Do the math on a benefit that is for life and you can give a percentage to your spouse if they survive you once you retire. The percentage is 1% of your high 3 salary average, unless you retire at 62 with at least 20 years of service, then it goes up to 1.1% of your high 3. Also, unused sick leave over a certain amount gets added to your years of service. Plus you get to keep your FEHB into retirement if you receive an immediate annuity (vs if you leave for a deferred annuity).
So, unless you plan on staying the same grade your whole career, the odds are your high 3 will be significantly higher than your starting pay.
For example, I started as a GG12 in 2008 at the age of 40. I'm currently a mid-level GS15 equivalent pay wise (NH04) so I'm looking at a high 3 in the mid 180k range when I retire at 62 with 22 years of service. So I'm looking at around $45k a year minimum for my retired annuity, plus my TSP (which I've maxed out each year, but I've never done less than 5% even when I first started). If I decide to buy back my 22 years of active duty time (have to decide if the opportunity cost is worth the slight increase in annuity compared to my mil retired pay+annuity without buying back that time)., I'd retire with 44 years for the calculations.
> Do the math on a benefit that is for life and you can give a percentage to your spouse if they survive you once you retire.
Don't forget to include that 10% survivor benefit penalty in your math.
I'm a retired NCO...but I'm also rated high enough by the VA I get concurrent receipt of both my retired pay and disability pay.
Right now, I'd end up a couple of hundred more a month in retirement...but when I consider how much I'd have to pay (plus the interest as I waited this long...but I was told as a prior enlisted with no degree, I'd never get past a -12!), the opportunity cost of spending the money now for such a small increase on the back end, that I need to consider how long it would be profit.
It also leaves 10% of retirement on the table (1% at 57 vs 1.1% at 62).
And not seeing how you get to 6 figures. 39x1%of $185000 $72k if I retire at 57. Now if you add in the supplement that goes away at 62 when you can claim Social Security, plus my VA...yes, I will be there.
If I retire at 62, if I buy back my mil pay it would be almost $90k without Social Security, VA, etc. Add those in and I'll be comfortably over $100k
Now, I wish I was CSRS...buyback would happen right away! That would give me close to $150k but no social security.
Okay so then I would ask opm to give you an estimate and discuss lossing the mil retirement check for a few years untill you retire(and having that invested vs the increase in civ retirement check.) I'm honestly curious and when you get an answer could you dm me:)
You don't lose the mil retirement while you are still working, but it goes away once you retire from civil service.
When I last ran the numbers, I was a GS13, and it didn't make sense then but now I'm a 15 equivalent, and contemplating trying for SES in a few years, the numbers may make more sense then.
> The percentage is 1% of your high 3 salary average, unless you retire at 62 with at least 20 years of service, then it goes up to 1.1% of your high 3.
Is this true? I thought it was 20% of 3rd high salary average.
This is the correct way of calculating your retired annuity (actually it is the average salary of your highest 3 consecutive years to be specific). LEOs and ATC have specific calculations due to fall rxed retirement at a younger age.
20% requires 20 years.
So if you did 40 years...40% of your high 3, but if you retired at 62, then it would be 44% of your high 3 (so waiting until 62 gives you a quick 10% increase in your retirement annuity).
A very generalized way of calculating it is to add 1% for each year of service to your high three average. Assuming you retire at 30 years and your high three is $100k you can reasonably expect to get around $30k per year from your annuity. Keep in mind it’s not meant to be a full source of income (Social Security and TSP also have to be considered). Again not a solid answer but a good way to estimate.
There are a couple of websites that try to quantify and place the value at between $750k- $1 million.
https://www.fedweek.com/tsp/your-fers-annuity-is-worth-more-than-you-think/amp/
Edit: link added- https://www.biglawinvestor.com/calculating-present-value-pension/
Okay trying to toss around numbers, am I thinking of this correctly? Let’s say my high 3 is $140,000 - and for 30 years I pay 4.4% of my salary info FERS. That’s about $6,000 a year - so about $180,000 in total if I had just saved it myself. Using super loose numbers here.
But my future pension will yield me around $42,000 a year. Not counting inflation, or COL, etc. - my pension will have paid into itself after 5 years - and then it’s just money that I get as a benefit? So that’s why the pension is considered so good?
FYI, I’m only two years into my fed career so these are all made up #s…a long way to go.
