How Does the Federal Government FERS Retirement System Work?

FERS has four levels of retirement, and eligibility for each one varies. Age and years of service are a factor with each level. The minimum retirement age for most levels is 55 years and a certain number of months for those born before 1952; age 56 for those born between 1953 and 1964, and age 57 if your birth year is 1970 or later.

Immediate retirement starts within 30 days of your last workday, and depends on your age and years of service. For example, if you have reached the minimum age with at least 10 years of service but less than 30 years, your benefits are reduced by 5 percent for each year you are under 62 years of age. Early retirements often involve "involuntary separations" — in other words, the decision was made for you by a reduction in force or some other type of reorganization. To qualify for early retirement, you must be at least 50 years old with 20 years of service, or any age if you've got 25 years in the FERS system. If you leave federal employment before the minimum ages, you might qualify for deferred retirement, with delayed benefits based on your age and years of service. If you become disabled while a federal employee, you might qualify for disability retirement at any age as long as you worked for the government a minimum of 18 months.

You receive a basic annuity through FERS calculated from your years of service and the three highest years of pay. Called the "high-3" average, it also includes premiums for standby duty and locality pay if this is a factor in your job. It does not include overtime and allowances. The formula to arrive at the annuity is 1 percent of your "high-3" average pay times your years of service, although if you retire at age 62 with a minimum of 20 years of service, the formula is 1.1 percent.

Like a 401(k) in the private sector, the TSP is a defined contribution plan, so you put in a percentage of your own pay and your agency also contributes. You can choose between several funds with different levels of risk in which to divide your retirement savings. These funds are available only to federal employees and members of the armed forces, not the general public. You may also rollover 401(k) funds from previous employers or other retirement funds into the TSP.