| Lump Sum Annual Leave Payments
October 10, 2007
By Reg Jones
It’s getting to be that time of year when employees are thinking hard about retiring. If you are one of them, one of the issues you are probably factoring into your decision is how much unused annual leave you’ll be paid for when you retire. Well, it all depends on who your employer is. Let me explain.
Non-Postal Service Employees
Unless you are a member of the Senior Executive Service, if you are employed within the U.S. or any of its territories and possessions, you may accumulate and carry-over a maximum of 240 hours of annual leave into the next leave year. Overseas employees may accumulate and carry over a maximum of 360 hours. If you are an SESer, you can carry over a maximum of 720 hours, unless you have a personal base that is higher.
However, you can receive a lump sum payment that is greater than those carry-over limits, if you retire before the start of the new leave year. For example, if you entered 2007 with a maximum number of hours and retire by January 3, 2008, you can receive a lump-sum payment for that amount plus any unused annual leave hours you have accumulated over the course of the year.
Postal Service Employees
If you are a member of the Postal Career Executive Service (PCES), you can receive a lump-sum payment for an unlimited amount of unused annual leave. If you are under the Executive and Administrative Schedule (EAS), which includes supervisors, managers, postmasters and other non-bargaining unit employees, you can receive a lump-sum payment for a maximum of 560 plus any earned and unused annual leave during the year in which you retire. In other words, if you entered that calendar year with 560 hours and took no leave during it, you could receive a payment for 768 hours. If you are a Clerk and Letter Carrier covered by union contracts with such organizations as APWU and NALC, you can receive a maximum lump-sum payment for 440 hours.
How the Lump-sum Payment is Figured
When calculating a lump-sum payment, your agency will project those unused hours of annual leave forward as if you were still on the rolls. The amount will be figured on what you would have received had you remained on the agency’s rolls. Included in that amount will be such things as basic pay, locality pay and non-foreign area cost-of-living adjustments, and any pay raise (other than a step increase) to which you would have been entitled.
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| Life Insurance Options
May 02, 2007
By Reg Jones
How many of you know that you can irrevocably assign your Federal Employees’ Group Life Insurance benefits to another person or persons or that you can cash in your FEGLI Basic insurance when you have been diagnosed as being terminally ill? Well, you can. However, if you elect one, you can’t elect the other.
Assignment of Benefits
With one exception, you can transfer ownership and control of your Basic, Standard Optional, and Additional Optional insurance to any individual(s), corporation or irrevocable trust. Here’s the exception. You can’t transfer ownership if a court has issued a decree of divorce, annulment or legal separation and specifically stated that your FEGLI benefits must be paid to someone else. Note: If you can make an irrevocable transfer, you won’t be able to cancel your life insurance or make any changes in your beneficiary.
Living Benefits
There are plenty of companies willing to buy the insurance policies of people who are terminally ill. Obviously, viatical settlement companies won’t pay the face value of a policy. They’ll buy it at less than that. How much less depends on the life expectancy of the policy owner.
Fortunately, federal law provides that if you are terminally ill and have a life expectancy of nine months or less, you may elect what is called a “living benefit.” It’s an accelerated payment of your Basic life insurance benefits to you, rather than to a beneficiary or survivor.
The government’s living benefit provision differs from the private sector viatical settlements in three important ways. First, only Basic insurance can be cashed in. Second, viatical settlements may be made with individuals whose life expectancy is greater than nine months. Third, there is no profit margin included in a living benefit; therefore, the amount you receive will usually be higher than that offered by a viatical settlement firm.
A living benefit may be elected only once, and that election can’ be reversed. So, it’s important that you understand what the options are. If you elect a full living benefit, you’ll be cashing in your entire Basic policy and you wouldn’t have to pay any more premiums. On the other hand, if you elect a partial living benefit, you’ll only be cashing in a portion of your policy, which can be done in multiples of $1,000. In that case, your premiums would be reduced. Note: Retirees and compensationers may only elect full living benefits.
Just remember, if you elect a full living benefit, your survivors won’t be eligible for any Basic insurance benefit. A partial benefit will provide them with the remaining cash value of your policy. Of course, the dollar value of the remaining amount will be frozen. It won’t change, even if your salary goes up.
