FERS options at retirement
The Federal Employees Retirement System (FERS) is a comprehensive retirement plan for federal civilian employees that incorporates three main components: the Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP).
The Basic Benefit Plan is the foundational element of FERS. It provides a defined benefit based on the employee’s years of service, the average of their highest three consecutive years of salary (known as the High-3), and a multiplier. FERS employees contribute to the plan through payroll deductions, and the benefit accrues at a rate of 1% of the High-3 average salary for each year of federal service. For those retiring at the Minimum Retirement Age (MRA) with 30 years of service or at age 60 with 20 years of service, the benefit is calculated at 1.1% per year.
Social Security is another integral component of FERS. FERS employees contribute to Social Security, and upon retirement, they receive Social Security benefits based on their earnings history. Social Security serves as a significant source of income in retirement, providing a safety net alongside the Basic Benefit Plan.
The third component of FERS is the Thrift Savings Plan (TSP), which operates as a defined contribution plan. Federal employees can contribute to the TSP through payroll deductions, and agencies may provide matching contributions. TSP offers various investment options, allowing employees to build a diversified portfolio for their retirement savings.
Upon retirement, FERS employees receive a combination of the Basic Benefit Plan, Social Security benefits, and TSP savings. The flexibility of TSP provides employees with the opportunity to manage their retirement income strategically.
In summary, FERS provides federal employees with a comprehensive retirement package that includes a defined benefit plan, Social Security, and a 401(k)-style Thrift Savings Plan. This multi-tiered approach aims to ensure financial security for federal employees during their retirement years.