CSRS Retirement: The Old Faithful of Pension Plans
Diminishing CSRS Covered Workforce
Each year that goes by there are less and less Federal Employees covered under CSRS (Civil Service Retirement System). It may be before the end of the decade when only a few remain to walk about the cavernous corridors of our Federal office buildings.
Around 10% of the Federal workforce is currently covered under CSRS. Of course, this makes sense because after 1983, all new Federal Employees were covered under FERS.
What makes CSRS retirement so special?
Depending on how long you worked as a CSRS covered Federal Employee, you could earn a retirement annuity up to a maximum 80% of your average “high-3″ salary for the rest of your life, plus COLA increases.
Of course, you would need 41 years and 11 months of creditable service and retirement contributions to accomplish this feat.
The Benefits of a Defined Benefit Plan
The beauty of a defined benefit plan such as with the CSRS retirement system is that you never have to worry about how the ups and downs of the stock market are affecting your retirement account like the TSP or 401(k).
If you retire at 55 with 30 years of service, you could easily live another 40 years and never have to get out of bed before noon secure in the knowledge that your government backed retirement check was in the mail.
Sure, there may be no death benefit, but who hasn’t seen the sticker on the back of a huge RV that says, “Spending My Children’s Inheritance”.
How to Make the CSRS Retirement Annuity Grow
Under CSRS retirement, your benefit accrues 1.5% for the first five years of service, 1.75% for the next five years, and 2% for every year after that.
Indeed, if you did retire at 55 with 30 years of service, your annuity would be 56.25% of the highest average base salary you earned during any three consecutive years of service. In most cases, this is your last three years of service.
As an example, if you retired at 55 in 2013 after 30 years of creditable service, with a “high-3″ average of $155,500 as a GS-15 step 9 or 10, you’re basic annuity would be $87,468.75.
Of course, you would have to opt out of the survivor annuity and that would require your spouse’s consent.
If you lived another 40 years, with an average yearly COLA of 2.5%, you would collect $6,043,007.53 from the government in retirement.
There are many people receiving their CSRS retirement annuity while working in the private sector. Talk about double dipping.
The Costs of CSRS Retirement
The Office of Personnel Management (OPM) estimates that the cost of CSRS retirement annuities for current covered Federal Employees is 26% of their pay. The employing agencies and the employees themselves each contribute 7%. The Department of Treasury picks up the remaining tab.
Compare that percentage to FERS for its basic annuity which is less than half at 12.7% of FERS covered employee pay. Of that percentage, the government picks up 11.9%.
Of course, under the FERS system, the basic annuity accumulation is much smaller. However, the government also automatically contributes 1% of Federal Employee’s salary to their individual TSP accounts with matching contributions up to another 4%.
FERS covered employees are also eligible for Social Security, with the government and the employee each contributing 6.2% up to the maximum.
CSRS’ Unfunded Liability
According to the 2014 Congressional Research Service report, titled Federal Employee’s Retirement System: Budget and Trust Fund Issues, for fiscal year 2012, CSRS’ unfunded liability was just under $790 billion.
This is in contrast to FERS, which was fully funded at the same point in time. CSRS’ unfunded liability is projected to peak at $855.9 billion in fiscal year 2025 and then begin a steady decline until it becomes a surplus of $29.5 billion in fiscal year 2090.
The report states that at no point will the Civil Service Retirement and Disability Fund, from which the CSRS retirement annuity payments are made, will run out of assets. This is good news for those who worried about the sustainability of the system.
For over 30 years, federal employee retirement planning has been a key focus of Medallion Financial Group. We recognize that FERS retirement benefits have extra layers of complexity, such as the Thrift Savings Plan (TSP), 401K, Pension plan, FEGLI and more. It’s easy to get lost in a sea of bad advice when so few people understand the basics. We help with the basics and beyond to enable our clients to get the education and advice they need to retire with confidence.
Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.
We strive to exceed client’s expectations – because we have high expectations of ourselves.