Like viatical settlements, living benefits are based on the expectation that you will die sooner than later. But what if that doesn’t happen? If you are one of the lucky ones who elect a living benefit and don’t die on cue, I’ve got some good news for you. You won’t have to repay a penny of the money you received.
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| Terms of Disability Retirement
By Reg Jones
December 28, 2005.
It’s a funny (not ha-ha) thing. The federal government doesn’t have a short-term disability program. It has untidily filled in the gap with sick leave and annual leave (both your own and donated). On the other hand, the government does have a first-rate program for those employees with a disabling mental or physical condition that makes it impossible for them to continue in their current job. If their condition is expected to last for at least one year, these employees can apply for disability retirement. Periodic medical evaluations will be required until age 60 unless the disability is determined to be permanent.
Under both CSRS and FERS, disability benefits are payable if you have become so disabled that you are prevented from performing useful and efficient service in your current position. Under law, to be eligible to apply for disability retirement, a FERS employee needs to have competed 18 months of creditable civilian service while a CSRS employee must have completed at least five years. Because CSRS was closed to new hires years ago and anyone returning to the workforce as a CSRS Offset employee will already have five years under his belt, the later provision of law is now moot.
To apply for a disability retirement, you must fill out a Standard Form 3112 and send it to the Office of Personnel Management. Your agency can help you do this. Concurrently, your agency will have to certify that it you can’t provide useful and efficient service in your present position, even with reasonable adjustments to your working conditions, and that it doesn’t have any less demanding vacant position in your commuting area that is at the same grade and pay. (Note: Collective bargaining agreements prevent the reassignment of a disabled Postal Service employee to a position in a different craft.)
Because they are covered by Social Security, CSRS Offset or FERS employees must also apply to the Social Security Administration for disability retirement. SSA has different and much higher standard for determining if you are disabled. To be judged disabled by SSA, you must be so severely disabled that you cannot perform any substantially gainful employment.
If you are a CSRS employee who is judged to be disabled, you will receive either 40 percent of your “high-3” years of average salary or an amount that results from increasing your actual service from the date the disability retirement is approved to age 60. In effect, the 40 percent calculation is the guaranteed minimum you will get.
If you are a FERS employee who is under age 62, you will receive 60 percent of your “high-3” average salary – minus 100 percent of any Social Security disability benefit to which you are entitled – for the first 12 months. After that, the first figure is reduced to 40 percent minus 60 percent of the Social Security benefit.
Note: Whether you are CSRS or FERS employee, if your earned benefit based on years of service is greater than these figures, you will get the higher amount. If you are a FERS employee, at age 62 your whole benefit will be recalculated as you had worked from the onset of the disability to age 62.
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| Wake-Up Call for CSRS Retirees
By Reg Jones
December 14, 2005.
'Tis the season to retire for many employees. If you are one of them and are covered by CSRS, you need a wake-up call. There are two provisions of law that can reduce your retirement income. While they won't affect your CSRS annuity, they may reduce – or even eliminate – certain Social Security benefits to which you may otherwise be entitled. The "bad news bears" are the Windfall Elimination Provision and the Government Pension Offset.
The Windfall Elimination Provision
Under the WEP, most CSRS retirees who have accumulated enough credits to be eligible for a Social Security benefit will have that benefit reduced. That's because they'll be receiving an annuity from CSRS, a retirement system where they didn't pay Social Security taxes. Under the law, they'll have a modified formula used to compute their Social Security benefit. Only those with 30 or more years of "substantial earnings" under Social Security will receive a full Social Security benefit. Everyone else will get less, often much less.
To meet the substantial earnings criterion, you have to earn much more per year than the amount need to qualify for Social Security credits. For example, in 2005 you'd only have to make $3,680 to get a full year's credit from Social Security. However, for your earnings to be considered substantial, you'd have to earn $16,725!
Under the WEP, the first multiplier in the Social Security benefit formula – 90 percent – is reduced by 5 percent for every year of Social Security-covered employment that is less than 30. Fortunately, the reduction bottoms out at 40 percent for those who have 20 or fewer years of substantial earnings. As a result, even those who only have the 40-credit minimum needed to be eligible for a Social Security benefit will still get something.
