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Should You Choose a 10% Pension Bonus or a FERS Supplement? by, Aaron Steele

aaron steele
February 26, 2022

FERS Supplement at 60 or 10% Bonus at 62

Many FERS employees ask which is more profitable, FERS supplement or the 10% pension bonus. The truth is, the difference between the two choices is way more significant than most people think. This article examines both options to make a choice easier for all FERS employees.

Before we examine the differences between the two, it is essential to investigate their eligibility factors.

Who is Eligible for FERS Supplement?

During the first part of retirement, some federal workers get the FERS supplement every month. But not just anyone gets the supplemental pay. To qualify, FERS employees have to meet one of the following criteria:

â€¢ They should have been in federal employment for a minimum of thirty years and be at their minimum retirement age or higher.

â€¢ They should have been in federal employment for a minimum of twenty years and be at least 60.

Those who meet these criteria will receive the supplement from the point of retirement until they are 62 years. However, the rules are slightly different for firefighters, air traffic controllers, and law enforcement officers.

Who is Eligible for the 10% Pension Bonus?

The 10% pension bonus is available for all traditional FERS workers who have spent a minimum of 20 years in federal employment and retire after 62 years. FERS employees that retire before they are 62 or have less than 20 years of service will not be eligible for the bonus.

Unlike the FERS supplement, the 10% bonus lasts for as long as annuity payments.

Which is Better?

Now that we know the basics, it is time to examine the better option between the 10% bonus and the FERS supplement.

The FERS Supplement Option

To know if this is the better option, let’s examine the example of Ben, a 60-year-old federal employee with 20 years of service. Ben earns 100,000 dollars annually and needs to decide if he should take the FERS supplement at 60 or wait till 62 to get the 10% pension bonus.

If Ben retires now at 60, his pension calculation will look like this:

20 years X 100,000 x 1% Multiplier = 20,000 dollars per year or 1,666 dollars per month.

Since Ben is retiring at 60 with a minimum of 20 years in federal employment, he is also eligible for the FERS supplement. To calculate the supplement, we have to know what he will receive from Social Security at 62. If he receives 2,000 dollars per month from Social Security, the calculation of his gross FERS supplement will look like this:

20 years of service / 40 X $2,000 = 1,000 dollars monthly.

Since Ben’s FERS supplement will stop at 62, he will only receive the payment for two years. This means Ben’s total FERS supplement will be 24,000 dollars.

The 10% Pension Bonus Option:

If Ben decides to forgo the first option and retire at 62 to be eligible for the 10% pension bonus, the calculation for his gross pension will look like this:

22 years X 100,000 x 1.1% Multiplier = 24,200 dollars per year or 2,016 dollars per month.

For working for two more years, Ben will get a 4,200 dollar increase in his yearly pension. However, Ben must consider how long it would take for the increased pension to make up for the FERS supplement he did not receive.

To get this, we divide the FERS supplement by the increase in Ben’s pension.

$24,000/$4,200 = 5.7 years.

In less than six years, Ben will receive what he would have received as his FERS supplement and would receive the increased pension for the rest of his life.

From the calculations above, it is clear that taking the 10% pension increase easily trumps taking the FERS supplement. Working longer has even more advantages because you have extra time to save more money in your TSP account. There is also the issue of cost-of-living adjustments (COLAs), which are derived from your pension amounts.

However, you also have to consider how comfortable it will be to work for two more years. Some federal employees cannot just bear the thought of having to work for two more years working for two more years. Before you make your decision, ensure you carefully consider your situation and the numbers.

Contact Information:
Email: [email protected]
Phone: 3604642979

Aaron Steele

After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely with
helping them pursue the most comfortable financial life possible.

Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.

Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.

Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.

Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.

With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.

Aaron can help you and your family to create, preserve and protect your legacy.

That’s making a difference.

Disclosure: Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.