The Federal Employees Retirement System (FERS) is one of the most comprehensive retirement benefits packages in the country. But with “comprehensive” system, comes “complex” rules and procedures. The FERS system can be confusing to most people, particularly the annuity part. These three facts tend to be misunderstood…
Your COLA probably won’t keep pace with inflation. While most private pensions fail to offer any sort of cost-of-living adjustment, the FERS annuity program does. So, that is a clear benefit over the private sector. On the other hand, it’s important to keep in mind that your COLAs will be small, and often will not keep pace with inflation. COLA is tied to the Consumer Price Index, but the formula for calculating the increase typically results in a “raise” that lags behind the actual inflation rate.
Electing the Survivor Annuity also impacts your spouse’s healthcare options. You know that if you pass away before your spouse, they will not receive your annuity payments unless you have elected Survivor Annuity benefits. For a reduction in current payments of 5 percent, your surviving spouse can continue to receive 25 percent of your annuity payments. Or, for a reduction of 10 percent, your surviving spouse can receive 50 percent of your annuity after you pass.
But did you also know that in order to continue accessing your Federal Employee Health Benefits (FEHB), your surviving spouse must be receiving the Survivor Annuity? If you don’t elect this option, he or she will lose their healthcare plan if you pass away first.
The age of your retirement, and years of service, will impact your annuity calculation. The basic FERS annuity formula is calculated based on the assumption of retiring at age 62. However, if you retire with at least 20 years of service, part of the formula is adjusted upward by 0.1 percent for each additional year worked. That doesn’t sound like much, but it can mean a few thousand dollars of extra retirement income each year.
Calculating your FERS annuity payments is tricky, but you need to make sure your estimates are accurate before making any decisions about retirement. Give us a call, and we can help you determine what to expect from your FERS benefit program. Together we can make decisions regarding timing and budgeting for retirement, so that you reap the most advantages from your retirement system.
