The Value of a CSRS Pension

[beowulf]

A few responses to comments:

A military reserve pension at 60 is based on what percentage you have of a full 20 year career. Even though the retirement system has changed a few times and is now roughly back to where it was originally, after 20 years of service military retirees receive 50% of their basic pay. If they were an 0-5 and their highest annual pay was $80,000 a year (just an example), they would receive $40,000 a year less any survivor's benefit they elected. Reservists receive points for each day they are on active or reserve duty as well as points for courses they take - I believe a full 20 year active duty career is worth 7,320 points. If an 0-5 reservist retires with 3,660 points, they would receive 50% of the normal retiree's 50%. That would be $20,000 less any survivor's benefit elected. It's not really this simple, but it's close enough for government work. Something to keep in mind is that active duty military also receive tax free housing and food allowances, which do not continue in any form after retirement.

While it's true that CSRS retirees who do not have 40 quarters of SS contributions over a certain amount will not receive any SS, those who have more than that number of covered quarters will receive a benefit. The amount will depend on how many years of contribution they have made plus all the usual rules. However, and this is a big one, CSRS retirees who have less that 20 years of full SS contributions of some minimum level will be penalized about $380 a month in 2009. That amount goes up each year until you claim SS. After 20 years, the penalty drops until it's 0 after 30 years of substantial contributions.

These are simplistic explanations of complex situations, but it is possible for a retired CSRS employee to collect a federal annuity, a reserve pension and some level of SS. Oh yeah, TSP also .

 

[stoutboy]

Meaning that Beowulf is buying the beer. O0

These are simplistic explanations of complex situations, but it is possible for a retired CSRS employee to collect a federal annuity, a reserve pension and some level of SS. Oh yeah, TSP also .

 

[jdw_fire]

These are simplistic explanations of complex situations, but it is possible for a retired CSRS employee to collect a federal annuity, a reserve pension and some level of SS. Oh yeah, TSP also .

however a retired CSRS employee didnt get any matching funds in the TSP. also for him/her to get SS s/he had to work at a job subject to FICA (not the CSRS job) and for the SS benefit to amount to much it is likely the FICA job couldnt be some part time job for just a couple of years.

 

[Nords]

Is a military reserve pension amount the same as a military service pension?

In a word, no.

In a bunch of words:
The military's active-duty pension is based on (1) a minimum of 20 years of active duty (with a few exceptions, mostly for medical issues) and (2) starts paying when you retire.

The Reserve pension is based on (1) 20 qualifying years of service, during each of which the Reservist achieves some minimum number of points for any combination of drill weekends, correspondence courses, "two weeks a year", mobilization, or any of literally 30 other types of orders for duty, and (2) starts paying out at age 60.

A military reserve pension at 60 is based on what percentage you have of a full 20 year career. Even though the retirement system has changed a few times and is now roughly back to where it was originally, after 20 years of service military retirees receive 50% of their basic pay. If they were an 0-5 and their highest annual pay was $80,000 a year (just an example), they would receive $40,000 a year less any survivor's benefit they elected. Reservists receive points for each day they are on active or reserve duty as well as points for courses they take - I believe a full 20 year active duty career is worth 7,320 points. If an 0-5 reservist retires with 3,660 points, they would receive 50% of the normal retiree's 50%. That would be $20,000 less any survivor's benefit elected. It's not really this simple, but it's close enough for government work. Something to keep in mind is that active duty military also receive tax free housing and food allowances, which do not continue in any form after retirement.

It's not very easy to explain, either. The Reserve pension uses the service multiple of 2.5%/year, but the length of service is calculated from points. For some reason the DoD instruction's calculation of years is "#points/360". The equivalent of 20 years would be 7200 points, but I suspect that the majority of Reservists retire with about 3000-5000 points. That gives them a pension of 20%-35% of base pay... not 50% (or higher) and not immediately.

Spouse had nearly 18 years of active duty, so she started her Reserve service with a point count of 6500+. Then over the next seven-plus years she put together another ~900 points through a variety of different types of drill weekends, orders, & billets. All of the orders lasted less than 30 days (she was never mobilized) but she did a lot of them. So her final point count is 7404 and her "years of service" is 20.56 for a 51.4% base-pay pension. However while my pension started paying out the day I retired at age 41, she has to wait until she turns age 60.

Another wrinkle on the "base pay" is that it's the base pay when they turn age 60, not the base pay when they apply to retire. For example spouse retired from the Reserves at the end of 2008 and won't start her pension until 2022. Her pension will be calculated from the pay scale in effect in 2022. (Military pay may or may not exceed the CPI, let alone the ECI, for the next 12 years.) Once she starts collecting that pension then she's on a CPI COLA.

