Gray-area military retirees, who have not completed 20 years of active-duty service, often have questions about their retirement benefits and how they intersect with their federal employment. The mentioned retirees are individuals who have served in the armed forces but did not reach the milestone of 20 years of active-duty service, which typically marks the eligibility for full military retirement benefits.
These retirees often transition into civilian federal employment, seeking to leverage their military service for credit towards their federal retirement. Service credit is vital for federal employees, as it directly affects their retirement benefits. For federal employees with prior military service, buying back active-duty time can significantly impact their retirement calculations, leading to a potentially more substantial retirement income.
The Buyback Process: How Could It Get You a Better Retirement?
To receive service credit for their military service, federal employees must go through the so-called buyback process. This procedure involves making payments to the federal government, which covers the cost of their military service credit. The key question that often arises is whether one needs to complete the entire buyback before being eligible to receive military retirement pay.
Well, here’s the answer, which is actually, easy to understand: while federal employees can start the buyback process at any time during their federal career, they are not required to complete it before receiving their military retirement pay. The process can extend over several years or even decades, allowing individuals to gradually pay off their military service credit.
Will a Partial Buyback Help Me Get a Better Retirement Plan?
Opting for a partial buyback of military service credit has its implications. Federal employees who have not completed the full buyback may receive partial service credit, which can affect the calculation of their federal retirement benefits. The specific impact may vary depending on individual circumstances and the terms of their federal employment.
Having said all this, you might imply so far that starting the buyback process early, even before reaching the age to draw military retirement pay, can be advantageous. It allows federal employees to accumulate more service credit, potentially increasing their overall retirement benefits. Additionally, early buyback can spread the financial commitment over a more extended period, making it more manageable.
A Quick Overview about Federal Employees Retirement System (FERS)
The Federal Employees Retirement System (FERS) is a retirement plan established in 1986 and replaced the older Civil Service Retirement System (CSRS) for most federal workers. FERS is a three-tiered retirement system that provides benefits to eligible employees, including:
- The first tier of FERS includes a basic pension plan, which provides a defined benefit based on an employee’s years of service and highest average salary over their career. This part of the plan is similar to the traditional pension plans found in many private sector jobs.
- The second tier is the Thrift Savings Plan (TSP), which is similar to a 401(k) plan in the private sector. Federal employees can contribute a portion of their salary to the TSP, and the government may match a portion of their contributions. The TSP offers various investment options, allowing employees to build a retirement nest egg through investment returns.
- The third tier is Social Security, which provides retirement benefits to eligible federal employees just like it does for other American workers. FERS employees contribute to Social Security and receive benefits based on their earnings history.