Although we have covered the enhanced retirement benefits for LEOs and the FERS early retirement options (Postponed and Deferred), we haven’t reviewed whether LEOs can retire under one of these early retirement options. And while many LEOs will retire under the Immediate retirement, there will undoubtedly be those who separate before full eligibility for one reason or another. So, in this article, we’ll review whether LEOs can retire under the Postponed or Deferred retirement options.
The FERS Immediate Retirement For LEOs
To fully grasp the implication of LEOs separating before reaching eligibility for an Immediate retirement, we must be familiar with the requirements and the enhanced pension of the Immediate retirement. So, let’s do a quick review; if you want to read more about the Immediate retirement for LEOs, read this article.
Standard LEO Age and Service Requirements
LEO’s become eligible for an immediate retirement when they meet one of the following combinations of age and service requirements:
- Age 50 with 20 years of covered service, or
- Any age with 25 years of covered service,
- And, of course, mandatory retirement at age 57, unless an exception is granted or you move to a noncovered position.
Enhanced Pension Calculation
The FERS pension is based on the average of your highest-paid consecutive 36 months of service (“high-3”), multiplied by your years of creditable federal service and by a percentage multiplier. LEOs that retire under an Immediate retirement have their pension calculated using an enhanced pension multiplier of 1.7% for their first 20 years of service. In contrast, regular FERS employees have their pension calculated using a multiplier of 1% (1.1% if age 62 with at least 20 years of service).
Here is the formula for calculating the enhanced FERS pension:
High-3 Salary X First 20 Years of Creditable Service X 1.7% = Enhanced LEO Pension
Here is the formula for calculating the regular FERS pension:
High-3 Salary X Remaining Years of Creditable Service X 1% = Regular Pension
Can LEOs Elect A Postponed Or Deferred Retirement?
Now that we have an idea of the standard eligibility requirements and the enhanced pension calculation let’s review the answer to whether LEOs can elect the Postponed or Deferred retirement options.
So, can LEOs retire under the Postponed or Deferred retirement options? In other words, can LEOs retire before meeting the eligibility requirements for an Immediate retirement? Well, the answer is Yes and No. Yes, because LEOs have access to the same retirement options as any regular FERS employee. The answer is also No because there is a severe drawback. Which is…
No Enhanced Pension Formula
The enhanced formula is only used to compute the pension of a LEO who retires on an immediate pension (aka annuity).
So, if you leave federal service before meeting the eligibility for an Immediate retirement, your pension will be calculated using the standard formula. Meaning a 20-year pension would be reduced from 34% of your high-3 to 20% of your high-3. Let’s look at an example of how that reduction might look:
Source: OPM FERS Handbook Chapter 54
Although LEOs can utilize the same early retirement options available to regular FERS employees, taking a 14 percent or more pension reduction is a significant drawback. So, if you’re thinking about leaving federal service early, make sure you understand how your pension will be affected. It is often helpful to calculate your pension under different scenarios to compare your options. Since financial planning involves many variables and your FERS benefits are only a part of your overall financial picture, consider consulting with a qualified financial planner if you’re not confident in creating your financial plan.
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2023 Legislative Change Notice
The SECURE ACT 2.0 passed and impacted many of the articles on this website. While the articles were correct when written, it’s impossible to re-write every article. Please consult a qualified professional (i.e., CFP®, CPA, or attorney) before implementing any strategy.