Why Taking Retirement Refund is Not Always the Best Case by Don Fletcher

Retirement Refund case by Don fletcher

Why Taking Retirement Refund is Not Always the Best Case by Don Fletcher

Federal employees serve under the three branches of the United States government: executive, legislative, or judicial. Some of them are politicians and their staff members, military personnel, and numerous civilians working in different state offices described by Don Fletcher.

If a federal employee decides to retire but isn’t eligible for a retirement annuity, they have the option to ask for a refund of their retirement contributions in a lump sum payment. In contrast, they may choose to withdraw their contributions until they become eligible for deferred retirement.

As per Don Fletcher under the Federal Employees Retirement System (FERS), a federal employee may get a deferred annuity at age 62 with a minimum of five years of creditable civilian service but doesn’t receive a return of all retirement contributions and does not qualify for an immediate retirement benefit.

Federal employees are allowed to get deferred annuity at a minimum of 60 years old with 20 years of creditable civilian services. They can also retire at the minimum retirement age as long as they worked for 30 years with accredited private services, or even ten years of commissioned civilian services but with a reduced benefit.

What Are the Requirements to Qualify For a Refund?

Below are the eligibility requisites for a retirement refund claim:

  • Federal employees could avail of a retirement refund if they got separated from the federal government for at least thirty one consecutive days.
  • Federal workers are also eligible if they have been assigned to a position not subject to retirement reductions for at least thirty-one straight days.
  • Exiting employees should not be re-hired for a role subject to retirement reductions at the time they file for an application as well as be unsuitable to get an immediate annuity within thirty days of separation.
  • No court order would stop federal employees from receiving a refund.
  • Lastly, they should inform their current and former spouse(s) of the refund request, if possible.

When is it Beneficial to Get a Retirement Refund?

Federal Employees should consider several factors before withdrawing their retirement contributions. For one, prematurely claiming a retirement refund is a good thing when an employee has less than five years of civilian service and does not plan to return to federal employment as per Don Fletcher.

Another reason is that the employee has five or more years of civilian service and has no intention to become a federal employee again. Another reasonable case is a plan to invest the funds. This presumes that the person had already done a lot of thinking and believes that it will accumulate and surpass the amount of the deferred annuity.

Don Fletcher on when is it NOT Beneficial to Claim a Retirement Refund?

Sometimes, it is not ideal to take your retirement refund. Doing so without thinking ahead would lead federal employees to a regrettable action.

The first reason is that the employee might be re-employed by the federal government and wish to receive credit for the refunded service. The federal employee will be required to make a redeposit to receive credit for those earlier years of service, plus interest. Another reason is that the employee has at least five years of civilian service, and the potential deferred annuity surpasses the amount of the lump-sum refund.

In conclusion, it’s generally wise for a federal employee to apply for a deferred annuity at age 62 because the employee can provide a survivor annuity for their spouse. Unlike a retirement refund, all deductions will void any retirement options. Even if you think that it will be more profitable to invest, it still involves a significant risk⁠—At that point, you wouldn’t have any energy left to work long enough to get back all of the savings you’ve lost.

About Don Fletcher:  Federal Retirement Expert

Don Fletcher has years of experience helping federal employees maximize their retirement benefits.  Helping thousands of federal employees through hundreds of seminars and one-on-one federal retirement benefit analysis.  Contact Don Fletcher at www.don4fers.com or (469) 358-1913

Other Don Fletcher Articles

Should You Prioritize Saving Up for Retirement or Paying Down Your Debts? By Don Fletcher

Why Taking Retirement Refund is Not Always the Best Case by Don Fletcher

Why Max Contributions Can Be A Bad Idea By Don Fletcher

Thrift Savings Plan Account Safety Tips You Can’t Ignore by Don Fletcher

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