Here we go again. The US Postal Service is offering a second round of early retirements to as many as 150,000 employees, with the exception of some 'critical' maintenance positions. There will be no incentives to entice employees to get out.
Whether an employee is CSRS or FERS can make a huge difference on one's projected retirement income. FERS is roughly comparable to CSRS for a regular retirement, in fact if one has a stretch of luck with the TSP, it can generate significantly higher income than CSRS.
But during the first round of early outs in 2008, many FERS employees were shocked to find the huge disadvantage in early retirement under FERS.
Consider: the formula for a CSRS early out is roughly 2 percent of the average of the high three years, multiplied by the number of years of employment, minus 2 percent of the total for each year under the minimum retirement age.
FERS, on the other hand, is a disaster for those seeking an early retirement. First, the annuity portion is exactly one-half that of CSRS at 1 percent of the high three multiplied by the number of years of employment. In 2008, many employees were receiving estimates between $12,000 and $18,000 annually. The Social Security Supplement, which will approximate the SS benefits earned during your years of postal employment, won't even start until the employee hits the minimum retirement age. The formula for this SS benefit appears to be a mystery as we have yet to find anyone who can explain it. And what many consider the best benefit of all, the TSP, is accessible only upon reaching age 59-1/2 if one wants to avoid a 10 percent penalty...unless you decide to take it as an annuity. Remember, you'll need to pay taxes on any TSP amounts withdrawn after retirement. A regular retirement at the minimum retirement age allows complete access to the TSP account with no penalty.
There's one more problem with FERS: any sick leave you've accumulated on retirement has no value, and will be, in effect, donated back to the USPS when you leave. CSRS retirees can add this time to their retirement, and some are able to add an additional year, which represents an increase of 2 percent in their annual annuity. There is legislation pending to change this discriminatory sick leave policy, so hopefully in the future unused sick leave will have some value.
So it makes me wonder: WHO on FERS would ever retire on an early out? Only someone who has some other significant source of income outside of the USPS retirement system. Just be sure to attend a retirement seminar to get all the facts before making your final decision.