The Government Pension Offset
The GPO only affects those CSRS retirees who would be eligible for a Social Security spousal benefit based on their spouse's earned Social Security benefit. In most cases, that benefit will be reduced or eliminated. If you are a CSRS employee – not CSRS Offset or FERS – the GPO will reduce your Social Security spousal benefit by $2 for every $3 you receive in your CSRS annuity.
For example, if you were eligible for a monthly CSRS annuity of $2,100, two-thirds of that – $1,400 – would be used to offset your monthly Social Security spousal benefit. If that benefit was $1,500, you would receive only $100 a month from Social Security ($1,500 - $1,400 = $100).
Obviously, the more money you receive in your CSRS annuity, the less you'll get from your spousal benefit, until you reach a point where you'll get nothing. For example, if you had a monthly CSRS annuity of $2,400 and a monthly spousal benefit of $1,200, you wouldn't get anything from Social Security ($1,200 - $1,600 = 0). Because CSRS annuities are usually much greater than Social Security spousal annuity benefits, the GPO usually eliminates the latter benefit.
The Future
Over the years there have been efforts by some members of Congress to eliminate or modify the WEP and the GPO, but nothing has happened to date. While there is always a chance that it will, don't plan on it.
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| The FERS Special Retirement Supplement
By Reg Jones
November 30, 2005.
The special annuity supplement is a benefit paid to certain FERS employees who retire before age 62 and are entitled to an immediate annuity. The SRS approximates the Social Security benefit earned while covered by FERS, and is designed to bridge the gap between retirement and age 62, when a retiree first becomes eligible for Social Security.
You are eligible for an immediate annuity and the SRS if you retire:
- at your minimum retirement age (MRA) with at least 30 years of service;
- at age 60 with at least 20 years of service;
- at your MRA under one of the early retirement provisions, whether your retirement is voluntary or involuntary; or
- under the special provisions for law enforcement officers, firefighters, air traffic controllers, or military reserve technicians who lose their military status due to medical reasons.
Retirees who are not eligible for the SRS include the following:
- disability retirees;
- anyone retiring under the MRA+10 provision;
- anyone who is eligible only for a deferred annuity; and
- anyone retiring at age 62 or later.
To get a reasonable estimate of what your SRS will be, take your annual estimated Social Security benefit at age 62 provided by the Social Security Administration, divide that estimate by 40, and multiply the product by the number of years you've been employed under FERS, rounded up to next full year. For example, if your estimated annual Social Security benefit at age 62 is $22,000 and you have 20 years of FERS service, your SRS will be $11,000 ($22,000 ÷ 40 x 20).
If you don't have a Social Security benefit estimate, you can get it by calling the Social Security Administration at 1-800-772-1213 or you can apply online by going to www.ssa.gov. Under Resources, click on Your Social Security Statement, then click on Need to Request a Statement?
Just remember, this is only a rough estimate and is probably a little low. Also, the closer you are to retirement when you do the calculation, the more dependable it will be.
One final note. As a retiree, your SRS isn't increased by cost-of-living adjustments (COLAs); however, it is for survivor annuitants. Also, for most retirees, if your earnings from wages or self-employment exceed the Social Security annual earnings limit, your supplement will be reduced or eliminated. This is not true if you are a special category employee, such as a law enforcement officer, firefighter or air traffic controller. They may earn as much as they want until they reach their minimum retirement age (MRA). After that point, they are treated the same as all other retirees.
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| The Alternative Form of Annuity
By Reg Jones
November 16, 2005.
Did you know that there's a thing called the Alternative Form of Annuity? The AFA once meant a great deal to those retirees who were able to take advantage of it before things took a turn for the worse. When the FERS law was passed, a provision was included that allowed retirees to elect to take their retirement contributions in a lump sum and have their annuities actuarially reduced. The refunded contributions would be tax free because they were made up of dollars that had already been taxed. The annuities would be 100 percent taxable.
It didn't take much time for retiring CSRS employees (and those who transferred to FERS) to discover that if you elected the AFA and invested the lump sum payment wisely, you could more than make up for the annuity reduction. That actuarial reduction ranged from 5 to 15 percent of annuity, so, the younger you were when you took the lump sum, the smaller the offset. Even if the money wasn't being used for investment purposes, it was still a good deal.
