The unplanned retirement dilemma
If you hadn't given much thought to retirement before receiving the Trump administration's "deferred resignation" email on Jan. 28, you may be in for a few surprises—not all of them pleasant.
Many of you may be mulling whether or not to leave federal employment under the Jan. 28 "Fork in the Road" offer from the Office of Personnel Management. If you are eligible for retirement, you may have questions about the retirement process as well as some of the details about your final months as a federal employee and your first months of retirement from your federal career.
If you are retiring under the Voluntary Early Retirement Authority provision, you may be retiring as early as age 50 or in some cases earlier if you have completed 25 years of service. In this situation, you may find yourself with significantly less income than you brought home in your paycheck and will be seeking employment in the private sector.
It is normal that some of you will be feeling overwhelmed and unsure of your decision while others may be looking at this as an opportunity to have a separation package like the corporate world in addition to your federal retirement and insurance benefits. If you began your retirement planning before this offer was made, you may be less uncertain about the future. However, if you hadn't given much thought to retirement before Jan. 28, then you may be in for a few surprises—not all of them pleasant. To help you prepare, today's column is written to provide some steps to take and some "words of wisdom" from those who have retired before you to help you have realistic expectations of this major life event that you are about to begin.
The first step to retirement with immediate retirement benefits now that you have accepted the offer to resign is to file a retirement application with your human resources office. This includes the following forms (as necessary):
Application for Immediate Retirement (FERS) SF 3107
- You should use this application if your retirement begins within 30 days of your separation.
- If you are any age with 25 years of service or at least age 50 with 20 years of service, you have met the requirements for VERA.
- If you are at the FERS MRA with 30 years of service, or age 60 with 20 years or age 62 with 5 years of service (all retirements require a minimum of 5 years of creditable civilian federal service), you have met the requirements for an unreduced, immediate FERS retirement.
- If you are at your MRA with 10 years but less than 30 or at age 60 or 61 with at least 10 years or less than 20, you are eligible for a "reduced" immediate retirement or you may choose to postpone your application to avoid some or all the age reduction. If you choose to postpone your retirement, then do not fill out this form (SF 3107).
Application for Immediate CSRS Retirement SF 2801
- Review the eligibility rules for an immediate retirement
- In FY2022, there were only about 44,000 federal employees left who are covered under the Civil Service Retirement System.
- In FY2022, all CSRS employees were aged 55 or older, compared with 32% of FERS employees who were aged 55 or older (42.1% of FERS employees were younger than 45). Ninety-one percent of CSRS employees were aged 60 or older, whereas 15% of FERS employees were in this age range.
Continuation of Life Insurance SF 2818
- Elect how much Federal Employees Group Life Insurance you wish to have in retirement.
Application for Deferred or Postponed FERS Retirement RI 92-19
- Use this form if you are postponing your retirement and had at least 10 years of service and separated at your Minimum Retirement Age (MRA) or later, you should choose a beginning date for your retirement on the first of the month which is at least 31 days after OPM receives your application, but no later than 2 days before your 62nd birthday.
- Use this form for a deferred retirement if you separated without meeting any of the age and service requirements for an immediate retirement, but you had at least 5 years of creditable civilian service when you left.
- For more tips on applying for a deferred and postponed retirement, see my earlier columns Postponing retirement problems: Part 1 and Postponing retirement problems: Part 2.
A retirement date will need to be selected if you are planning to retire this year. These previous columns may help you choose your retirement date: The best dates to retire in 2025 and 4 rules for picking a retirement date.
Under the "deferred resignation" agreement you will have a limited timeframe to retire. You may have already received an acceptance agreement for the new "deferred resignation" offer and will be resigning or retiring by Sept. 30, 2025. According to the agreement that you may have received from your agency, if you first meet the age and service requirement for early or voluntary retirement between Oct. 1, 2025, and Dec. 31, 2025, your administrative leave status will be extended to the date you first meet the eligibility requirements for early or voluntary retirement. It is unclear whether employees who are eligible to retire before Oct. 1, 2025, may choose a retirement date between Sept. 30 and Dec. 31, 2025, as one of the "Fork in the Road" FAQs states the following:
I am scheduled to retire soon after September 30, 2025. Can I take advantage of the deferred resignation program?
