Don’t Touch Your FERS Benefits Until You’ve Reviewed This Rule That Trips Up Even Seasoned Employees

Key Takeaways

• Withdrawing or applying for FERS benefits too early can permanently reduce your lifetime retirement income. The rules around eligibility, penalties, and deferral are strict but navigable with the right planning.

• Understanding the Minimum Retirement Age (MRA) and how it intersects with years of service, deferred retirement, and penalties is critical before making any irreversible decision.

The Rule That Gets Overlooked: MRA and Its Impact

At the center of many FERS retirement missteps is one deceptively simple concept: Minimum Retirement Age, or MRA. Depending on your birth year, your MRA falls between age 55 and 57. The most common mistake employees make is assuming that reaching this milestone automatically grants full access to their FERS pension.

In reality, while you can technically retire at MRA, whether you should depends on other factors like your years of creditable service and the consequences of early withdrawal.

What Happens If You Retire at MRA With Less Than 30 Years

If you’ve reached your MRA but haven’t accrued 30 years of creditable service, you’re subject to the MRA+10 provision. This rule allows you to retire early with just 10 years of service, but it comes at a cost: a permanent reduction in your annuity by 5% for each year you’re under age 62.

For example:

• Retiring at age 57 with 20 years of service results in a 25% annuity reduction (5% x 5 years under 62).

• If you defer your annuity until age 62, the reduction disappears, but so do your FEHB and life insurance unless you meet other criteria.

This rule is easy to misunderstand and even easier to misapply. Many employees lock in a reduced benefit simply because they didn’t grasp the long-term impact.

When Full Immediate Retirement Is Actually an Option

You qualify for an immediate, unreduced FERS retirement annuity if you meet one of the following:

• Age 62 with at least 5 years of service

• Age 60 with at least 20 years

• MRA with at least 30 years

Only under these circumstances can you access full pension payments immediately, retain your FEHB coverage into retirement, and avoid early withdrawal penalties.

The Confusion Around Deferred Retirement

If you leave federal service before reaching your MRA or the required service threshold, you may still qualify for a deferred retirement. Deferred retirement provides a future FERS annuity based on your years of service and High-3 average, but only if you:

• Have at least 5 years of creditable civilian service

• Do not take a refund of your retirement contributions

However, deferred retirees generally lose access to:

• Federal Employees Health Benefits (FEHB)

• Federal Employees Group Life Insurance (FEGLI)

So while deferring your annuity until age 62 may eliminate the early retirement reduction, it can result in higher long-term health and life insurance costs if you lose federal group coverage.

The Penalty That’s Often Permanent

Once you elect to retire under MRA+10 and start your annuity early, the reduction in benefits is permanent. It’s not adjusted later when you turn 62 or 65. This mistake locks in a lower benefit for life, even if your financial situation later improves.

Employees are often surprised that their annuity never “catches up” later in retirement. The Office of Personnel Management (OPM) does not retroactively adjust these payments. That’s why planning around the timing of your withdrawal is essential.

The Hidden Consequences on FEHB and FEGLI

FEHB and FEGLI are some of the most valuable benefits federal employees carry into retirement. However, these benefits are not guaranteed just because you’re eligible for a FERS annuity. You must:

• Be entitled to an immediate annuity (not deferred)

• Be enrolled in FEHB/FEGLI for the five years immediately preceding retirement

If you defer your FERS annuity, even to avoid early penalties, you may lose eligibility for these benefits unless you retire under specific exceptions, such as involuntary separation.

This is another reason why the decision to retire under MRA+10 vs. waiting can dramatically reshape your financial future.

The Social Security Supplement Isn’t for Everyone

FERS retirees who leave under full eligibility before age 62 often qualify for the Special Retirement Supplement (SRS), which bridges income until they can claim Social Security. But here’s the catch:

• The supplement is only available if you take an immediate retirement, not a deferred one.

