Should You Choose a 10% Pension Bonus or a FERS Supplement?

FERS Supplement at 60 or 10% Bonus at 62

Many FERS employees ask which is more profitable, FERS supplement or the 10% pension bonus. The truth is, the difference between the two choices is way more significant than most people think. This article examines both options to make a choice easier for all FERS employees.

Before we examine the differences between the two, it is essential to investigate their eligibility factors.

Who is Eligible for FERS Supplement?

During the first part of retirement, some federal workers get the FERS supplement every month. But not just anyone gets the supplemental pay. To qualify, FERS employees have to meet one of the following criteria:

• They should have been in federal employment for a minimum of thirty years and be at their minimum retirement age or higher.

• They should have been in federal employment for a minimum of twenty years and be at least 60.

Those who meet these criteria will receive the supplement from the point of retirement until they are 62 years. However, the rules are slightly different for firefighters, air traffic controllers, and law enforcement officers.

Who is Eligible for the 10% Pension Bonus? 

The 10% pension bonus is available for all traditional FERS workers who have spent a minimum of 20 years in federal employment and retire after 62 years. FERS employees that retire before they are 62 or have less than 20 years of service will not be eligible for the bonus.

Unlike the FERS supplement, the 10% bonus lasts for as long as annuity payments.

Which is Better? 

Now that we know the basics, it is time to examine the better option between the 10% bonus and the FERS supplement.

The FERS Supplement Option

To know if this is the better option, let’s examine the example of Ben, a 60-year-old federal employee with 20 years of service. Ben earns 100,000 dollars annually and needs to decide if he should take the FERS supplement at 60 or wait till 62 to get the 10% pension bonus.

If Ben retires now at 60, his pension calculation will look like this:

20 years    X    100,000    x     1% Multiplier      =     20,000 dollars per year or 1,666 dollars per month.

Since Ben is retiring at 60 with a minimum of 20 years in federal employment, he is also eligible for the FERS supplement. To calculate the supplement, we have to know what he will receive from Social Security at 62. If he receives 2,000 dollars per month from Social Security, the calculation of his gross FERS supplement will look like this:

20 years of service    /   40     X     $2,000     =     1,000 dollars monthly.

Since Ben’s FERS supplement will stop at 62, he will only receive the payment for two years. This means Ben’s total FERS supplement will be 24,000 dollars.

The 10% Pension Bonus Option:

If Ben decides to forgo the first option and retire at 62 to be eligible for the 10% pension bonus, the calculation for his gross pension will look like this:

22 years    X    100,000   x     1.1% Multiplier      =     24,200 dollars per year or 2,016 dollars per month.

For working for two more years, Ben will get a 4,200 dollar increase in his yearly pension. However, Ben must consider how long it would take for the increased pension to make up for the FERS supplement he did not receive.

To get this, we divide the FERS supplement by the increase in Ben’s pension.

$24,000/$4,200 = 5.7 years.

In less than six years, Ben will receive what he would have received as his FERS supplement and would receive the increased pension for the rest of his life.

From the calculations above, it is clear that taking the 10% pension increase easily trumps taking the FERS supplement. Working longer has even more advantages because you have extra time to save more money in your TSP account. There is also the issue of cost-of-living adjustments (COLAs), which are derived from your pension amounts.

However, you also have to consider how comfortable it will be to work for two more years.  Some federal employees cannot just bear the thought of having to work for two more years working for two more years. Before you make your decision, ensure you carefully consider your situation and the numbers.

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