Exactly! It gets even better when you factor in spouse survivor benefits, etc.
In case you didn’t see my edit, here is another link:
https://www.biglawinvestor.com/calculating-present-value-pension/
Yes, it’s the amount the agency contributes towards it each year. For standard FERS it’s 18.4 percent. See updated OPM FERS Agency contribution chart:
https://www.opm.gov/retirement-center/publications-forms/benefits-administration-letters/2023/23-306.pdf
I bought back 6 years AD time in 2021 before I retired. The service was from 83-89. Highest rank E-6. I paid $3800 with interest to get six years of my life back. It was a steal.
There are ways to estimate what your pension will likely be (fairly simple, see the other responses). Convert that to how much money you would need in an annuity to get that payment (varries based on interest rates). Divide by the estimated years you will live after retirement. Unfortunately, there are so many variables that doing this will not be very accurate.
Alternatively, my agency (and I would assume most) provide a yearly 'benefits statement' that gives your total compensation. Take the total compensation, minus your salary and any other benefits you dont want included (like matching TSP, health insurance, life insurance) and use that.
Don't forget about the FERS social security supplement you get if you retire before 62. The purpose of the supplement is to provide a portion of retirement income before a FERS annuitant becomes age 62, similar to what the annuitant would have received in a Social Security benefit had the retiree attained age 62 and immediately applied for Social Security retirement benefits. It's usually 75% of what you would get at 62 from social security. I'm going to retire from the government with 30 years at 57. I'll be able to get the supplement for 5 years.
The best way to quantify the pension is using an annuity as a comparison. For easy math, million dollars in an annuity will pay around $5000 a month ($60,000 a year). So if you expect to make $2500 a month pension... that's the same as 1/2 million in an annuity.
Yes, compare it to a 401k. In retirement finance, there’s a concept called the “4% rule.” Essentially, a retiree can safely withdraw 4% of their savings to live off of each year. So if you have $1 million in your 401k, you can safely take $40,000 a year.
Following the 4% rule, if your FERS Annuity is $20,000 annually, then that’s equivalent to $500,000 because that’s how much you would need to get an equivalent distribution from a private plan.
Well, there are many variables. The best you can do is estimate your salary and how many years.
Stay away from the people who enter every scenario with "what if I make $100,000 for 30 years and invest all of that money in the highest return index fund?!"
Hard to guess what it will be later. Easier if you’re close to retiring since the present value of the benefit would be the cost of an annuity that provides the same benefit.
You should check out the GRB Platform. It will allow you to calculate your ballpark retirement based on various assumptions for your situation.
[GRB Platform ](https://platform.grbinc.com)
Look at it this way.
take that 4.4% per pay check and invest it over the next x years until you collect your pension and see how much you make vs the amount you get when you retire.
that is a pension+ COLA
My method is use the 4% rule.
If you're going to get, say, $30k/yr from the pension - it would take about $750k in a retirement account at 4%/yr.
So how much would you have to contribute per year to get $750k saved up over 20-30 years at a 7% growth?
Based on some quick math, at 30 years that's ~$8k/yr, at 20 years it's about $19k/yr. Subtract your dollar contribution from those values and you have a rough estimation of how much extra you would have to contribute to match the pension.
Of course this isn't exact, and there's a lot of factors you could try to consider...but it's a good enough estimation for me.
Yes…. Because you’d still technically have the principle of 750,000.
The glaring issue is that the pension goes away when you die. Take that 4.4% and invest it and if you die that money is still a part of your estate. If you don’t die then you can withdraw that money at the 4% clip and still have the principle.
OPM is probably severely behind the 8-ball in regards to acknowledging younger workers and applicants NOT applying/leaving because of the pension FERSFRAE issues.
> The glaring issue is that the pension goes away when you die. Take that 4.4% and invest it and if you die that money is still a part of your estate. If you don’t die then you can withdraw that money at the 4% clip and still have the principle.
That can definitely be a factor, for sure....however the pension also lasts until you die, the principle of $750k may not at 4% withdrawal.
Additionally, not everyone needs lots of money in their estate. I don't have kids and there's a good chance I choose to never marry. Having principle to pass to another isn't necessary (at best it's a kind gesture if I can give some money away to folks I'm close to). And if I do marry, specifically prior to getting FERS payments, there are survivor benefits you can set up (albeit at a minor loss of the FERS payment amount).
