Buyouts, COLAs and retirement

A Reader Writes:

If I receive a buyout for early retirement before my 30 years of service, will I be penalized 5 percent for every year I am under 62 and have not completed my 30 years?

Milt Replies:

A buyout is a program in which federal agencies pay separation incentives to any employee who quits or takes regular or early retirement. If you wish to retire with a buyout, you still must meet the usual age and service requirements.

The amount of reduction you mentioned indicates you likely are under the Federal Employees Retirement System. In FERS, you can receive basic benefits if you retire at your minimum retirement age with at least 10, but less than 30 years of service, or at age 60 with at least 10, but less than 20 years of service. Or, you can wait until age 62 for full benefits and get a postponed annuity.

You can begin receiving reduced benefits any time before age 62. Your monthly benefits will be reduced 5/12 of 1 percent for each month (up to 5 percent per year) you are younger than age 62 when you start receiving benefits.

Further explanation can be found at the Office of Personnel Management's FERS Election Opportunities page. The Office of Personnel Management also has an Employee's Guide to Buyouts.

Here is a Defense Department resource on buyouts: Voluntary Separation Incentive Pay.

A Reader Writes:

When computing my projected Civil Service Retirement System (CSRS) benefit, should I use the base pay for my grade and step or the amount adjusted for locality pay? Will cost of living adjustments (COLAs) in the future be based upon base pay or pay adjusted for locality?

Milt Replies:

Your locality pay adjustment is part of your base pay, so that's what you use when computing your projected CSRS retirement benefit. COLAs do not take locality pay into account.

Zall is a retired federal employee who since 1987 has written the Bureaucratus column for Federal Computer Week. He can be reached at milt.zall@verizon.net.