Laid-off workers should consider deferred annuities


With potential downsizings in the wind, I discussed discontinued service retirement in my Sept. 6 column. DSRs, like early retirement offers, allow you to retire before you meet the age and service requirements for an immediate unreduced annuity. However, if you don’t meet those requirements, you may be able to get a deferred annuity later on.

If you leave government before being eligible to retire, but have at least five years of creditable civilian service and don’t take a refund of your retirement contributions, you will be eligible to receive a deferred annuity. Exactly when you’ll be eligible depends on your retirement system.

If you are a former Civil Service Retirement System employee, there’s only one possibility: age 62.

If you are a former Federal Employees Retirement System employee, there’s a range of options: age 62; age 60, if you have at least 20 years of creditable service; at your minimum retirement age with 30 years or more years of service; or at your minimum retirement age with at least 10 years but fewer than 30 years of service. If you retire under the MRA+10 provision, your annuity will be reduced by 5 percent for every year (5/12 percent per month) that you are under age 62.

Deferred annuities are computed in the same way as regular annuities. Your annuity will be computed using the standard formula for your retirement system, with your high-three salary figure being the average of your highest three consecutive years of pay on the day you left government, no matter when those three years occurred in your career.

The FERS annuity is 1 percent of your high-three, multiplied by your years and full months of service.

The CSRS annuity is the sum of three products: 1.5 percent of your high-three multiplied by five years of service; 1.75 percent of your high-three multiplied by five additional years of service; and 2 percent of your high-three multiplied by all remaining years and full months of service.

If you are a former FERS employee who will have a CSRS component in your annuity, that part will be computed using the CSRS formula.

Regardless of whether you are covered by CSRS or FERS, unused sick leave will not be added to your length of service when your annuity is computed.

The plus side of a deferred annuity is that it will continue for the rest of your life. And, except in those rare years when the economy is suffering a downturn, as was true this year, your annuity will be increased annually by cost-of-living adjustments.

On the negative side is the gap between the day you leave government and the day on which you are eligible for a deferred annuity. The larger the gap, the greater the difference between what you could have received and what you will receive.

There are two things at work here. First are any increases in federal salaries that will have occurred after you left government. If you’d still been on the job, those increases would have boosted your high-three.

Second are any COLAs that would have been added to your annuity if you’d been on the retirement roll. While that may seem like a bad joke this year when the COLA increase was zero, in most years, it’s significant. In fact, it’s occasionally been higher than the pay increases given to employees.

One note: Don’t confuse a deferred annuity with a postponed annuity. A postponed annuity is one where you actually retire but delay the receipt of your annuity to a later date.


About Author

Leave A Reply