I know someone who retired from the military as an O-4, then joined the reserves and was promoted all the way to O-6. He's fully retired and over 60 and I wondered if he really is pulling in a full O-6 pension....

Well, sorta. I'm not familiar with this situation, which I understand is far more common in the Air Force than the Navy, but here's what's probably happening:
He retired from the service at 20 years and promptly started collecting 50% of an O-4's base pay.

When he joined the Reserves, his pension was "stopped" for the days that he was doing Reserve duty. When he was on Reserve duty he was accumulating points (see my and MartyB's explanations in that other thread) and he was getting paid for the rank of O-4, or O-5, or O-6... whichever rank he was when he was doing Reserve duty.

At some point DoD would have to recognize his higher rank in his active-duty pension. I don't know how that worked before he retired from the Reserves... whether he had to stick with the O-4 pension during the years he was in the Reserves or whether it became an O-5 pension and then an O-6 pension. You're way into esoteric niche territory here and frankly I'd have to ask the Reserve retired-pay guru at the [-]Navy Reserve Association[/-] Association of the U.S. Navy.

I'm guessing that when he filed for a Reserve retirement then the DoD would officially recognize his higher rank (if they hadn't already) and would "upgrade" him to an O-6 pension based on his 20 years of service. But he'd still be getting an active-duty pension that started out at 50% of the base pay of the year he retired from active duty, so I'm not sure how they'd raise his pension to reflect his promotions-- the O-5 pay scale in effect the year he made O-5? In any case his pension (for whatever rank) would still rise with its annual COLA (which for 2010 and 2011 has been zero).

When he reached age 60 then DoD would add in his Reserve points to get his new YOS number (probably something like 21-22 years total) for a 52%-55% O-6 pension based on the pay scale in effect when he turned 60. And the pension continues to rise with its COLA.

Tricare really is a good deal. I have a relative who is very overweight, has many diabetic complications, and sees doctors and specialists constantly. She married a military retiree, so all her care, even extensive dental care, is free. Sometimes I think she might take better care of herself if they had to pay for it...that's a touchy subject, though.

Tricare does not include dental insurance, although it can be purchased separately. (The military retiree dental insurance is not always a good deal and we don't carry it.) Her diabetic complications may be covered under a VA or Medicaid program or her dental issues may have been determined to be connected to her diabetic (medical) condition.

I don't know whether it applies to her, but Type 2 diabetes has also been determined to be a service-connected disability caused by Agent ORANGE exposure, usually in Vietnam.

 

[Spanky]

Actually it's 7% of gross.

Only 7% gross is required for CSRS, which is not any higher than the percentage paying into the social security system. The benefits, however, are significant between the two.

SS:
You have to be at least 62 to collect at reduced benefits. Full social security starts at age 66 with a maximum benefit of $27,876 (in 2010 $) per year for a single person and 1.5 times this amount for a married couple. To receive the maximum benefit would require earning the maximum FICA salary (which is $106,800 in 2010) for nearly your entire career.

CSRS:
Depending the number of years of service, one can receive up to 100% of the average of the highest three salaries + cost of living adjustment + medical benefits -- what a deal!!!!!

 

[beowulf]

From the Army side of things, I have never heard of a 20 or more year AD retiree become a reservist (though the opposite happens all the time) and then have their pension recalculated at 60. Not saying it's not possible, but I have never heard of it. I don't really see the purpose. A 20 year retiree can go back on AD voluntarily or be recalled (to age 60) involuntarily and would be given pension credit for extra time served. During the 90s there were a number of AD folks who retired with 15 years of service at a reduced pension and there may be different rules for them.

As Nords says, the complexities are immense and it's easy for even personnel specialists to unaware of some of the rules.

BTW, OPM (Office of Personnel Management) is so overwhelmed with civil service retirement requests that it can take 6 months to a year for retirees to receive their full pensions. In the meantime, they receive an average of 60% of the estimated final amount. Lots and lots of folks complaining about that. I left in 2003, so it's not an issue for me . It took OPM 3 months to get my pension on track.

 

[beowulf]

"CSRS:
Depending the number of years of service, one can receive up to 100% of the average of the highest three salaries + cost of living adjustment + medical benefits -- what a deal!!!!!"

