Quick Decision

You plan to retire from your Federal job in the not too distant future

• CSRS Is Probably Better For You If...
• FERS Is Probably Better For You If...
• Special Note For Career Couples Near Retirement

CSRS Is Probably Better For You If:

• You expect to retire from the Federal Government at age 55 with 30 years of service.

The CSRS retirement benefit, with its generous annuity formula and full cost-of-living adjustment (COLA), is generally better than the FERS retirement benefit under these circumstances. CSRS pays COLA's immediately after you retire, regardless of age. FERS doesn't pay a COLA until age 62. Then it's generally 1% less than the Consumer Price Index inflation rate.

If you transfer to FERS, you get COLA's under CSRS rules for any portion of your annuity that is computed under CSRS rules and adjustments based on FERS rules for the part of your annuity that is computed under FERS rules. For example, if you transfer to FERS after 25 years of CSRS service, work 5 years, and retire at 55, you will receive full COLA's immediately under CSRS rules for your CSRS service. However, you will receive no COLA for your 5 years of FERS service until age 62, and when you begin receiving a COLA, it generally will be 1% less than the increase in cost of living.

• Earning additional Social Security credits isn't important to you. It may not be important because you already have enough Social Security credits to qualify for a benefit, or because you plan to get enough credits by working after you "retire" from the Government, or because you have few or no Social Security credits already and no expectation of ever receiving a Social Security benefit from this service.

However, if you have CSRS Offset coverage, you will earn Social Security credits whether you transfer to FERS or not.

FERS Is Probably Better For You If:

• It's very important to you to earn Social Security coverage that will continue to build if you leave Government for other employment.
• Your work history includes substantial (that is, 5 or more) years of Social Security coverage, but not the full 10 years (or 40 quarters) of coverage generally required for Social Security benefits, and you're within 5 years of retiring under CSRS.

Joining FERS can allow you to get a return on the Social Security taxes you paid in the past. If you don't "lock up" your Social Security benefit by earning your 40 quarters either under FERS or elsewhere, you can lose whatever money you've paid in Social Security taxes.

• Your work history includes many years of substantial Social Security coverage, but not the 30 years required to avoid the windfall elimination provision.

Joining FERS can allow you to reduce the impact of the windfall elimination provision or avoid it entirely.

• You want to retire before age 60, but you won't have 30 years of service.

FERS is more flexible than CSRS. It allows you to take a reduced benefit as early as age 55 with as few as 10 years of service and there's no minimum period of FERS service required. If you join FERS, you can take advantage of this flexibility and begin to receive your retirement benefits, including the CSRS benefit that was transferred to FERS, earlier than you can under CSRS.

Your entire benefit, including the part earned under CSRS, will be reduced at the rate of 5% a year for each year you elect to receive benefits before age 62. Once you begin to receive it, the value of the CSRS portion of your benefit will be maintained because it will receive a full cost-of-living adjustment. The portion of the benefit computed under FERS rules will not receive a cost-of-living adjustment until you are age 62. Then the cost-of-living adjustment will be 1% less than the inflation rate whenever inflation is 3% or more a year.

• You will have 30 years of service before your minimum retirement age (MRA) and you want to leave Federal service early. FERS gives you the flexibility to leave then. Later, at your MRA, you can start getting benefits.
• You plan to work to a fairly late retirement age.

FERS can provide more valuable benefits to those who plan to work until later ages, that is, age 65 or beyond. You will continue to receive Government contributions to your TSP account and until you withdraw it, earnings will continue to compound.

In addition, you continue adding to your basic benefit. Under CSRS, your annuity is limited to 80% of your high-3, (about 42 years of service). FERS does not have this cap.

A Special Note for Career Couples Near Retirement

The considerations outlined above apply to married couples as well as single individuals. But there is a special circumstance that may apply to married couples where both individuals had a career and only one member of the couple ("the Federal spouse") worked for the Government. Often the Federal spouse has little or no Social Security credit. In this case, he/she would normally qualify for a spousal benefit based on the non-Federal spouse's earned Social Security benefit. But the Social Security law contains a Public Pension Offset (also called the Government Pension Offset) to reduce or eliminate Social Security spousal benefits for most Federal retirees (those receiving recurring retirement payments).

The Social Security law requires that, if the Federal spouse gets CSRS benefits after separating from a position not subject to Social Security, any Social Security spousal benefits otherwise payable to him/her will be offset by two-thirds of the CSRS benefit. In most cases, this eliminates the spousal benefits. This provision does not apply to people who were required by law to have Social Security coverage. Consequently, it does not apply to people who have CSRS Offset coverage.

If you have only CSRS coverage, the Public Pension Offset will not apply if you transfer and complete 5 years of service in FERS before retiring. You can still qualify for full Social Security spousal benefits even if you also receive a pension from employment not subject to Social Security (for example, CSRS service).

NOTE: During the original FERS open season in 1987, an employee could transfer to FERS, retire immediately, and avoid the Public Pension Offset. This rule only applied during the 1987 open season.

Remember that the spousal benefit is only paid if it is higher than the employee's own earned Social Security benefit. The Federal spouse who joins FERS earns Social Security credits. These will be added to any credits previously earned. Once enough quarters have been earned, the Federal spouse's own earned Social Security benefit will often be higher than the spousal benefit.

Also, if you are concerned about the survivor benefits that your retirement plan will provide, you should keep in mind that the FERS survivor rules will apply to all of your benefit -- even the CSRS part. This formula is less generous than the one used under CSRS.

Under CSRS, if you leave Federal service before you are eligible to retire, you must wait until age 62 to receive monthly benefits, no matter how many years of service you have.

For example, let's say you simply stop working for the Federal Government at age 53 with 30 years of service. You're not 55 yet, so you don't qualify for retirement. Your monthly checks from CSRS won't start until you turn 62. Your monthly benefit amount is based on your pay when you leave. With inflation, those dollars don't buy as much by the time you receive them at age 62. You can't continue your health or life insurance as a retiree, either.

If you don't want to wait until age 62 to get benefits, you can withdraw all of the money you've contributed when you leave. However, in most cases, your money will be returned to you without any interest, and, you will not get monthly checks from CSRS, even at age 62.

To read more about this:

• COLA under FERS
• COLA under CSRS
• Windfall Elimination Provision
• Minimum Retirement Age
• Thrift Savings Plan under FERS
• Social Security under FERS
• Government Pension Offset (also called the Public Pension Offset)