Understanding FERS Deferred Retirement: A Comprehensive Guide

Retirement planning is one of the most critical decisions in anyone’s career, especially for federal employees under the Federal Employees Retirement System (FERS). One option available to those who leave federal service before reaching retirement age is deferred retirement. While it can be a useful strategy for certain individuals, it’s essential to understand the rules, benefits, and limitations that come with it. This blog aims to explain FERS deferred retirement clearly and help you decide whether it's the right path for you.

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What is Deferred Retirement?

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Deferred retirement under FERS allows former federal employees who have completed at least five years of creditable civilian service to claim a retirement annuity later, even if they separate from federal employment before reaching their Minimum Retirement Age (MRA).

To qualify:

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• You must have at least five years of creditable civilian service.
• You must leave your retirement contributions in the system (i.e., not withdraw them after leaving service).
• You must not be eligible for immediate retirement when you separate from service.
• Essentially, this retirement option is for those who leave federal service early but want to retain some retirement benefits in the future.

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What is a Deferred Retirement Plan?

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A deferred retirement fers plan allows you to start receiving retirement benefits once you reach your MRA or later, depending on your years of service.

Here’s how it works:

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• Your annuity will be calculated based on your years of service and your “high-3” average salary (the highest average basic pay over any three consecutive years).
• You’ll receive your annuity once you reach the eligible age, which varies based on your year of birth and years of service.
• Unlike postponed retirement, you do not need to meet the 10-year minimum service requirement—just five years is enough.

Checkout the - FERS Supplement Calculator

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Federal Employees Retirement System (FERS) – Non-Disability Retirement Calculations

1. Standard FERS Annuity Formula

• Under Age 62 at Retirement OR
• Age 62+ with Less Than 20 Years of Service:
• 1% × High-3 Average Salary × Years of Service
• Age 62+ at Retirement with 20+ Years of Service:
• 1.1% × High-3 Average Salary × Years of Service

2. Special Provisions for Certain Roles

A. Air Traffic Controllers, Firefighters, Law Enforcement Officers, Capitol Police, Supreme Court Police, or Nuclear Materials Couriers:

• 1.7% × High-3 Salary × Years of Service (up to 20)
• + 1% × High-3 Salary × Years of Service (beyond 20)

B. Members of Congress or Congressional Employees (with at least 5 years in such roles):

• 1.7% × High-3 Salary × Years in Congress/Congressional Service (up to 20)
• + 1% × High-3 Salary × Other Federal Service

*(Note: Members under FERS-RAE/FERS-FRAE use the standard FERS formula, not the enhanced calculation.)*

3. Transferred from CSRS to FERS (with at least 5 years of prior CSRS-covered service)

The annuity has two components:

A. FERS oCompnent:

• Same as standard FERS formula (1% or 1.1% based on age/service).

B. CSRS Component:

• First 5 years: 1.5% × High-3 Salary × Years
• Next 5 years: 1.75% × High-3 Salary × Years
• Beyond 10 years: 2% × High-3 Salary × Years

Special CSRS Provisions:

For Law Enforcement/Firefighters/Nuclear Couriers:

• 2.5% × High-3 Salary × Special Service (up to 20 years)
• + 2% × High-3 Salary × Remaining Service

For Members of Congress/Congressional Employees:

• 2.5% × High-3 Salary × Congressional/Military Service
• + 1.75% × High-3 Salary × Other Service (up to 10 years combined)
• + 2% × High-3 Salary × Service Beyond 10 Years

4. Deferred Annuity

Eligible employees who leave federal service before retirement age may apply for a deferred annuity later, with calculations based on the applicable formula at the time of separation.

*Note: High-3 Average Salary = Highest 3 consecutive years of base pay.*

Years of service are rounded to the nearest full month.

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Key Features of FERS Deferred Retirement

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Choosing deferred retirement fers comes with both benefits and trade-offs. Here are the main features:

What You Get:

• A lifetime annuity starting at your MRA or later.
• No early retirement penalties if you wait until age 62 with at least 5 years of service.

What You Miss Out On:

• No Federal Employees Health Benefits (FEHB) – you cannot reinstate your federal health insurance in retirement.
• No Federal Employees Group Life Insurance (FEGLI) – life insurance coverage does not continue.
• No survivor benefits – your spouse or family members will not receive annuity payments after your death.
• No credit for unused sick leave in your annuity calculation.