I don't think so . The reality is that, for the less than 20% of active federal employees remaining in the gov who are under CSRS, their minimum retirement age is 55 with 30 years for service. At that point they will receive 56.25% of their high 3 salary. If they choose a survivor annuity at the max amount (55%), 10% will be subtracted from their pension. If they retire prior to 55 and 30 because of an early out due to reductions in force, organizationial move (as in MD to GA, etc.) or any other reason (wanting to retire is not a reason), they are penalized 2% for each year they are under age 55. They also lose whatever years they have not earned under 30, so it generally comes out to a 4% a year loss. They cannot receive a pension under these circimstances unless they are age 50 with 20 years or any age with 25 years of service. They can retire at age 60 with 20 years and at age 62 with 5 years, but their pensions are much lower due to so few years of service.

The max they can receive is 80% of their high 3 plus unused sick leave with about 41.5 years of service. At that point they are working because they love the work, not because of the money. Military service counts only if you buy back the years of service for 7% of your military pay plus interest (this is complicated - if you do not buy back your military service and become eligible for SS at 62, whether or not you claim it, you lose those years fo service for pension purposed - called the Catch-62 - lots of folks get caught in that trap). There are different rules for those who served prior to 1956, but I doubt there are many of those folks still working for the government.

I don't really understand most of the FERS rules (the retirement system in use since 1984), but the pensions come to about 1.2% for each year of service based on your high 3. There are very different age points and much higher early retirement penalties.

Again, this is very simplified. The reality is far more complex. There is no way any CSRS retiree can earn 100% of their salaries. If they max out at 41.5 years and never, ever, use a day of sick leave, they could add maybe 1.5 years to the 80%, which would come to about 83%. In fact, the vast majority of CSRS retirees retire at about age 60 with just over 30 years of service with an average pension of about 60% of their high 3.

Still a great deal, but not available to new hires for the past 26 years.

 

[Nords]

From the Army side of things, I have never heard of a 20 or more year AD retiree become a reservist (though the opposite happens all the time) and then have their pension recalculated at 60. Not saying it's not possible, but I have never heard of it. I don't really see the purpose. A 20 year retiree can go back on AD voluntarily or be recalled (to age 60) involuntarily and would be given pension credit for extra time served. During the 90s there were a number of AD folks who retired with 15 years of service at a reduced pension and there may be different rules for them.
As Nords says, the complexities are immense and it's easy for even personnel specialists to unaware of some of the rules.

Looks like it's far more common in the AF, but I don't understand why a retiree would want to join the Reserves either-- unless it's all the shared camaraderie and regular contact with wingmen.

When spouse was XO of the PACOM Navy Reserve unit she had a perpetual problem with PACOM civil-service and contractors who were Reservists in her unit and present for the drill weekend, but who would sneak away to their civilian desks to catch up on a few things, or bring their civilian job's paperwork into Reserve training. (It was never more than one or two but it was persistent and annoying.) A person like that might be tempted to join the Reserves after an active-duty career because they have no real reason to retire.

A USNA grad from my company retired from USMC in 1999 (20 years to the minute) and embarked on a bridge career as an electrical engineer at an electrical plant. He tried to get mobilized after 9/11 but no one would support it. In 2004 he finally wangled a recall to active duty for the Marines' Battle of Fallujah. His special skill for the recall was to drop the electrical grid just before the shooting started, which was apparently accomplished with enthusiastic application of large amounts of explosives. Then when the fighting died down, he spent the rest of 2004 putting it back together.

When spouse was in the Reserves she noticed that the Army and the Marines would frequently bust sanctuary for their Reservists, and even the Air Force would do so occasionally. However the Navy considered it anathema and would actively work against their Reservists to make sure it never happened... even demobilizing them during the middle of medical treatment.

 

[Amethyst]

Nords and Beowulf, thank you for the detailed explanations. Only on this board could we find a) a civilian who even wants to know about such things and b) the combined expertise to explain them.

I guess I like to see people get whatever goodies they are entitled to, and if that happens to be 3 or 4 pension streams, then more power to 'em.

Amethyst

 

[beowulf]

Thanks, Amethyst. The best advice for anyone in the military or federal government (probably applies to everyone everywhere) is to become your own personnel manager. Know the rules, know what you are entitled to, know all your benefits and, most importantly, keep copies of every piece of paper or electronic record you receive. When I retired from DoD, I went in for a pre-retirement records review - I was sure surprised to learn that an entire 2 year period of service I had with the Army as a civilian had disappeared . Luckily, I had the paperwork to prove it and received credit .

 

[jdw_fire]

Only 7% gross is required for CSRS, which is not any higher than the percentage paying into the social security system.

CSRS also pays 1.45% into Medicare

 

[martyb]

Only 7% gross is required for CSRS, which is not any higher than the percentage paying into the social security system. The benefits, however, are significant between the two.

