Incentives to Retire Early: Are They Worth Taking?

Brandon S. Christy, CPA, PFS

Recently, many federal agencies have been announcing early out (VERA) and incentive (VSIP) offers to retire. All offers are not the same, please read agency documents carefully before applying or accepting an offer. 

(For a brief overview on the VERA and VSIP programs, click here.)

If you apply for VERA/VSIP there is usually a very limited time period between learning that the agency has approved your application and deciding if you will accept the offer. You should have your decision made prior to an offer, so you can be sure to consider all factors.

The decision to retire should encompass more than financial considerations, but for the moment, let us look at the numbers.

If we assume you have a planned retirement date but take the VERA/VSIP offer, how many years will it take for the lump sum payout to benefit you?

Below are two scenarios laying out this piece of the decision.

Scenario 1:
55 year old CSRS employee with 30 years of service.

Years to breakeven: 8.6

Scenario 2:
60 year old FERS employee with 25 years of service.

Years to breakeven: 10.9


  • FERS employees retiring in 2014 or later will receive credit for all sick leave hours towards their creditable service for annuity calculation. For those retiring sooner than 2014, half of sick leave is creditable.
  • The FERS Special Retirement Supplement is not available under early retirement until you reach your Minimum Retirement Age (MRA).
  • Simplified breakeven calculation: incentive ÷ annual difference in annuity  (Items not considered in this estimate: taxes, COLAs, additional pay while working, Special Retirement Supplement, Social Security, etc.)

While there may be a large tax withholding on this incentive, it will "wash through" your tax return; any overpayment will be returned to you.

About the Author

     Brandon S. Christy, CPA, PFS, is president of Christy Capital Management (CCM) and founder of the Retirement Benefits Institute (RBI).  RBI has provided benefits and retirement training sessions to thousands of federal employees. For a schedule of upcoming no-cost training, click here.  CCM offers retirement analyses for federal employees. For a no-cost consultation or other planning needs, call 866-331-7749 or click here.

The information contained in this article should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals' specific circumstances or needs and may require consideration of other matters.

Posted: 05/21/2012

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