Determining the True Cost of Waiting to Buy Back Military Benefits
by June Kirby
If you are a federal employee who has also had military service, then a military “buy back” towards your federal retirement benefits may or may not make sense for you. In determining the benefits and the drawbacks of doing so, it is important to factor in the costs of buying back your military benefits.
The amount that you will need to pay in order to buy back your military time will depend upon several different criteria. These can include the following:
- When your military service took place.
- The amount that you were paid during your military service.
- The amount of interest that accrued on that time.
- Whether you are in the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS).
Once you have come up with the amount that you were paid for each year of your military service, you should then multiply that amount by a particular percentage. This will differ, based on the retirement system that you are in. For instance, those who are in CSRS will multiply by 7 percent, and those who are in FERS will use 3 percent as their factors.
After this figure has been determined, interest will have to be added. The rate of interest will be different each year. Here, the longer that you wait in implementing a military buy back, the more interest you will be required to pay on top of your initial percentage of base pay.
Can You Buy Back Time Without Interest?
For some individuals, there may be an option of buying back time without the need to pay interest. This can occur if your military service took place prior to the beginning of your federal career.
Here, there is an interest free grace period of two years. The grace period will typically begin on the day that you were hired under the Federal Employees Retirement System or the Civil Service Retirement System (CSRS). In this case, the interest will be accrued once per year.
Factors to Consider
When determining whether or not to buy back military benefits, there are several factors to consider. In addition to the amount of interest, for instance, retirement eligibility should also be factored into the equation. For example, buying back military time could result in being able to retire sooner rather than later. However, because everyone’s situation is different, it is essential to ensure that all options are well thought out prior to moving forward with any final decision.
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Who is June Kirby?
June Kirby has well over a decade of experience serving as a Federal Employee Retirement Trainer and expert. June Kirby has extensive knowledge in both TSP and other Federal Retirement benefits. Ms. Kirby tirelessly travels the Country making herself available to Federal & Postal Employees, Federal Agencies, Unions and Organizations and partners with PSREducators.com (PSRE), and as one of the top providers of PSRE’s services, June Kirby continues to generously make herself available to hundreds of deserving Federal and Postal Employees each and every year by offering consultation on federal retirement benefits and TSP maximization strategies.