SS:
You have to be at least 62 to collect at reduced benefits. Full social security starts at age 66 with a maximum benefit of $27,876 (in 2010 $) per year for a single person and 1.5 times this amount for a married couple. To receive the maximum benefit would require earning the maximum FICA salary (which is $106,800 in 2010) for nearly your entire career.

CSRS:
Depending the number of years of service, one can receive up to 100% of the average of the highest three salaries + cost of living adjustment + medical benefits -- what a deal!!!!!

Not quite correct....the maximum CSRS pension is 80%, and that point is reached at 41 yrs, 11 months of service. There is no further increase in percentage for working past the 41 yrs, 11 months. The only thing you can do to give yourself more pension money is to make what they call Voluntary Contribution Payments, which is basically using your own earned income to purchase a further anuity. Not that many people do this, but it's available. But again, the max CSRS pension is 80%, and I'm not working long enough to get there! lol My current supervisor, however, is getting pretty close to that figure now...

 

[martyb]

A few responses to comments:


These are simplistic explanations of complex situations, but it is possible for a retired CSRS employee to collect a federal annuity, a reserve pension and some level of SS. Oh yeah, TSP also .

This describes my situation exactly!

 

[martyb]

From the Army side of things, I have never heard of a 20 or more year AD retiree become a reservist (though the opposite happens all the time) and then have their pension recalculated at 60. Not saying it's not possible, but I have never heard of it. I don't really see the purpose. A 20 year retiree can go back on AD voluntarily or be recalled (to age 60) involuntarily and would be given pension credit for extra time served. During the 90s there were a number of AD folks who retired with 15 years of service at a reduced pension and there may be different rules for them.

As Nords says, the complexities are immense and it's easy for even personnel specialists to unaware of some of the rules.

QUOTE]

I've seen this happen in the Air Force Reserve. I don't think it's happening a lot, but I've seen it. I have personal knowledge of one of these cases right now.

 

[martyb]

Well...I guess I should have read the latest posts from beowulf & I wouldn't have had to comment on a couple of them. Sorry about that! Also...I did forget to mention the part about the ability to add any unused sick leave to the pension equation. When I retire, I'll be 55, with just under 36 yrs.

 

[GregLee]

bust sanctuary

What does that mean?

 

[Purron]

Well...I guess I should have read the latest posts from beowulf & I wouldn't have had to comment on a couple of them. Sorry about that! Also...I did forget to mention the part about the ability to add any unused sick leave to the pension equation. When I retire, I'll be 55, with just under 36 yrs.

Dang, nearly 36 years? You deserve a good retirement

 

[Nodak]

Yes, CSRS is an awesome deal. However, it's important to note that those under CSRS don't get social security benefits and matching contributions to the TSP like those under FERS. /QUOTE]

I worked my 40 quarters before I started Civil Service so I do collect both CSRS and SS. Started working in the local theater at the age of 13. However, my SS benefit is reduced by about 35% because of the CSRS pension.

 

[martyb]

Similar case here...I started paying in to SS when I was 15, and then through high school, my time on active duty, and a little while afterwards. All those years I spent in the AF reserves, I was also paying in, but it wasn't enough to be considered "substantial" years. Still...I'll get a little sumpin'. I did buy back my 4 1/2 years of active duty time for my CSRS, but unfortunately I waited way too long, and so what would have been around $1500 ended up costing me $8263, with all the interest that accrued.

 

[beowulf]

martyb - whatever it cost, it was well worth it since you would lose those years when you turn 62. I bought back 6 years and I am very happy I did. One of my friends, for whatever reasons he had, refused to do it, and at age 62 he "lost" 3 years, or 6% of his CSRS pension. For him, that came to nearly $5K a year. More in one year than it would have cost him to pay back. He tried the appeal route claiming that personnel never told him about it, but virtually no one is ever successful. He wasn't and several years later he is still very upset about it.

One other area that I see some people messing up with, and this applies to both CSRS and FERS employees, is failing to have carried FEHB (health insurance) for 5 full years prior to retirement. They were generally on a spouse's insurance and either had to work an extra 5 years with FEHB, or forgo it in retirement. Bad way to end your career.

BTW, I am pretty sure that FERS employees MUST payback their military time or they will not get those years of service credited.

 

[Spanky]

"CSRS:
Depending the number of years of service, one can receive up to 100% of the average of the highest three salaries + cost of living adjustment + medical benefits -- what a deal!!!!!"

There is no way any CSRS retiree can earn 100% of their salaries. If they max out at 41.5 years and never, ever, use a day of sick leave, they could add maybe 1.5 years to the 80%, which would come to about 83%. In fact, the vast majority of CSRS retirees retire at about age 60 with just over 30 years of service with an average pension of about 60% of their high 3.

