How To Calculate A FERS Annuity

Shawn Plummer

CEO, The Annuity Expert

What is FERS Annuity?

FERS annuity refers to the retirement benefits the Federal Employees Retirement System provides its workers upon retirement. As a federal employee, understanding the intricate mechanisms of your annuity can shape your retirement planning.

FERS Annuity Calculator For Retirement

Since your Thrift Savings Plan (TSP) goes with you before or when you retire from the government, you need to figure out how to spend it efficiently in retirement. Annuities are the only retirement plan in the United States that guarantees you never run out of money in retirement. Annuities can also show you how much savings you need to generate your desired retirement income in the future.

Our TSP annuity calculator illustrates how much annual income you can withdraw for the rest of your life if you rolled your FERS annuity into an annuity with a guaranteed lifetime withdrawal benefit, now or in the future.

Note: You can purchase an annuity (with no tax penalties) with your TSP, 401k, IRAs, retirement accounts, investments, savings accounts, and cash.

The Threefold Structure of FERS Retirement

The structure of FERS retirement is tripartite, encompassing the Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP). Our focus here, the FERS annuity, forms the Basic Benefit Plan, offering a steady stream of income post-retirement.

Basic Benefit Plan

The Basic Benefit Plan, a vital component of the FERS retirement, is a monthly benefit based on your length of service and the average of your highest three years of basic pay.

How is the FERS Annuity Calculated?

Intriguingly, your FERS annuity isn’t a fixed amount; instead, it’s a product of a well-defined formula that considers your years of service and the average of your highest three years of basic pay, also known as your high-3 salary.

The FERS Annuity Formula

Using an example, let’s illustrate the annuity calculation formula without diving too deep into mathematics.

Federal Annuity

FERS Minimum Retirement Age

  • Born before 1948: Age 55
  • 1948: Age 55 and 2 months                            
  • 1949: Age 55 and 4 months
  • 1950: Age 55 and 6 months
  • 1951: Age 55 and 8 months
  • 1952: Age 55 and 10 months
  • 1953–1964: Age 56
  • 1965: Age 56 and 2 months
  • 1966: Age 56 and 4 months
  • 1967: Age 56 and 6 months
  • 1968: Age 56 and 8 months
  • 1969: Age 56 and 10 months
  • Born 1970 and after: Age 57

The CSRS formula is used if you had five years of service in the Civil Service Retirement System (CSRS) before transferring to FERS.

FERS Annuity Supplement

What is the FERS annuity supplement? If you work for FERS and meet certain requirements, you can get a Special Retirement Supplement. This is money paid to you every month until age 62. It is the equivalent of the Social Security benefit you earned while a federal government employee.

Fers Annuity

Special Retirement Supplements Requirements

  • After Minimum Retirement Age (MRA) with 30 years of service
  • At age 60 with 20 years of service
  • Voluntarily Early Retirement: If you are 50 years old with 20 years of service or any age with 25 years of service, you can receive beginning your MRA through age 62.
  • Involuntarily Retirement: Your MRA through age 62.
  • Anyone who transfers from CSRS/CSRS Offset to FERS must work for a year before getting this supplement.
  • If you have earnings from wages or self-employment, your retirement benefit may be reduced or stopped by the Social Security earnings test.
Fers Retirement

How To Withdraw Your FERS Annuity Efficiently

Both FERS annuity and FERS survivor annuity will provide a retired federal employee a series of annuitized annuity payments that is irrevocable and irreversible. This means you are giving up control over your retirement savings. Additionally, the payments will earn little to no interest and may not provide an inheritance for their beneficiaries.

Luckily other annuities offer a similar feature called a Guaranteed Lifetime Withdrawal Benefit (GLWB) or income rider. Utilizing a GLWB allows you to receive income for the rest of your life, even if the annuity runs out of money. The retiree will also have more control over the savings and can earn interest and leave an inheritance for their beneficiaries.

You can open an individual retirement account(IRA) or IRA annuity to receive a direct rollover. First, however, you must contact the individual retirement account sponsor to determine how to have your payment made to your account.

FERS Annuity Rollover Directly To You

If you choose to have the FERS annuity payment made to you over $200, then the taxable part will be subject to a withholding of 20% for federal income tax. If the payment is made to you, FERS will hold 20% of the annuity’s value to pay federal taxes.

The payment is taxed in the year it is received unless it is rolled into an IRA within 60 days after receiving it.

FERS Annuity Rollover Directly To The Insurance Company

You can roll over up to 100% of the eligible distribution if the FERS is transferred directly to the financial institution or insurance company within 60 days.

You will be taxed on any amount that you do not roll over. 

he Role of OPM in FERS Annuity

The Office of Personnel Management (OPM) plays a central role in managing the FERS annuity. But does this mean the OPM annuity is a lifetime benefit?

Is OPM Annuity a Lifetime Benefit?

The short answer is yes; the OPM annuity is indeed a lifetime benefit designed to provide retirees with a reliable source of income throughout their golden years.

Navigating Federal Retirement with Confidence

Understanding the FERS annuity is pivotal to confident retirement planning. Its lifetime promise ensures a consistent income stream and provides financial security for federal retirees.

Comparing A Federal Annuity With A Deferred Annuity

While a FERS Annuity provides a steady retirement income based on federal employment specifics, a deferred annuity with a guaranteed lifetime income rider could yield higher payouts. This difference is attributable to the rider’s design, which allows investments to grow tax-deferred, converting them into guaranteed lifetime payments, often higher than FERS Annuity amounts.

Next Steps

The world of federal retirement benefits, particularly FERS annuity, is a maze that requires careful navigation. As your reliable guide, we hope this guide has elucidated the nature of the FERS annuity, clarified its role in your retirement journey, and ultimately encouraged you to approach your retirement with a newfound sense of confidence and certainty. After all, with the proper knowledge, the pathway to a secure retirement becomes significantly more apparent. Let’s explore the world of federal retirement together, to secure a lifetime of well-deserved benefits.

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Frequently Asked Questions

How is the FERS retirement annuity calculated?

The FERS retirement annuity is calculated based on a formula that considers the years of service, the average of the highest three years of salary, and a specific percentage factor determined by the individual’s age at retirement.

What is the FERS high 3 formula?

The FERS High-3 formula calculates the retirement annuity for federal employees under the Federal Employees Retirement System. It takes into account the average of the highest three years of salary.

What is the formula for calculating federal pension?

The formula for calculating a federal pension under the Federal Employees Retirement System (FERS) is based on the employee’s years of service, the average of their highest three years of salary, and a specific percentage factor determined by their age at retirement.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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