The Wrong Retirement Option Can Cost You a Lot of Money

Before making a choice that may substantially impact your income, be sure you have all of the information you need.
How wrong retirement options can cost you a lot of money?

Now and then, We come across a federal employee who is ready to make a vital, irreversible choice that may not be in their best interests. It’s generally because they lack critical facts. Today we will talk about such incidents and how they can impact your life.

There was one incident in which an employee delayed their retirement for very odd reasons. They said that “ I’m postponing retirement because I need to pay my military deposit to credit 23 years of active service under the Federal Employees Retirement System. I calculated my FERS pension and discovered that combining my military retirement with my civilian service under FERS would increase my retirement by $10,000 a year. My deposit was calculated by my agency, which is roughly $30,000. Therefore, I believe I will see a return on my investment within three years of getting the additional $10,000 of retirement income.

Maybe this was true, but some questions arise from this explanation. After all, $30,000 is a lot of money, and this choice would require the employee to permanently waive their military retirement pension for the service time to be included under FERS.

So, after some questions, we got to know that there are two key extra elements in this situation that he should examine before preceding a hard-earned and highly valued military retirement pension.

First and foremost, the employee decided to include a survivor benefit for his wife in his military retirement benefits at the time of his departure from employment. The Survivor Benefit Plan of the Department of Defense stipulates that it will be paid out in a few years. An additional 5% each year for the remainder of their lives, and their surviving spouse will get 55% of their husband’s military pension.
Second, his military retirement payout is somewhat more than $40,000 per year, of which $9,000 is tax-free. According to the IRS, veterans’ benefits, disability compensation for certain military or government-related occurrences, and other kinds of income associated with military service are tax-exempt.
The employee in this instance is above the age of 62 and has over 20 years of civilian federal employees, which qualifies him for early retirement solely based on his civilian service.

To help this employee decide whether to combine his military and civilian service, it is necessary to calculate his FERS retirement benefit with and without military service credit. If he decides not to pay the nearly $30,000 military service deposit, his FERS retirement will be based solely on his civilian government job. Suppose he combines his military and civilian service. In that case, he will get a combined benefit under FERS equal to an additional 23 years of service based on 23 years on active duty in the military.

Is it worth it to do this? Only he has the authority to make such a decision. However, it seems that combining his military service with his civilian employment under FERS will only result in a $10,000-a-year increase in income.