Errors That Could Cost You Some Parts of Your Retirement

As retirement time comes closer, many federal employees start looking forward to the years of relaxation and benefits they would get upon retiring. What many fail to do is properly prepare for retirement. So, when the time finally comes, they make so many errors that their dreams of a perfect retirement become marred. 

It is best to avoid the following errors for a smooth transition from service to relaxation (and back for those so inclined). 


Neglecting to Seek Professional Counsel 


You should attend a pre-retirement seminar or two to understand the nuances of federal retirement plans fully. Find out if your agency makes provisions for such seminars for employees who are about to retire. If not, ask if your agency is going to pay for a seminar that private professionals provide. If that does not work either, you might need to pay for one yourself. You should know that the seminar would be worth the money and help you avoid many errors.


Neglecting to Ensure You Don’t Lose Your Fehb After Retirement 


Another mistake you should avoid after retirement is losing your Federal Employees Health Benefits (FEHB) after retirement. To avoid losing this precious retirement benefit, you should ensure that you have up to five years of coverage under the program before retirement. The program will allow Federal employees who had been enrolled for at least five years during service to continue to enjoy healthcare insurance after retirement. 

However, three categories of federal employees need not have up to the required five years of enrollment. One, dual Federal employees who can enjoy the benefits of their partner's FEHB coverage. Two, Federal employees who enrolled in the program but through no fault of theirs had to retire before they completed the required number of years. Third, federal workers that take the opportunity to retire early before they meet the number of years. 


Indiscriminate Withdrawal From Retirement Savings 


For some federal employees that leave federal government employment for private sector employment, withdrawing from retirement savings can be a disaster if such an employee wishes to one day return to federal work. This is because the worker will have to choose between two complicated options. They would either have to return the money with added interest or receive reduced annuities upon the second retirement. It’s best to weigh the options properly to determine the best option.


Neglecting Years of Prior Military Service


You should not neglect your years of prior military service if you have any. Not only do these years add up to the time a worker spends in civilian service, but they could also mean more enormous benefits upon retirement. The only clause to unlocking these benefits is that FERS Federal employees have to deposit to get the military years to count as part of civilian service, translating to fewer civilian service years and more benefits after retirement. 

For CSRS Federal employees, things are slightly different. Workers under the scheme that started their employment before the first day of October 1982 will not have to deposit but will receive reduced annuities. Federal employees employed on or after October 1, 1982, will need to deposit to get the military years to count. 

Federal employees who have prior military service and are receiving or will later receive military retirement pay need not make any deposit for the military years to count. Still, they will have to let go of the pay upon retirement from civilian service. Federal employees receiving reserve retired pay need not let go of the income. 


More on Benefits of Prior Military Service 


Federal employees under CSRS who were once in military service and will start receiving Social Security payments at sixty-two will have to deposit to their retirement fund to get those years to count towards completing their civilian service. Those who fail to do this will have two percent of their annuities deducted for the military years. 

For Federal employees who were in the military, failure to make the deposit and leave civilian service before sixty-two years results in the years of military service not counting towards the computation of annuities upon retirement. However, if such workers retire after sixty-two, the reduction will begin on the day of retirement.

Note: The last part is only valid for Federal employees who served from January 1, 1957, and upwards. However, it is very safe to assume that those who served before then retired a long time ago. 


Neglecting Other Federal Service Years 


It is not only military years that speed up your federal employment years. Federal employees who volunteered under the Economic Opportunity Act of 1964, served as substitutes at the Post Office, worked as a guide at the Capitol, etc., can retire faster by adding these years to their federal employment. But they have to claim the years and possibly make a deposit to their retirement savings accounts. 

Expecting High Cost-of-living Adjustments (COLAs)  


Federal employees who retire under CSRS will begin to receive COLAs from the year that follows their retirement year. 

FERS employees will not get the same treatment until they are sixty-two years. To add to this, FERS employees will not get the total value of the COLA on their annuities even at sixty-two. For example, they would only get about 2% if the government pegs COLA at 2-3% for that year. However, the system will pay cost-of-living adjustments to Social Security benefits in full. 

Note: Under both CSRS and FERS, Federal employees, who immediately upon retirement are eligible for COLAs, will get reduced COLAs. The calculation for reduction will depend on the number of months they have retired. 


Neglecting to Consider Windfall Elimination Provisions 


CSRS employees must pay close attention to this point, but FERS employees need not bother. Under the CSRS, federal workers eligible to receive Social Security benefits but do not have up to the required thirty years of substantial earnings under the program will have their benefits reduced. The reduction is known as Windfall Elimination Provision (WEP). For some Federal employees in this category, the reduction can be as high as $500 per month. 

The earnings have to be acceptable, regardless of whether a worker makes enough credits or not. For instance, in 2021, a worker can get four Social Security credits as soon as they earn $5,880, but they would need $26,550 of substantial earnings to avoid reductions. 


Neglecting to Consider Government Pension Offset (GPO).


Again, FERS employees can sit this one out. It is for CSRS employees only. Federal workers under the scheme who are eligible for Social Security survivor or spousal benefits and will also get pension payments from the CSRS will have to significantly reduce the Social Security benefit. 

The reduction, GPO, will take about $2 of the Social Security benefit for every $3 the worker receives in CSRS pension.

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