The AFA was so popular that it raised alarm bells with high-level federal budgeteers. Money was leaving the system without any counterbalancing taxes to reduce the loss. Congress tried to save the provision by requiring that the lump sum be received in two equal payments rather than one, thus spreading out the loss to the government. Sadly, that compromise only lasted until October 1, 1994. That's when the AFA was eliminated for everyone except those suffering from a life-threatening condition, who may still receive their lump-sum in a single payment.
If you feel that your health is such that you might be eligible for the AFA, you can get more information by going to OPM's website at www.opm.gov/asd/hod/pdf/C053.pdf. That's the handbook chapter on Alternative Annuity Elections.
If you were eligible for the AFA, took it, and then recovered from your life-threatening condition, you would not have to repay the lump-sum you received. And your actuarially reduced annuity would continue as before.
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| Benefits for a Non-Spouse Changing times need different ways of dealing with those changes. For example, as long as anyone can remember, married federal employees have been able to elect a survivor benefit for their spouses. When the law was drafted, no one gave a passing thought to the possibility of a world in which there would be a significant number of companions, significant others, life partners, etc. However, what they did know was that some single or widowed federal employees might have relatives or care givers who they would like to provide for. While the Congress had no intention of providing a traditional survivor annuity for these folks, they did include language that would allow them to receive another kind of annuity, which could be purchased at retirement. It’s called an insurable interest annuity.
So, what’s does “insurable interest” mean? It means that the person you want to receive the annuity is financially dependent on you and might reasonably be expected to derive a financial benefit from your continued life. Obviously, that would include your current spouse, if a court order blocked him or her from receiving a regular survivor annuity. But it could also apply to a blood or adoptive relative closer than a first cousin (such as a child), a former spouse, someone to whom you are engaged to be married, or someone with whom you would be considered to be in a common-law marriage, but only if the state you live in recognizes them or your common-law marriage occurred in such a state even though you now live somewhere else.
Now if the person you want to provide a benefit for isn’t among those named above, you can establish an assumption of insurable interest by submitting affidavits from one or more people who have personal knowledge of your relationship. They’d need to confirm your relationship, the extent to which the non-spouse is dependent on you, and the reasons he or she might reasonably expect to derive a financial benefit if you stayed alive. Of course, you’d also need to prove that you’re in good health by having a medical exam, and then having the report signed and dated by a licensed physician.
An insurable interest annuity provides the survivor with 50 percent of the dollar amount you select as a base. How much that will cost you depends on two things: the difference in ages between you the person you want to get the benefit and the amount of your annuity that’s available to be used as a base. The latter will vary depending on whether there is anyone else who is entitled to a survivor benefit, for example, a current or former spouse.
The following table can help you to figure out how much your base annuity would be reduced if you elected an insurable interest annuity:
- 10 percent if the survivor is the same age, older than, or less than 5 years younger
- 15 percent if 5 but less than 10 years younger
- 20 percent is 10 but less than 25 years younger
- 25 percent if 15 but less than 20 years younger
- 30 percent if 20 but less than 25 years younger
- 35 percent if 25 but less than 30 years younger
- 40 percent if 30 or more years younger
So far, I’ve only talked about insurable interest annuities, but there are other kinds of benefits you could provide for a non-spouse; for example, the proceeds of your Thrift Saving Plan account and/or your Federal Employees Group Life Insurance. They can receive those benefits as long as someone else doesn’t have legal title to them. To make sure that these benefits go where you want them to go, remember to fill out designation of beneficiary forms, which are available from your personnel office or on-line at www.tsp.gov or www.opm.gov.
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| How CSRS Offset Works
CSRS Offset is one of those quirky hybrids. That’s why I get so many requests to revisit the subject. If you are covered by CSRS Offset, you know what I mean when I say quirky. You are paying into the Civil Service Retirement System and Social Security: 6.2 percent to Social Security and.8 percent to CSRS (1.3 percent if you are a special category employee). At retirement, your annuity will be calculated under CSRS rules. And that’s the annuity you’ll receive, unless you are eligible for a Social Security benefit at age 62. That’s when your annuity will be “offset” by the amount of the Social Security benefit you earned while covered by CSRS Offset. This is true whether or not you apply for that Social Security benefit.
