivor election to poorly allocating your TSP properly, a professional ship captain can calmly navigate you through the waters.

For Federal employees near their retirement date, I encourage you to attend your employer sponsored free pre-retirement seminar to educate yourself on all your benefits. 

It can be a very scary and unknown time as you near your last working day, especially without a plan in place.

In addition to the pre-retirement seminars, many of our clients find it beneficial to

get professional advice from a CERTIFIED FINANCIAL PLANNER™.


From the feedback we receive, the fact that our team takes a family’s entire financial situation in consideration, not just their Federal benefits, is the number one reason other FERS and CSRS employees choose to work with us.  

When building financial plans for other Federal employee families we carefully review how to best optimize your Social Security payments, how to fill the COLA gap if using a FERS pension, how to properly allocate TSP funds and much more.

Feel free to read more about your TSP on our website blog we titled:  “7 Tips for your TSP.”



As you can tell by now, there are dozens of things to consider regarding your Federal pension.  Not to mention your TSP, Social Security benefits, FEGLI, etc.

Many other FERS and CSRS employees find it very useful to get professional advice on how to best use your Federal benefits.  As the old saying goes, “having no plan is planning to fail.”

One last piece of advice is to always consult with a licensed CERTIFIED FINANCIAL PLANNER™.

As an independent CFP that is legally obligated to act as a fiduciary for your best interest, I can give you that much needed second opinion over a no-cost review. 


This publication is no way affiliated with nor endorsed by any governmental agency.


More about the Author

As an independent CERTIFIED FINANCIAL PLANNER™ in Bartlett, IL (a western suburb of Chicago) my practice serves three specific professions: 

Government employees, Medical professionals and Business owners.

My team helps navigate both the wealth accumulation and retirement de-cumulation phases for these professionals.  We do this through comprehensive financial planning which includes taking into account your specific employer retirement benefits (403b, TSP, SEP IRA, etc), tax implications, RMDs and proper diversification among all investment accounts.

Our goal is to save you precious time, stress and your hard-earned money versus tackling this all alone.  Let a skilled team of experts like us, already familiar with your employer benefits, unique needs and goals guide you through the constant changes in your life towards ultimate financial independence.


Dustin Javier, CFP® AWMA®


President | Dean Johnson Advisory, LLC

[Phone] 630.802.1142





Securities and investment advisory services offered through Ausdal Financial Partners, Inc. Member FINRA/SIPC. 5187 Utica Ridge Rd., Davenport, IA 52807. (563) 326 2064.   Dean Johnson Advisory and Ausdal Financial Partners are independently owned and operated.

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