What Are The Federal Government’s Retirement Benefits?

One of the biggest reasons people gravitate towards working with the federal government is that fact that the G is one of the few employers out there that still provides employees with a defined-benefit (pension-style) retirement plan.  But although this is a nice layer of security, federal retirement benefits aren’t quite as luxurious or as comprehensive as some politicians make it out to be!

The Federal Employees Retirement System (FERS) actually consists of a defined-benefit pension and the Thrift Savings Plan as well as Social Security benefits, but I’d like to look at just the pension for today’s post.  Most government employees become eligible for this benefit at age 57, although they can choose to retire early after 20 years of federal service.  For people hired later in life, such as military retirees, they can become eligible for a defined-benefit pension after as little as 5 years of service.

Although this sounds good so far, you should understand just how much money you’ll be eligible to receive upon retirement, if only to help you plan your finances accordingly.  As you near retirement age, you’ll need to average out the highest three years of your salary, and also determine how many years of service you’ve provided to the government.  For people who separate before age 62, they’re entitled to one percent of their “high-three” average salary for each year of service.  People who stick it out past 62 are entitled to 1.1 percent.  In this example, a 62-year old retiree who averaged $100,000 for his high-three salary after twenty years of creditable service could draw a defined benefit of $20,000 per year.  The amount paid out is slightly higher for some jobs, most notably law enforcement officers and Congressmen, so be sure to check the Office of Personnel Management’s website if you need a more exact calculation.

When calculated out like this, a “fat government pension” doesn’t quite seem like all it’s cracked up to be.  You should also be aware that employees contribute to their own pensions over the course of their career, starting from that first bi-weekly paycheck, so the actual payout amount represents much of what the employee has already put in.  With this in mind, it’s important for any prospective federal employees to crunch their own numbers regularly, in order to have an accurate and realistic plan for retirement.  While planning for retirement could include increasing contributions to the Thrift Savings Plan to take advantage of any money that their agency matches, it’s also very likely that separating Federal employees might find themselves pursuing retirement jobs within the private sector!