• It ends at age 62 regardless of whether you claim Social Security.

Those who retire under MRA+10 and defer their annuity do not receive the supplement. This can create an income gap you might not have anticipated.

Understanding How Your High-3 Average Affects You

Your FERS annuity is calculated as:

1% x Years of Service x High-3 Average Salary
(or 1.1% if retiring at 62+ with at least 20 years)

The “High-3” is the average of your highest-paid 36 consecutive months. If you retire early, your High-3 may be lower than expected, especially if your highest earning years are ahead. This means:

• Early retirement reduces both the multiplier and the base salary used for calculations

• A higher High-3 can make a significant difference over 20+ years of retirement

Survivor Benefit Elections Can’t Be Changed Later

When you begin your annuity, you must elect whether to provide a survivor benefit for your spouse. If you choose to waive or reduce it, your spouse must sign consent. Once in place, this election generally cannot be changed unless:

• You divorce and remarry

• Your spouse passes away and you remarry

The survivor benefit impacts the amount of your annuity and your spouse’s access to FEHB. An early, uninformed retirement decision might box you into an election that doesn’t match your future needs.

You Can’t Return to Federal Work and Undo the Decision

Once you begin receiving your FERS annuity, returning to federal employment triggers strict rules:

• Your annuity may be offset or suspended

• You may not be able to reestablish FEHB if you lost it through a deferred retirement

Also, working post-retirement doesn’t let you requalify for benefits you forfeited by retiring early. It’s a one-way door for most employees.

Timing Also Affects Cost-of-Living Adjustments (COLAs)

FERS retirees do not receive COLAs until age 62, unless they retired under special provisions (e.g., law enforcement, air traffic control). This means:

• Retiring at 57 locks in a flat benefit for five years

• Inflation erodes purchasing power during those years

Some retirees assume their annuity will increase automatically, but that’s not true under FERS until age 62.

Waiting Might Mean Higher TSP Growth Too

By retiring early, you also stop contributing to your Thrift Savings Plan (TSP). That means:

• You miss out on agency matching if still employed

• Your TSP has fewer years to grow with compound interest

• Market recoveries in your early retirement years won’t benefit from new contributions

Even 3–5 more years of work can significantly change your TSP balance and your withdrawal flexibility later.

When to Consider Deferral as a Strategic Move

Despite the drawbacks, deferring your annuity can be smart in specific cases:

• You have new job opportunities with private health coverage

• You’re confident you won’t need FEHB or FEGLI

• You want to avoid the 5% early retirement penalty

• You aim to receive a higher annuity by delaying start until age 62

But it’s critical to ensure you understand the permanent trade-offs.

If You’re Unsure, Delay the Decision

You don’t have to apply for retirement the moment you reach your MRA. If you’re even slightly unsure, it’s safer to:

• Continue federal service for a few more years

• Take leave to think through your options

• Talk to HR or a retirement specialist

A rushed decision at MRA could leave you with a lower annuity, fewer benefits, and irreversible elections.

The Bigger Picture on Timing and Strategy

Your FERS retirement is one of the most valuable benefits you’ve earned. But it’s also rigid, and missteps are hard to reverse. Understanding when and how to start receiving your annuity, whether to defer, and how that impacts FEHB, FEGLI, the Special Retirement Supplement, and your long-term financial security requires careful thought.

Small differences in age and service years can result in major financial shifts over a retirement that could last 25–30 years. A decision made at age 57 can impact your income at age 82.

Make Your Retirement Timing Work for You

Retirement under FERS isn’t just about becoming eligible. It’s about making the right move at the right time. The MRA+10 rule trips up even seasoned employees, and its effects ripple through health insurance, annuity size, and survivor benefits.

Don’t lock in a permanent penalty just because it’s the first option available. Review your service years, age, High-3 average, and insurance eligibility thoroughly. And most importantly, get in touch with a licensed professional listed on this website who can walk you through your decision with clarity and precision.