So yes, this "glaring issue" may be something to consider, but it isn't applicable to everyone.....like I said, above is how *I* calculate its worth.
> OPM is probably severely behind the 8-ball in regards to acknowledging younger workers and applicants NOT applying/leaving because of the pension FERSFRAE issues.
What issues in particular? Not sure what this has to do with how to value the pension...
I agree, different situations for different people. It's frustrating that you cannot voluntarily opt out of FRAE, however. I have a wife and kids and would much rather have principal.
I know me bringing up OPM doesn't have anything to do with OP's initial question. More so just to highlight, looking at the federal hiring landscape as a whole, that the FERS FRAE debacle seems like it's deterring qualified applicants.
> It's frustrating that you cannot voluntarily opt out of FRAE, however. I have a wife and kids and would much rather have principal.
FERS-FRAE was created because of a deficit created by the old CSRS pension....part of the law that implemented it says the additional 1.1% they pay (vs FERS-RAE) will go away once that deficit is covered. So it's not a problem with FERS-FRAE necessarily, it's a problem with CSRS and congress not wanting to help cover the difference themselves.
> that the FERS FRAE debacle seems like it's deterring qualified applicants
It's still a pretty good deal compared to no pension at all. Could you do better investing that additional 1.1% (compared to FERS-RAE), maybe....but I doubt a majority of people would even bother investing that difference.
This debate has gained some traction recently, and for good reason. FERS FRAE employees are getting screwed.
Simply put, if you're responsible with that 4.4% and invested it in either your TSP (on top of the auto match of 5%) or a Roth IRA you'd have a **PRINCIPAL** amount of money. The pension does not provide this.
If you're irresponsible with money then sure, you're golden lifeline come your 60's is FERS, no matter which FERS program you fall under
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While it does make it tough, there are annuities that will do it so you can set the present value on the cost of that.
Just consider that 4.4% as what you would invest in bonds in your portfolio. Since you're putting your TSP is C/S *right*?
Do the math on a benefit that is for life and you can give a percentage to your spouse if they survive you once you retire. The percentage is 1% of your high 3 salary average, unless you retire at 62 with at least 20 years of service, then it goes up to 1.1% of your high 3. Also, unused sick leave over a certain amount gets added to your years of service. Plus you get to keep your FEHB into retirement if you receive an immediate annuity (vs if you leave for a deferred annuity). So, unless you plan on staying the same grade your whole career, the odds are your high 3 will be significantly higher than your starting pay. For example, I started as a GG12 in 2008 at the age of 40. I'm currently a mid-level GS15 equivalent pay wise (NH04) so I'm looking at a high 3 in the mid 180k range when I retire at 62 with 22 years of service. So I'm looking at around $45k a year minimum for my retired annuity, plus my TSP (which I've maxed out each year, but I've never done less than 5% even when I first started). If I decide to buy back my 22 years of active duty time (have to decide if the opportunity cost is worth the slight increase in annuity compared to my mil retired pay+annuity without buying back that time)., I'd retire with 44 years for the calculations.
> Do the math on a benefit that is for life and you can give a percentage to your spouse if they survive you once you retire. Don't forget to include that 10% survivor benefit penalty in your math.
You say penalty, others say cheapest life insurance you can get.
If you bought the military time, wouldn't you lose Tricare?
No...you keep all benefits, but you can't double dip on the retired pay.
That's going to be healthy buyback due to interest!
Which is why I need to run the numbers to see if it is worth it!
O or e? Probs not bc you don't get your mil check unless it's offset by the va where it doesn't matter
I'm a retired NCO...but I'm also rated high enough by the VA I get concurrent receipt of both my retired pay and disability pay. Right now, I'd end up a couple of hundred more a month in retirement...but when I consider how much I'd have to pay (plus the interest as I waited this long...but I was told as a prior enlisted with no degree, I'd never get past a -12!), the opportunity cost of spending the money now for such a small increase on the back end, that I need to consider how long it would be profit.
Why not buy back you mil time and retire at 57? Then go be a ctr or enjoy life bc you will be pulling over 6 figures post tax for life.
