Are you retired or retiring from the military and moving over to the Civil Service? Did you attend a Service Academy? If the answer to these two questions is “Yes”, then I have a deal for you. It has to do with your FERS retirement.
Time at Service Academies Can Count Towards FERS
The FERS pension is quite a bit more complicated than military retirement. But at the very basic level you get 1% for each year served times the average of your salary earned in your 3 highest earning years. As an example, if your high 3 average is $100,000 and you were a Civil Service employee for 25 years, you would receive a $25,000 per year pension. As mentioned above, it is a little bit more complicated than this and in certain circumstances you might get 1.1% per year.
A unique part of the FERS system (and actually its predecessor CSRS too) is that you can use your military service to count towards your years served as a Civil Servant. In the case of a military retiree, it generally isn’t worth it to use your Active Duty time to buy back military time to increase your time of service for calculating your FERS pension. But…your military retirement doesn’t include your time at a Service Academy in calculating your pension. Since those years aren’t counted towards military retirement, you can use them (through buy back) to increase your FERS years of service.
How Does Military Buy Back Work?
To buy back your time you essentially pay 3% of your base pay earned while a Cadet or Midshipman. I don’t know about you, but when I was a Cadet (shortly after the earth cooled), I didn’t earn much. From a practical standpoint, this isn’t going to cost much and as mentioned each year buys 1% of your high-three pay. You’ll make the money back pretty quickly when you retire.
Time is Not on Your Side
You’ll want to get this done pretty quickly after starting your GS job. If you buy back within 2 years of starting your job, you don’t have to pay any interest. If you go beyond that, you’ll have to pay interest for each year you delay. It may still be worth it to buy back though.
Two Ways to Play This
There are two ways you can use the approximately 4 years you buy back. You could work until your planned retirement age and get 4% more for your retirement (and your spouse’s survivor benefit). Or…you could retire 4 years earlier and get the same retirement pension you would get at your planned retirement age.
By the way, if you’re not retired you can buy back your Service Academy time too. But you’ll probably also want to include your Active Duty time and buy that back as well.
Military Finances are Different
There a lot of things about military benefits that a financial planner needs to know to help you plan your future. We think you should work with a financial planner that deals with these issues every day. If you’d like to chat, schedule a free initial consult or give us a call.
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