Additionally, your Thrift Savings Plan (TSP) will be treated like any standard retirement savings account. You can still access it, but you lose certain federal employee privileges.

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Advantages and Disadvantages

Let’s weigh the pros and cons of choosing deferred fers retirement:

Advantages

• Keeps the door open to retirement income even after an early exit from federal service.
• Offers flexibility if your career takes a new direction outside of federal employment.
• Allows you to preserve your pension benefits without needing to meet immediate retirement criteria.

Disadvantages

• You lose FEHB and FEGLI coverage, which can be costly to replace.
• No survivor benefits, which may impact your family's financial planning.
• No access to sick leave credit, reducing the total annuity you receive.
• Potential tax implications when accessing your TSP funds.

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Difference Between Deferred and Postponed FERS Retirement

1. Insurance Benefits

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Postponed Retirement:

• Allows reinstatement of Federal Employees Health Benefits (FEHB), Federal Employees Group Life Insurance (FEGLI), and supplemental dental/vision coverage when the annuity begins.
• Requires enrollment in these plans for at least five years before separation to qualify.

Deferred Retirement:

• Does not permit reinstatement of FEHB, FEGLI, or supplemental insurance after leaving federal service.

2. Survivor Benefits

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Postponed Retirement:

• May provide survivor benefits to eligible beneficiaries if the retiree passes away before receiving the annuity.

Deferred Retirement:

• No survivor benefits are payable if the retiree dies before receiving the annuity, as deferred annuities do not qualify unless the annuity starts within 30 days of separation.

3. Thrift Savings Plan (TSP) Withdrawals

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Postponed Retirement:

• Retirees can withdraw TSP funds without IRS early withdrawal penalties since they are at or past their Minimum Retirement Age (MRA).

Deferred Retirement:

• Retirees can withdraw TSP funds after separation, but those under age 59½ face a 10% early withdrawal penalty (unless an exception applies).

 Check out the - TSP calculator

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4. Cost-of-Living Adjustments (COLAs)

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Postponed Retirement:

• Retirees receive COLAs immediately when annuity payments begin, regardless of age. We have written a separate blog on it that you might look in it that is cola 2026 predictions.

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Deferred Retirement:

• No COLAs are granted until the retiree reaches age 62.

In simple terms: if you leave before reaching MRA with 5+ years of service and don’t qualify for immediate retirement, deferred retirement may be your only option. If you leave after reaching your MRA and have at least 10 years of service, postponed retirement gives you more benefits but also comes with different conditions.

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Example 1: FERS Deferred Retirement with 5 Years of Service

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Employee Profile:

• Name: Sarah
• Years of Creditable Service: 5
• Age When Leaving Federal Service: 35
• High-3 Average Salary: $60,000
• Retirement Type: Deferred
• Age When Benefits Begin: 62 (minimum age with 5 years of service)

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Calculation:

The basic FERS pension formula:

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1% x High-3 Salary x Years of Service

So, at age 62, Sarah would receive:

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1% x $60,000 x 5 = $3,000 per year

Monthly Pension: $3,000 ÷ 12 = $250/month (starting at age 62)

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Example 2: FERS Deferred Retirement with 10 Years of Service

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Employee Profile:

• Name: David
• Years of Creditable Service: 10
• Age When Leaving Federal Service: 45
• High-3 Average Salary: $75,000
• Retirement Type: Deferred
• Age When Benefits Begin: 62 (to avoid reduction)

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Option A: Start Benefits at Age 62 (No Reduction)

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1% x $75,000 x 10 = $7,500/year

Monthly Pension:
$7,500 ÷ 12 = $625/month

Option B: Start Benefits at Age 60 (Minimum age with 10 years, but with reduction)

• Starting between 60 and 62 causes a 5% reduction per year early.
• Starting 2 years early = 10% reduction.

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$7,500 - 10% = $6,750/yearMonthly: $562.50/month

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Conclusion

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FERS Deferred Retirement is a strategic option for federal employees who leave government service early but want to retain some pension benefits. It offers a basic annuity income in retirement but comes with important trade-offs like the loss of health and life insurance benefits.

If you’re considering deferred retirement, it’s vital to evaluate your long-term financial goals and healthcare needs. As always, consult a federal retirement specialist or financial adviser to make the most informed decision based on your unique circumstances.