Q: I was employed in temporary positions with the federal government from 1971 through 1986. During that period, I accumulated 10 full-time years of federal service during which I paid in only to Social Security because temporary federal employees were not allowed to partcipate in the Civil Service Retirement System. My first permanent federal appointment was in December 1986, at which time I enrolled in the Federal Employees Retirement System. My understanding is that for the approximately six years I worked prior to 1982, I will receive 90 percent of the CSRS annuity calculation without making a re-deposit. However, I must make a re-deposit to receive any CSRS annuity credit for the 1982-1986 period.
I understand that this re-deposit could have been made at any time since 1986, but I did not do so. Subsequently the amount has grown, with interest, to more than $25,000. If I paid this amount, it would increase my CSRS annuity calculation by about 6 percent. My calculation indicates that I would earn that $25,000 back in an increased retirement annuity after seven years. What are the pros and cons of making this re-deposit? I understand that my federal retirement annuity will have both a CSRS component and a FERS component. I intend to retire within the next two years.
A: You do need to make a deposit to get credit for any non-deduction service after Oct. 1, 1982. For service before that date, you have the option of making a deposit or accepting a reduction in your annuity that equals 10 percent of the amount you owe, plus accrued interest. It seems to me that you have already recognized the pros and cons: It’s a question of what you’d lose in earning power now by making a deposit versus what you’d gain over time in your annuity. Hovering over the issue is the uncertainty of how long you will live after retiring. The longer you live, the greater the likelihood that you’ll not only break even, but benefit from the deposit.