If your retirement date is between October 1, 2025, and December 31, 2025, you are still eligible for deferred resignation (unless your position is exempted from the deferred resignation program by your agency). If your retirement date is within this window, your deferred resignation date will be extended to match your retirement date.
Your HR office should be able to help you determine your retirement date based on the terms of the agreement.
Once you have applied for retirement, it is important to know the process of retiring. OPM has prepared a Quick Guide to Retirement Processing that may help you to understand what happens while you are waiting for your first check.
Check out some of these earlier Retirement Planning columns for tips on the post-retirement years:
Here are some excellent tips from Lisa, a federal employee who retired in 2024:
- State Income Tax: OPM does not automatically withhold state taxes from your FERS retirement benefit. Some states don't tax federal pensions, but my state (NC) does. I don't know why my NC-4 withholding certificate information did not transfer over to OPM in the same manner my W-4 did, but, nevertheless, it did not. I had to log onto OPM Services Online to designate my state and select a dollar amount of state withholding. Since you can't do this until OPM establishes an account for you, don't forget to do it. This error could be very costly in the form of a balance due on your state tax return. Retirees need to either account for the months they did not have state withholding when inputting the amount to withhold with OPM or make estimated tax payments to their state taxing authority until they have state withholding.
- Cash Reserves: Be sure to have adequate cash reserves on hand while you are waiting for your retirement to be finalized. Considering the number of separations and retirements, the process is sure to be delayed more than usual.
- Early Withdrawal Tax Penalty: If you are retiring before the year that you reach age 55, beware that you will incur a 10% early withdrawal penalty on distributions from your TSP account that you receive before age 59 ½. For exceptions to this tax penalty and other key tax details, please refer to TSP Publication 26, Tax Rules About TSP Payments. If a retiree chooses to roll their TSP into an IRA, don't forget that if they are below the age of 59 1/2, they cannot take distributions from the IRA without penalty no matter what age they are separated from federal service. There is a tax rule that allows one to take penalty-free early distributions, but this provision has some very strict and specific requirements, so be sure to consult a tax expert.
- Gross vs Net: I was blown away at how small my pension was. I worked with no break in service for 33 1/2 years, and my monthly pension (including the supplement) is 1/3 less than my monthly pay when I was working. That was a gut punch. I worked my way up from GS-7 to GS-14 but also lived in high cost of living areas. I am thankful that I contributed to TSP for my entire career, or I could not have retired. Retiring and trying to live on a FERS pension alone would be next to impossible, you need all three parts of FERS, including Social Security and the TSP. My FERS retirement became even smaller because I elected full survivor benefits for my spouse that reduced my FERS retirement by 10%. However, even if I had not chosen to elect survivor benefits, the small size of my pension would still be shocking.
Be sure to compute the "net" value of your retirement benefits after considering taxes and insurance withholdings. Remember there may also be reductions to your CSRS or FERS retirement for survivor benefit elections, former spouse apportionments, part-time service pro-ration, and potential age reductions for the MRA + 10 retirement.
- Flexible Spending Account (FSA) program: If one wants to retire before the end of the calendar year, remember that you cannot participate in FSA as an annuitant. According to the FSA FAQs, the balances in your Health Care FSA, Limited Expense Health Care FSAand Dependent Care FSA are treated differently if you separate or retire before the end of the calendar year. Your HCFSA or LEX HCFSA will terminate as of the date of your separation or retirement. There are no extensions. Any eligible health care expenses incurred prior to the date of separation will still be reimbursed but those incurred after the separation date are not reimbursable, even if you accelerated your allotments. If you used your entire elected amount before FSAFEDS has deducted it from your pay, you will not be responsible for the remaining allotments. Your DCFSA remaining balance can continue to be used to pay for eligible dependent care expenses until your account balance is depleted or at the end of the calendar year, whichever comes first. Please note: To take advantage of the grace period for your DCFSA, you must be actively employed and make allotments through Dec.31 of the benefit period (plan year.
In closing, Lisa wrote that she really wished someone had provided this information to her before she retired. Thankfully, she figured it out, and she said that she is OK. She also hopes there are no more retirement "surprises" waiting for her. If she stays abreast of changes and pays attention to notices that she may receive from OPM, Social Security and the TSP, she should be OK.
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