The High Cost of Waiting – “Buy Back” Military Time Early To Avoid High Interest Charges
By: Kevin O’Leary
Today, there are a lot of federal employees who have also had previous military service. So, when considering buying back military time with regard to federal retirement, many employees are curious as to whether or not it could make sense for them to do so.
For example, if you do a military “buy back,” it can increase the number of years in service that are used in the calculation of your retirement pension annuity. And, the more years that you have, the higher the amount that your retirement pension income will typically be.
You should first estimate your retirement benefit both with and without your military time included so you can have an idea if the benefits will outweigh the costs.
How Much Will The Buy Back Cost You?
If you do opt to implement a buy back, though, there are some factors to consider. First and foremost, most people need to determine just how much it will “cost” them to do so. The answer to this will depend primarily on the following key factors.
First, it will be dependent on when exactly your service took place. In addition, the amount that you were paid will also play a role, as well the amount of interest that has accrued since that time. The other big determinant will be whether you are in the Federal Employees Retirement System (FERS) or in the Civil Service Retirement System (CSRS).
In determining the amount that you were paid, it helps if you have access to your military pay records. However, if you do not have copies of this information, submitting a copy of your DD-214 form and sending a request to your branch of the military’s pay center can also obtain this necessary information.
Once you have obtained the information that you require, you will need to multiply the pay number by a particular percentage – depending on which of the retirement systems that you are in. For example, if you are in FERS, multiply the amount of your military base pay by 3 percent. Alternatively, if you are in CSRS, multiply the amount by 7 percent.
Once this figure has been determined, interest will be added. For most people the principal amount is relatively small because it is a percentage of your military base which is usually small to begin with. However, interest over a 20 or 30 year Federal career can add up to several times the principal amount owed if you procrastinate.
More about Kevin O’Leary
Kevin O’Leary is a Federal retirement expert who works out of his Southern California office, but helps federal employee clients throughout the country. Kevin O’Leary is a regular contributor to PSRetirement.com and Kevin O’Leary is highly sought after speaker and advisor on federal retirement benefits.
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