Your annuity, a defined benefit retirement plan, is determined by the system you are in – CSRS or FERS, years of service, unused sick leave for both CSRS and FERS employees, your survivor annuity election, and the benefits you elect to carry over to retirement. All FERS and some CSRS retirees are also eligible to collect a social security benefit. Review the Benefits page for detailed Social Security and benefits information. Thrift Plan participants can also add additional income through various withdrawal options.
Congress passed legislation several years ago that also permits FERS employees to use their accumulated sick leave towards retirement. The new rules are discussed on this service.
Annuity Example: The average Federal and Postal Employee who retires after 25 years service under FERS will receive 25% of their average "High-3" salary upon retirement; CSRS employees with the same service time receive 46% of their average "High-3" salary.
Your first retirement check should arrive on or about the first of the month following your separation. For example, if you retire by no later than the 3rd of January your first check should arrive on or about the first of February. You will receive approximately 70 to 80% of what your actual monthly annuity will be for several months until OPM verifies your retirement calculations. Typically, the leave that you sell back will be paid within 6 to 8 weeks in a separate check. When you start receiving your regular retirement check OPM will send you a highly informative pamphlet that outlines your personal retirement plan including benefit elections, general guidance, contact information, your personal "CSA" or "CSF" retirement account number, and survivors information. OPM sends out updates to this pamphlet as changes occur. Keep this booklet with your estate plan and make sure it is easily accessible for your spouse and/or loved ones. Your retirement number is very important. You MUST use your retirement number for all correspondence with OPM.
Direct Deposit of your annuity check
I often get questions about Direct Deposit. If your employer sends your retirement records to OPM by magnetic tape, your account information for direct deposit will be sent to them automatically. In this case you would not need to do anything. Otherwise, you should include your request to receive your payments by direct deposit with your retirement package. You can do this by submitting a letter or a Standard Form (SF) 1199A with your application. You can obtain a SF 1199A, Direct Deposit Sign-Up Form, from your financial institution or download a copy.
Direct deposit is available to retirees residing in Canada but, generally, it is not available to those whose permanent address for receiving payments is outside the United States. However, retirees living outside the U.S. can arrange to have their payments electronically deposited in a U.S. bank.
You can access the following list of services through https://www.servicesonline.opm.gov if you receive benefits under the Civil Service Retirement System (CSRS), Federal Employees Retirement System (FERS) or FERS Special, or the Organization Retirement and Disability System (ORDS). To use it, you need your "CSA" or "CSF" claim number and your Personal Identification Number (PIN). Your PIN is the random number issued to you by the Office of Personnel Management (OPM). It is the same number you use for their automated self-service telephone system. If you do not have a PIN, call OPM at 1 (888) 767-6738 to request one.
Taxable portion of your annuity
IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits, walks you through the process. You will receive a tax-free recovery of your contributions to both CSRS and FERS. If your annuity started after November 18, 1996, you must use the Simplified Method to figure the taxable and tax-free parts of your annuity. Use the convenient Tax Calculator listed below to determine how much federal tax you will pay each month.
Taxes can be significant in retirement. Use our FERS Retirement Calculator and CSRS Retirement Calculator to estimate your monthly annuity and calculate what your federal tax burden will be before you leave by using OPM's tax calculator. It is important to keep your tax returns organized and in a safe location for future reference. Use our Cost Analysis Spread Sheet to help you determine all of your expenses including taxes that you will owe in retirement. Ten states exempt annuities from tax and nine states don't have income taxes and they are listed below. You may wish to relocate to a state that offers retirees a better break, however you have to check on what other taxes are assessed in those states to make a truly informed decision. I retired in Pennsylvania and pay no state or local income tax on my annuity. That is a savings of over 4% a year.
States that Exempt Tax on Annuities
Ten States exempt your entire annuity including Alabama, Kansas, Hawaii, Illinois, Louisiana, Massachusetts, Michigan, Mississippi, New York, and Pennsylvania. Four other States may exempt parts of your annuity. For example, North Carolina started exempting federal annuitants in 1998 as long as they had a total of five years creditable service as of August 12, 1989. Kentucky only exempts pre 1998 retiree’s annuities. Oregon taxes apply only on the portion of annuity contribution earned after October 1, 1991, and Wisconsin exempts annuities established prior to 1964.
States that Don't Have Income Taxes
Nine States don’t have personal income taxes including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
For decades, individuals employed in certain non-foreign areas outside of the contiguous 48 states (Alaska, Hawaii, Puerto Rico, and other U.S. territories or possessions) have been eligible for a non-foreign Cost of Living Allowance (COLA). While such non-foreign COLA payments are not subject to income tax, they are also not basic pay for retirement purposes. Individuals receiving non-foreign COLA payments have not been eligible for locality pay, with the result that their basic pay has fallen further behind the rest-of-US (RUS) locality pay each year.
These provisions permit a phased conversion from non-foreign COLA to locality pay over a three year period beginning in 2010. Individuals who separate from service from 2010 through 2012 will have the right to elect to have the non-foreign COLA allowances received during that period count towards retirement credit, to the extent that the non-foreign COLA allowances plus any locality pay received do not equal more than the RUS locality pay. Such election must be filed not later than December 31, 2012. The statute makes provisions for agency and employee payments based upon those elections, which must be made to OPM. OPM will issue regulations to carry out the election and payment process.
The annuity continues until either the surviving spouse dies or the spouse remarries before age 55. Exception: if the widow or widower remarries before age 55, and was married at least 30 years to the original annuitant the survivor annuity will not be terminated.
FedRetireSoftware.com allows users to estimate their annuity and benefits and includes a comprehensive set of tools for estimating and analyzing federal employees annuities, benefits, Thrift Savings Plan, social security, FERS & CSRS sick leave conversion, military credits and more. The software is easy to use and you can download a desktop version or use their online service, both are reasonably priced. The Personal Plus version allows users to generate and print numerous reports to help them make informed decisions about their unique situation.
Another option to estimate your retirement annuity is to download this Retirement Calculator EXCEL spreadsheet to determine your approximate annuity for CSRS. FERS, LAW and MIXED retirements. This spreadsheet is from https://Firstgov.gov and made available here for your convenience.
Also, contact your Human Resource Department and request several estimates for target retirement dates. Most ask for an estimate for the end of the year, December 31 for FERS or January 3rd for CSRS employees, because you are able to sell back your accumulated annual leave when you retire. You can carry over 240 hours of leave each year and your final year can add another 208 hours if you are in he highest annual leave category earning 8 hours a pay. This way you would leave with 448 hours to sell back to Uncle Sam, a nice payout.
For those requiring assistance and one-one-one support, Order a 27 Page Retirement Planning Report tailored to your personal situation that includes: cash flow analysis, benefits summary, TSP options and alternatives, current and future benefits and costs, and recommendation for the best date to retire. Live professional guidance is included.