Under the law, the Office of Personnel Management uses two formulas to determine the amount of the offset. The offset reduction is the lesser of: the difference between the Social Security monthly benefit amount with and without CSRS Offset service or the product of the Social Security monthly benefit amount, with federal earnings, multiplied by a fraction where the numerator is the employee's total CSRS Offset service rounded to the nearest whole number of years and the denominator is 40. Got that?
Fortunately, there’s a simple formula you can use. It’s the one mentioned in the second method. And it will give you an answer that’s close enough to what the final result will be to satisfy most people. Here it is:
Social Security benefit x total years of Offset service (rounded up) ÷ 40
You should be receiving a Social Security benefit estimate from the Social Security Administration. If you don’t have one, you can get it by going to www.ssa.gov and asking for one.
I’ll use an example to show you how simple the calculation is. Let’s say that SSA’s estimate of your Social Security monthly benefit is $1,000. You’ve been covered by CSRS Offset for 10 years, so you multiply that $1,000 by 10. The result is $10,000. Now you divide that by 40 and come up with a monthly benefit estimate of $250. That’s the amount that will be “offset” from your monthly CSRS annuity.
There you have the basics of how your time under CSRS Offset will be treated. However, you also need to know that any additional Social Security benefit you earned before or after being under CSRS Offset will not be affected by the formulas discussed above. And, as a CSRS Offset employee, when you retire, you won’t be affected by the windfall elimination provision (WEP) or the government pension offset (GPO) if you were first hired after December 31, 1983. Sounds like a good deal to me.
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| Buying Back Military Time
By Reg Jones
August 31, 2005.
Getting credit for active duty service in the military used to be a simple thing. It still is for anyone whose service was performed before January 1, 1957. If you are one of them, you’d get credit for that time in your annuity computation without paying a deposit. Everybody else with military service has to wrestle with the matter.
This being the federal government, there are two sets of rules that govern whether you are required to make a deposit in order to get credit for your period(s) or military service.
If you were first employed before October 1, 1982, you have two options. The decision you make hinges on whether you expect to be eligible for a Social Security benefit at age 62 (or later if you retire after age 62). If you don’t expect to be eligible for a Social Security benefit, you can decide not to pay the deposit and your annuity will remain unchanged.
If you do expect to be eligible for a Social Security benefit, it’s probably in your interest to make a deposit. If you don’t, those years of military service will be dropped and your annuity recomputed downward. And it’s highly unlikely that what you’ll receive from Social Security will come close to matching what you will lose in your CSRS annuity.
On the other hand, anyone hired after October 1, 1982, must make a deposit for their military service time in order to get credit for it in their annuity computation.
The amount to be deposited is based on two things, the amount of your military base pay (not including allowances) and a percentage. If you don’t know what your base pay was, you can get that information by completing OPM form RI-20-47 and sending it in to your military finance center. You can get a copy of the form from your personnel office or download it from OPM’s website at www.opm.gov. Just click on the Federal Forms icon.
The percentage of base pay required depends on the retirement system you are in. If you are covered by CSRS, it’s 7 percent for all periods of military service between 1957 and 1958. For periods of service in 1999, it’s 7.25 percent; for 2000, it’s 7.40. For all periods of service after that, it’s back to 7 percent. For FERS during the same time periods, it’s 3 percent, 3.25, 3.40, and 3. If you transferred to FERS from CSRS, and your military service occurred before or during the time you were covered by CSRS, you’ll follow CSRS percentage rules. If after transferring, you’ll follow FERS rules.
If a deposit for military service isn’t made within two years after you first became employed, interest will be charged to your account one year after that two year period ends. In effect, you have three years minus on day to complete an interest-free deposit. After that, interest is added. So, the longer you wait to make a deposit, the bigger the bill will be. Note: If you decide to make a deposit, it will have to be completed before you retire. If you don’t, the amount you deposited will be refunded to you and you’ll get no credit for that time.
One last point. Some of you will have retired from the military. In most cases, you will not only have to make a deposit for that time but you will have to waive your military retired pay. Only those who were awarded that pay on account of a service-connected disability either incurred in combat with an enemy of the United States or caused by an instrumentality of war and incurred in the line of duty during a period of war will be allowed to receive both their military retired pay and their civilian annuity without a reduction in either. Your branch of service will have to determine if you meet that criterion.
