Navigating Federal Retirement

Two things you should know when it comes to government benefits.

Understanding Age Penalties When Filling Out Your Application

For federal employees approaching retirement, there’s a unique rule that can impact your retirement strategy significantly. If you reach your Minimum Retirement Age (MRA) — typically 57 for most employees — but have less than 30 years of service, you are eligible to retire with as few as 10 years of service. However, this early retirement option comes with a substantial catch: an age penalty.

Specifically, if you retire before age 62 and don’t have the full 20 years, you face a reduction in your annuity or if you are MRA with 30 years of credible service. Find your MRA
here, https://www.opm.gov/retirement-center/fers-information/eligibility/. This penalty is 5% for each year you are under 62. To avoid this penalty, one common strategy is to resign from your federal position and postpone your retirement application until you turn 62. The longer you wait to apply, the smaller the age penalty you’ll incur, allowing you to maximize your annuity.

However, postponing your application isn’t without its challenges. When you choose to delay, you might assume that you can reinstate all the benefits typically associated with immediate retirement, including health insurance, government life insurance, dental, and vision coverage. Additionally, you might expect to receive credit for any unused sick leave. To retain these benefits, you must carefully select your application date.

Here’s the critical detail: to avoid losing these benefits, you need to choose a retirement date at least two days before you turn 62.

This requirement is specified in the application instructions, but it can be confusing. Many employees, even those who are well-versed in retirement planning, have found this detail challenging to navigate. If you mistakenly choose a date just after turning 62, you may find yourself with a deferred retirement status rather than a postponed one, resulting in the loss of valuable benefits.

For example, if you select a retirement date at the end of the month after your 62nd birthday, you might lose health insurance coverage, government life insurance, and any accumulated sick leave credits. This mistake often occurs because employees misinterpret the application instructions or overlook the importance of the specific date. As a result, many people discover too late that their retirement has been classified as deferred, which comes with fewer benefits.

While postponing your retirement application can be a strategic move to reduce age penalties, it’s crucial to understand the exact requirements to maintain all your benefits. Always read the application instructions thoroughly and consider consulting with a retirement expert to ensure you don’t inadvertently forfeit valuable benefits.

The New U.S. Postal Service Health Benefit Plan

Starting January 1, 2025, a significant shift is set to impact U.S. Postal Service employees and retirees. Due to recent legislation, the Postal Service will establish its own distinct health benefits plan, separate from the Federal Employees Health Benefits (FEHB) Plan. This new Postal Service Health Benefit Plan (PSHBP) will encompass all postal employees and retirees, requiring them to select a plan specifically tailored for Postal Service personnel. While this new plan may closely resemble their current FEHB plans, it will be distinctly classified under the Postal Service’s umbrella.

In conjunction with these changes, postal retirees will also face new requirements regarding Medicare. Traditionally, federal employees have had the option to enroll in Medicare or opt out. However, the new legislation mandates that Postal Service retirees must enroll in Medicare to maintain their Postal Service health benefits. This is a departure from previous flexibility and aims to ensure comprehensive coverage for all retirees.

Fortunately, for those over 65 who may not have previously enrolled in Medicare Part B, a special enrollment period has been introduced. Until the end of September, postal retirees and other federal employees can enroll in Medicare Part B without facing any late enrollment penalties. This opportunity is particularly advantageous as it allows individuals, regardless of age, to sign up for Part B at the standard rate they would have paid at age 65, even if they’re significantly older.

Overall, these changes represent a significant shift in how health benefits and Medicare enrollment will be handled for Postal Service employees and retirees. It’s essential for those affected to understand these new requirements and take advantage of the special enrollment period to ensure they secure their health benefits without incurring unnecessary penalties.