What Federal Employees Should Know About Early Retirement Under VERA

In an environment where agency restructuring, budgetary constraints, and workforce reductions are becoming more common, federal employees are increasingly faced with critical decisions about their future. One such decision often involves taking advantage of early retirement options like the Voluntary Early Retirement Authority (VERA). While VERA can present a valuable opportunity to exit the workforce early, it is essential for federal employees to understand the broader implications, and especially how it impacts their Thrift Savings Plan (TSP) and their federal pension benefits.

This article provides an overview of what to consider during uncertain times, covering VERA eligibility, TSP options, and how pensions are calculated.

Early Retirement Options under VERA

The Voluntary Early Retirement Authority (VERA) is a tool that federal agencies can use during times of restructuring, reorganization, or workforce downsizing. Approved by the Office of Personnel Management (OPM), VERA allows eligible employees to retire earlier than they normally could under standard retirement rules.

VERA Eligibility Rules

• You must be at least 50 years old with 20 years of creditable federal service, or
• Any age with 25 years of creditable service.
• Your position must be included in your agency’s VERA offering, and you must be serving in that position continuously.

VERA does not automatically mean a larger pension or enhanced benefits. Instead, it offers an opportunity for those who qualify to retire earlier than they might under normal conditions, potentially preserving some benefits that could be at risk in a RIF (Reduction in Force) situation.

However, retiring early means that you may accrue fewer years of service, potentially reducing the size of your pension. It’s important to carefully weigh this against the benefits of early retirement, especially if you are not fully financially prepared to leave the workforce.

Retirement Eligibility under FERS

Most federal employees fall under the Federal Employees Retirement System (FERS), which has its own set of eligibility requirements for retirement. Understanding when you can retire under normal conditions is key to evaluating whether VERA is the right option. To be eligible for immediate retirement under FERS, these are the requirements:

• Minimum Retirement Age (MRA) + 30 years of service
• MRA + 10 years (reduced benefit unless postponed)
• Age 60 with 20 years of service
• Age 62 with 5 years of service

Minimum Retirement Age ranges from 55 to 57, depending on your year of birth. For example, those born in 1970 or later will have an MRA of 57.

Your High-3 Average Salary

Your federal pension under FERS or CSRS is heavily influenced by your high-3 average salary. This term refers to the highest average basic pay you earned during any three consecutive years of service—they do not need to be the last three years of your career.
What Counts toward the High-3?

• Base pay
• Locality pay
• Administratively uncontested
  pay raises

What Doesn’t Count?

• Overtime
• Bonuses
• Awards
• Hazard pay

The High-3 period could occur earlier in your career, especially if you held a high-paying detail, supervisory role, or lived in a high locality pay area for three consecutive years.

Example: If your highest 36 consecutive months of basic pay averaged $90,000, and you retire with 30 years of service under FERS, your basic annual pension would be:

• 1% x 90,000 x 30 = $27,000 per year

Or, if you’re 62 or older with at least 20 years of service:

• 1.1% x 90,000 x 30 = $29,700 per year

Understanding your high-3 average and ensuring it reflects your highest earning years can significantly impact your retirement income.

The Thrift Savings Plan (TSP)

The Thrift Savings Plan (TSP) is a critical component of federal retirement planning. Alongside your pension and Social Security, it forms the third leg of the retirement income stool. When retiring under VERA, special care must be taken with how you handle your TSP, especially if you are retiring before age 59.

Withdrawal Considerations:

• If you separate from federal service during or after the year you turn 55 (or 50 for special provision employees like law enforcement), you can access your TSP without the 10% early withdrawal penalty.
• If you retire under VERA before age 55 (or 50 for special category employees), you may incur a 10% penalty unless you roll over your TSP to another retirement account and take withdrawals using IRS Rule 72(t).

TSP Options in Retirement:

• Leave funds in the TSP
• Take partial or full withdrawals
• Set up installment payments
• Purchase a TSP annuity

Each option has different tax implications, and market volatility should be considered when making withdrawal decisions.

Investment Allocation: Uncertain times can bring market instability. Evaluate your TSP allocations among the G, F, C, S, and I Funds and consider shifting toward more conservative investments (like the G Fund) as you near retirement.

Federal Pensions: FERS vs. CSRS

While most current employees are under FERS, some long-serving federal workers may still fall under the Civil Service Retirement System (CSRS).

FERS Pension Calculation:

• 1% of your high-3 salary x years of service
• 1.1% if you retire at age 62 or older with at least 20 years of service
• Eligible for Social Security and TSP

CSRS Pension Calculation:

• Approximately 1.5% to 2.5% per year of service, depending on years worked
• No Social Security participation (with some exceptions)
• More generous pension but without automatic TSP contributions

CSRS employees typically receive a larger pension but need to be proactive about supplementing it since they don’t receive Social Security unless they have qualifying private sector employment.

Health Benefits and Life Insurance

A major consideration when retiring early under VERA is whether you can maintain your Federal Employees Health Benefits (FEHB) and Federal Employees Group Life Insurance (FEGLI).
To keep FEHB in retirement:

• You must have been covered under FEHB for the five years immediately preceding your retirement or from your first opportunity to enroll.

For FEGLI:

• Coverage may continue into retirement if you were enrolled for the five years before retirement.

These benefits can be a major financial advantage in retirement, and should factor into your decision-making process.

Strategic Planning

Uncertain times can create stress, but federal employees have structured benefits that offer options, even in turbulent periods. Taking a strategic approach to early retirement through VERA, understanding your high-3 salary and how it affects your pension, and planning TSP withdrawals wisely can provide financial security and peace of mind.

Before making any final decisions, consult with:

• Your agency’s HR or retirement counselor
• A financial planning professional who is familiar with federal benefits
• The official OPM guidance for retirement and TSP planning

With preparation and good information, you can take control of your future—even when the present feels uncertain.

Grace S. Yung, CFP ®, is a Certified Financial Planner practitioner with experience in helping LGBTQ individuals, domestic partners, and families plan and manage their finances since 1994. She is the managing director at Midtown Financial Group, LLC, in Houston.Yung can be reached at grace.yung@lpl.com. Visit letsmake aplan.org or midtownfg.com/lgbtqplus.10.htm.