Still a great deal, but not available to new hires for the past 26 years.

Thanks for clarifying the CSRS system. As you say, 60% of the average of the highest 3 years of salary is definitely a great deal. For SS, the highest benefit is $27,876 with a salary of $106,800. For CSRS, using the same salary of $106,800, the benefit is $64,080 @60% or $85,440 @80%.

You are right - it's a great deal.

 

[Spanky]

After some calculations, I wonder why we should pay into the social security system. The maximum yearly SS benefit is only $27,876 for a 2010 FICA salary of $106,800. If we had invested 7% of salary with a 6% return for the last 30 years, the amount would have been $570,752 now (based on initial salary of $46,800 @3% growth to yield $106,800 after 30 years). Instead of using the $570,752, we are at the mercy of the government to provide $27,876 for the first year of retirement + inflation adjustment for the rest. For the next 20 years, the total disbursement would be $749,039 based on an inflation rate of 3%, while our $570,752 would have grown to $1,726,867 @6% return.

Obviously, the assumption of salary growth makes a difference. If we assumed the salary growth is 5%, the amount would be about $400K (instead of $571K) after 30 years. In another 20 years, the amount would rise to about $1.3 mil @6% (as opposed to $1.7mil).

 

[stoutboy]

Beowulf:

you are correct--I had to buy back my four years of active duty. It didn't cost that much, and for me it was completely worth it-money well spent at twice the price.

martyb - whatever it cost, it was well worth it since you would lose those years when you turn 62. I bought back 6 years and I am very happy I did. One of my friends, for whatever reasons he had, refused to do it, and at age 62 he "lost" 3 years, or 6% of his CSRS pension. For him, that came to nearly $5K a year. More in one year than it would have cost him to pay back. He tried the appeal route claiming that personnel never told him about it, but virtually no one is ever successful. He wasn't and several years later he is still very upset about it.

One other area that I see some people messing up with, and this applies to both CSRS and FERS employees, is failing to have carried FEHB (health insurance) for 5 full years prior to retirement. They were generally on a spouse's insurance and either had to work an extra 5 years with FEHB, or forgo it in retirement. Bad way to end your career.

BTW, I am pretty sure that FERS employees MUST payback their military time or they will not get those years of service credited.

 

[beowulf]

"After some calculations, I wonder why we should pay into the social security system. "

You can blame/congratulate FDR for that system. CSRS, FERS, state and local pension systems, some company plans, etc., are pension plans. Some are defined benefit, most now are defined contribution. SS is a safety net social welfare redistribution system. It was never meant to be a full pension system - just a system that would provide some retirement income for the lowest wage earners so they would not be a burden to society. Rather than reading the official site, try this Social Security (United States) - Wikipedia, the free encyclopedia) for a more understandable explanation.

SS and pension plans simply cannot be compared. Think of it more like the taxes you pay for services you may never use. If you don't have kids, you will still pay for schools. If you never have a home fire, you still pay to support the fire department, etc.

SS has morphed over the years into something very different from what its creators intended. It was meant to be supplemental, not the primary retirement income for an ever growing number of people who can't or won't save for retirement.

No poilitical comments intended, just a very brief explanation of where we are today with SS.

 

[stoutboy]

we pay into social security for several reasons. The main one, though, is to ensure a means of retirement income to the working poor who do not earn enough to fund a retirement, and to protect all of us from the vagaries of the stock market. Millions of people would not have the discipline to save the way you indicate in your example, and the returns you use are by no means a given. Nothing is stopping you from setting aside 7% of your take-home salary to do what you outline below.

[sorry about the fonts, don't know what happened]

After some calculations, I wonder why we should pay into the social security system. The maximum yearly SS benefit is only $27,876 for a 2010 FICA salary of $106,800. If we had invested 7% of salary with a 6% return for the last 30 years, the amount would have been $570,752 now (based on initial salary of $46,800 @3% growth to yield $106,800 after 30 years). Instead of using the $570,752, we are at the mercy of the government to provide $27,876 for the first year of retirement + inflation adjustment for the rest. For the next 20 years, the total disbursement would be $749,039 based on an inflation rate of 3%, while our $570,752 would have grown to $1,726,867 @6% return.

Obviously, the assumption of salary growth makes a difference. If we assumed the salary growth is 5%, the amount would be about $400K (instead of $571K) after 30 years. In another 20 years, the amount would rise to about $1.3 mil @6% (as opposed to $1.7mil).