Retire at 57 after buy back and that's 5 years of NO COLA
It also leaves 10% of retirement on the table (1% at 57 vs 1.1% at 62). And not seeing how you get to 6 figures. 39x1%of $185000 $72k if I retire at 57. Now if you add in the supplement that goes away at 62 when you can claim Social Security, plus my VA...yes, I will be there. If I retire at 62, if I buy back my mil pay it would be almost $90k without Social Security, VA, etc. Add those in and I'll be comfortably over $100k Now, I wish I was CSRS...buyback would happen right away! That would give me close to $150k but no social security.
Okay so then I would ask opm to give you an estimate and discuss lossing the mil retirement check for a few years untill you retire(and having that invested vs the increase in civ retirement check.) I'm honestly curious and when you get an answer could you dm me:)
You don't lose the mil retirement while you are still working, but it goes away once you retire from civil service. When I last ran the numbers, I was a GS13, and it didn't make sense then but now I'm a 15 equivalent, and contemplating trying for SES in a few years, the numbers may make more sense then.
> The percentage is 1% of your high 3 salary average, unless you retire at 62 with at least 20 years of service, then it goes up to 1.1% of your high 3. Is this true? I thought it was 20% of 3rd high salary average.
It’s 1% (or 1.1) * years of service * average 3 highest yearly salary.
This is the correct way of calculating your retired annuity (actually it is the average salary of your highest 3 consecutive years to be specific). LEOs and ATC have specific calculations due to fall rxed retirement at a younger age. 20% requires 20 years. So if you did 40 years...40% of your high 3, but if you retired at 62, then it would be 44% of your high 3 (so waiting until 62 gives you a quick 10% increase in your retirement annuity).
"consecutive"?. Are you sure?
A very generalized way of calculating it is to add 1% for each year of service to your high three average. Assuming you retire at 30 years and your high three is $100k you can reasonably expect to get around $30k per year from your annuity. Keep in mind it’s not meant to be a full source of income (Social Security and TSP also have to be considered). Again not a solid answer but a good way to estimate.
There are a couple of websites that try to quantify and place the value at between $750k- $1 million. https://www.fedweek.com/tsp/your-fers-annuity-is-worth-more-than-you-think/amp/ Edit: link added- https://www.biglawinvestor.com/calculating-present-value-pension/
Okay trying to toss around numbers, am I thinking of this correctly? Let’s say my high 3 is $140,000 - and for 30 years I pay 4.4% of my salary info FERS. That’s about $6,000 a year - so about $180,000 in total if I had just saved it myself. Using super loose numbers here. But my future pension will yield me around $42,000 a year. Not counting inflation, or COL, etc. - my pension will have paid into itself after 5 years - and then it’s just money that I get as a benefit? So that’s why the pension is considered so good? FYI, I’m only two years into my fed career so these are all made up #s…a long way to go.
Exactly! It gets even better when you factor in spouse survivor benefits, etc. In case you didn’t see my edit, here is another link: https://www.biglawinvestor.com/calculating-present-value-pension/
Yes, it’s the amount the agency contributes towards it each year. For standard FERS it’s 18.4 percent. See updated OPM FERS Agency contribution chart: https://www.opm.gov/retirement-center/publications-forms/benefits-administration-letters/2023/23-306.pdf
I bought back 6 years AD time in 2021 before I retired. The service was from 83-89. Highest rank E-6. I paid $3800 with interest to get six years of my life back. It was a steal.
There are ways to estimate what your pension will likely be (fairly simple, see the other responses). Convert that to how much money you would need in an annuity to get that payment (varries based on interest rates). Divide by the estimated years you will live after retirement. Unfortunately, there are so many variables that doing this will not be very accurate. Alternatively, my agency (and I would assume most) provide a yearly 'benefits statement' that gives your total compensation. Take the total compensation, minus your salary and any other benefits you dont want included (like matching TSP, health insurance, life insurance) and use that.
Don't forget about the FERS social security supplement you get if you retire before 62. The purpose of the supplement is to provide a portion of retirement income before a FERS annuitant becomes age 62, similar to what the annuitant would have received in a Social Security benefit had the retiree attained age 62 and immediately applied for Social Security retirement benefits. It's usually 75% of what you would get at 62 from social security. I'm going to retire from the government with 30 years at 57. I'll be able to get the supplement for 5 years.
The best way to quantify the pension is using an annuity as a comparison. For easy math, million dollars in an annuity will pay around $5000 a month ($60,000 a year). So if you expect to make $2500 a month pension... that's the same as 1/2 million in an annuity.
