Does the Government Penalize You for Retiring Early?

Aug 14, 2023

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Are you looking to retire early? It’s a question that many people ask themselves, and for good reason! Retirement can be a great time to relax and enjoy life. But before you decide to retire, it’s important to understand the different retirement options available to you. In this article, we will discuss the government penalization for early retirement and look at the benefits of choosing Federal Disability Retirement! So, whether you’re thinking about retiring early or not, this article is for you!

Early Retirement Reductions

There are a few early retirement options from the federal government, each with its own drawbacks. Choosing to retire early is a big decision and it’s often hard to figure out what the best choice for you and your family is.

The main early retirement option is an MRA +10 retirement. You will be eligible for this if you have hit your minimum retirement age (MRA) and have 10 years of federal service. If you retire under the MRA+10 provision, your annuity will be reduced by 5% per year that you are under age 62. You can choose to defer your annuity in order to reduce or eliminate this age reduction. However, be aware that if you do this you will no longer have access to your insurance options until your annuity begins.

Another early retirement option is an Early Voluntary Retirement Authority (VERA). This type of retirement lowers the retirement age for agencies undergoing a major reorganization, reduction-in-force or transfer of function. Employees at least 50 years of age with 20 years of creditable service or any age with 25 years of creditable service are eligible for this type of retirement. Employees considering an early voluntary retirement must consult with their human resources office and follow agency procedures to receive an annuity and benefit estimate and obtain advice specific to their personal situation. But the good news is there may be no annuity reduction in FERS for employees who retire on an early voluntary retirement under age 55.

Federal Disability Retirement

If you are looking into early retirement options due to a disability, then Federal Disability Retirement may be the best choice for your future. This early retirement option allows you to maintain your benefits and receive your full regular retirement annuity at age 62.

Struggling in your job with a disability can be hard, and Federal Disability Retirement provides you with peace of mind knowing that your benefits are secure.

You must be a FERS career federal employee, with 18 months of creditable service, and a disability that is affecting your ability to perform at least one of the essential functions of your job in order to be eligible for this benefit.

Benefit Highlights

Federal Disability Retirement offers four main benefits that will allow you to reach your full retirement age of 62.

Secure Monthly Annuity

While on Federal Disability Retirement you will receive a secure monthly annuity based on your high 3 average. The first year after approval you will receive 60% of your high 3 average and every year after that you will receive 40% of your high 3. Your high 3 average is the average of your highest three consecutive years of basic pay, this will be calculated by the OPM.

Creditable Years of Service

You will continue to receive creditable years of service every year you are on Federal Disability Retirement. This can have a huge impact on your regular retirement annuity which is based off your high 3 average and your creditable years of service.

Health and Life Insurance

You will be able to maintain your health and life insurance while on Federal Disability Retirement if you have been covered for at least 5 years or during all your service if less than 5 years. This can significantly help with the medical costs associated with a disability.

Work in the Private Sector

While on Federal Disability Retirement and receiving your secure monthly annuity, you will be able to work in the private sector and earn income on top of your annuity. The OPM sets an earned income limit at 80% of your previous position’s current salary, but this still allows you to earn more than what you were making in your federal position alone.

As you can see, early retirement does not have to mean a financial setback. Federal Disability Retirement allows you to maintain your benefits and ease into full retirement at age 62. For more information on this early retirement option, please contact our firm at 877-226-2723 or schedule a FREE consultation today to see if you qualify.

Message us & find out if you qualify today!

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