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My two govmt pensions (two different county agencies) are based on highest year of income, and years of service. Thankfully both agencies paid into SS so I did not suffer the Windfall SS penalty.
Mine was 1 5/8% per year up to $150,000 in salary and 1% after that threshold. Took $250,000 in a lump sum and rolled it into an IRA. Retired 3 years and my monthly pension is $4,800. Wife will get half if I pass before her. Company I worked for is splitting and I am hoping they buy me out of the pension which could be a $1.5 million roll over.
We also decided to reduce my pension by slightly less that 10% in order to provide my wife with a 55% survivor benefit. Recommended by a retirement specialist. That comes out pretax and since I've never seen it, it doesnt hurt much. We were going g to do an insurance policy but this is potentially a much better option.
I too, am a bit foggy on the details of the FERS system. I know you get a supplement to live on after your retirement at MRA (minimum retirement age) or greater, but does one have to start taking Social Security at 62 and do you keep the supplement and collect SS, or does the supplement decrease or disappear and your SS now your "pension"? 'Tis a mystery to me!
The supplement starts at immediate retirement (MRA/30 years service or age 60/20 years service) and ends at age 62. The amount is (Years of federal service/40) x (SS at age 62) so the supplement is usually 3/4 of the amount of early SS. It is fully taxable and is means tested, if you choose to work another job, similar to SS. It is up to you when to start taking SS - the supplement has no impact on the SS start date. ATC/LEO can take the supplement earlier and the means testing is a little different.
I was eligbile to retire from federal service at age 59 1/2 after 30 years of service and was hoping to retire and take the supplement. But I got a large raise about that time that would significantly increase my high three salary and working until age 62 would increase my pension 10% under FERS. The extra pension was more than $10K a year so I waited to retire. I'm 64 this year and plan to start SS at FRA or the next recession, whichever comes first.
Ours is based upon a 2% at 55 formula (benefit factor). Using the average of your 3 highest years of salary as the wage factor, and your actual age at retirement for the benefit factor number, and your years and months of service as the service factor.
So you calculate Benefit Factor X Wage Factor X Service Factor = Pension
If you retire before or after 55, then your benefit factor will be lower or higher respectively.
So if you retired at exactly age 55 (2% Benefit Factor), and you averaged $100K your highest paid 3 years (Wage Factor), and you worked there exactly 30 years (Service Factor) then your pension would be ... (.02 X $100,000) x 30 = $60,000.
1.7% of the average of my high 3 salary multiplied by 20 (maximum years earned in LEO retirement)
PLUS
1% of that same average for every year beyond 20
Example for $100K high 3 law enforcement with 30 years
$34,000 @ 1.7% (20 years)
$10,000 @ 1% (10 years)
$44,000 total pension
Also the employee would get FERS supplement--which pays out monthly from retirement until the age of 62, best way to get approximate value of this is take the age 62 SS benefit from your statement, multiply it by FERS years of service and divide by 40.
An example would be someone with a $1500 age 62 SS benefit with 30 year of service would get $1125 a month (until 62) in addition to their pension.
So the example used above would gross approximately $4791 a month until they turned 62 at which time they could choose to take SS or wait(either way the supplement stops at 62).
We also get an annual cost of living increase starting at age 62, it was 2% the past 2 years...it's been as high as 4.8% and as low as 0 in the past 10 years.
Service Pension Eligibility Requirements
Your Age Net Credited Service
Any age 30 years or more
At least age 50 25 years or more
At least age 55 20 years or more
At least age 60 15 years or more
Age 65 or older 10 years or more
Early Retirement With a Service Pension
If you qualify for a service pension, you can retire and start receiving
your pension benefit right away. Payments may or may not be
reduced for early retirement depending on your age and net credited
service as described below.
Unreduced Pension
If you retire with 30 or more years of net credited service, your
service pension can be paid in full without reduction for early
payment, regardless of your age when you terminate employment.
If you qualify for a service pension and retire when you are age 55
or older, you also can receive your benefit without reduction for
early payment.
Reduced Pension
If you retire before age 55 and have less than 30 years of net credited
service, your benefit permanently will be reduced by 1/2 percent a
month (or six percent a year) for each full or partial month that that
you retire before you reach age 55, regardless of when you begin
receiving your pension.
Defined contribution / cash balance pension formula. You get so many % of your total comp per year in credit, based on age. You get higher % credit as you get older.
This can be turned into an annuity or cashed out upon retirement. You can check on your accrued benefit in either of the scenarios at the current time or any future date. There would be a lot of math that Fidelity's website takes care of for you.
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The above is in addition to a $1:$1 match up to 6% of your base pay into a 401(k).
We also decided to reduce my pension by slightly less that 10% in order to provide my wife with a 55% survivor benefit. Recommended by a retirement specialist. That comes out pretax and since I've never seen it, it doesnt hurt much. We were going g to do an insurance policy but this is potentially a much better option.
My cost will be around 19% of my pension for a 100% survivor benefits for my wife. She's six years younger so her age comes into play. It seems like a no brainer to me since she'll potentially outlive me by 12-15 years.
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