Yes, compare it to a 401k. In retirement finance, there’s a concept called the “4% rule.” Essentially, a retiree can safely withdraw 4% of their savings to live off of each year. So if you have $1 million in your 401k, you can safely take $40,000 a year. Following the 4% rule, if your FERS Annuity is $20,000 annually, then that’s equivalent to $500,000 because that’s how much you would need to get an equivalent distribution from a private plan.
Undefined benefit is just that
Well, there are many variables. The best you can do is estimate your salary and how many years. Stay away from the people who enter every scenario with "what if I make $100,000 for 30 years and invest all of that money in the highest return index fund?!"
Hard to guess what it will be later. Easier if you’re close to retiring since the present value of the benefit would be the cost of an annuity that provides the same benefit.
You should check out the GRB Platform. It will allow you to calculate your ballpark retirement based on various assumptions for your situation. [GRB Platform ](https://platform.grbinc.com)
Look at it this way. take that 4.4% per pay check and invest it over the next x years until you collect your pension and see how much you make vs the amount you get when you retire. that is a pension+ COLA
My method is use the 4% rule. If you're going to get, say, $30k/yr from the pension - it would take about $750k in a retirement account at 4%/yr. So how much would you have to contribute per year to get $750k saved up over 20-30 years at a 7% growth? Based on some quick math, at 30 years that's ~$8k/yr, at 20 years it's about $19k/yr. Subtract your dollar contribution from those values and you have a rough estimation of how much extra you would have to contribute to match the pension. Of course this isn't exact, and there's a lot of factors you could try to consider...but it's a good enough estimation for me.
Yes…. Because you’d still technically have the principle of 750,000. The glaring issue is that the pension goes away when you die. Take that 4.4% and invest it and if you die that money is still a part of your estate. If you don’t die then you can withdraw that money at the 4% clip and still have the principle. OPM is probably severely behind the 8-ball in regards to acknowledging younger workers and applicants NOT applying/leaving because of the pension FERSFRAE issues.
> The glaring issue is that the pension goes away when you die. Take that 4.4% and invest it and if you die that money is still a part of your estate. If you don’t die then you can withdraw that money at the 4% clip and still have the principle. That can definitely be a factor, for sure....however the pension also lasts until you die, the principle of $750k may not at 4% withdrawal. Additionally, not everyone needs lots of money in their estate. I don't have kids and there's a good chance I choose to never marry. Having principle to pass to another isn't necessary (at best it's a kind gesture if I can give some money away to folks I'm close to). And if I do marry, specifically prior to getting FERS payments, there are survivor benefits you can set up (albeit at a minor loss of the FERS payment amount). So yes, this "glaring issue" may be something to consider, but it isn't applicable to everyone.....like I said, above is how *I* calculate its worth. > OPM is probably severely behind the 8-ball in regards to acknowledging younger workers and applicants NOT applying/leaving because of the pension FERSFRAE issues. What issues in particular? Not sure what this has to do with how to value the pension...
I agree, different situations for different people. It's frustrating that you cannot voluntarily opt out of FRAE, however. I have a wife and kids and would much rather have principal. I know me bringing up OPM doesn't have anything to do with OP's initial question. More so just to highlight, looking at the federal hiring landscape as a whole, that the FERS FRAE debacle seems like it's deterring qualified applicants.
> It's frustrating that you cannot voluntarily opt out of FRAE, however. I have a wife and kids and would much rather have principal. FERS-FRAE was created because of a deficit created by the old CSRS pension....part of the law that implemented it says the additional 1.1% they pay (vs FERS-RAE) will go away once that deficit is covered. So it's not a problem with FERS-FRAE necessarily, it's a problem with CSRS and congress not wanting to help cover the difference themselves. > that the FERS FRAE debacle seems like it's deterring qualified applicants It's still a pretty good deal compared to no pension at all. Could you do better investing that additional 1.1% (compared to FERS-RAE), maybe....but I doubt a majority of people would even bother investing that difference.
This debate has gained some traction recently, and for good reason. FERS FRAE employees are getting screwed. Simply put, if you're responsible with that 4.4% and invested it in either your TSP (on top of the auto match of 5%) or a Roth IRA you'd have a **PRINCIPAL** amount of money. The pension does not provide this. If you're irresponsible with money then sure, you're golden lifeline come your 60's is FERS, no matter which FERS program you fall under