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The
FERS
Age
Reduction
Penalty
and
How
to
Avoid
It
By Reg Jones
July 6, 2005.
When
it
comes
to
retiring
early,
FERS
employees
have
a
big
advantage
over
their
CSRS
counterparts.
If a
CSRS-covered
employee
retires
before
age
55,
his
annuity
is
reduced
by 2
percent
(1/6
percent
per
month)
for
every
year
he
is
under
age
55.
While
the
penalty
for
FERS
employees
who
retire
early
is
much
worse
–
5/12ths
of 1
percent
per
month
or 5
percent
per
every
year
you
are
under
age
62
(60
if
you
have
at
least
20
years
of
service)
–
there
are
three
ways
that
they
can
avoid
that
penalty:
the
“early
out,”
the
delayed
annuity,
and
the
deferred
annuity.
Stick
with
me.
The
Early
Out
The
age
and
service
retirement
hurdles
are
lowered
for
employees
if
an
agency
is
faced
with
such
things
as a
reduction
in
force,
major
reorganization
or
transfer
or
function
and
offers
an
opportunity
for
employees
to
retire
early.
When
that
happens,
you
can
retire
at
age
50
with
20
years
of
service
or
at
any
age
with
25
years
of
service.
The
additional
good
news
is
that
the
age
reduction
penalty
is
waived
if
you
elect
to
leave
or
are
forced
out
during
a
period
when
your
agency
is
making
retirement
offers.
And
as
long
as
you
were
covered
by
the
FEHB
program
or
FEGLI
for
at
least
five
years
before
retiring,
you
will
be
able
to
carry
that
coverage
into
retirement.
The
Delayed
Annuity
FERS
employees
are
eligible
to
retire
at
their
minimum
retirement
age
(MRA)
with
as
few
as
10
years
of
service.
However,
unless
you
have
30
years
of
service
when
you
reach
your
MRA,
you’ll
be
hit
by
that
age
reduction
penalty.
The
way
around
the
problem
is
to
retire,
but
delay
the
receipt
of
your
annuity
to a
later
date.
For
example,
if
your
MRA
was
55
when
you
retired
and
you
delayed
receipt
of
that
annuity
until
you
reached
age
62,
you
would
avoid
a
reduction
of
35
percent.
While
the
annuity
you’d
receive
at
that
time
would
be
exactly
the
one
you
would
have
received
7
years
earlier
(less
the
penalty),
if
you
took
another
job
in
the
interval,
delaying
receipt
of
that
annuity
might
make
very
good
financial
sense.
Also,
if
you
were
covered
by
the
FEHB
program
or
FEGLI
for
at
least
five
years
before
retiring,
you
would
be
able
to
reenroll
in
both
programs
when
you
activate
your
annuity.
Deferred
Annuity
To
be
eligible
for
a
deferred
annuity
without
penalty,
former
FERS
employees
must
be
at
least
age
62
with
5
years
of
service,
age
60
with
20
years,
or
have
reached
their
minimum
retirement
age
(MRA)
with
30.
Depending
on
when
you
left
the
service,
your
annuity
could
be a
lot
or a
little.
Either
way,
it’ll
be
like
found
money.
Unfortunately,
deferred
annuitants
may
not
reenroll
in
either
the
FEHB
or
FEGLI
programs.
The
Special
Retirement
Supplement
If
you
follow
any
of
these
penalty-avoiding
strategies
will
you
be
eligible
to
receive
the
Special
Retirement
Supplement
(SRS),
which
approximates
the
amount
of
the
Social
Security
benefit
you
will
receive
based
on
your
FERS
service
when
you
reach
age
62?
In
some
cases,
yes.
To
be
eligible
for
the
SRS,
you
must
fall
into
one
of
the
following
categories:
at
your
MRA
with
30
years
of
service,
at
age
60
with
20
years,
on
early
voluntary
retirement,
or
on
involuntary
retirement
beginning
at
your
MRA.
To
estimate
what
your
SRS
will
be,
use
this
formula:
Social
Security's
estimate
of
your
monthly
benefit
at
age
62
times
your
years
of
FERS
service
divided
40.
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