Employees who retire from federal service when they are in their late 50’s or early to middle 60’s may find it desirable or necessary to continue working. In recent years, some federal agencies have offered “phased retirement” as a way of letting federal employees gradually adjust to a ‘full’ retirement. For many years, some agencies have hired back recent retirees – particularly those retirees with unique skills – to their federal jobs as “rehired annuitants”. Other annuitants may choose to continue working in the private sector. The question is: For those employees who retire from federal service and who choose to work in the private sector, what are the advantages and disadvantages? This column examines the issues.
An employee who has worked for the federal government for 20 to 40 or more years and then retires obviously has skills that are in demand in private industry. Examples of such skills are accounting, financial management, computer and cybersecurity, medical and other scientific research, and program management.
Many federal agencies, especially in the Defense Department, contract out work to private firms. This means that employees in these agencies may already have contacts in these private firms for which they could now work after retiring from federal service. But recently-retired federal employees should keep in mind that post-federal employment restrictions may apply, depending on the nature of the annuitant’s former federal job and of the private sector job. Affected annuitants are therefore highly encouraged to first contact their ethics office of their former agency or the Office of Government Ethics located Suite 500, 1201 New York Ave. N.W., Washington, DC 20005; telephone 202-482-9300 and Web site www.oge.gov.
Financial Advantages to Continued Employment in the Private Sector
There are several financial advantages for employees who retire from federal service and who then work in the private sector. These financial advantages include:
- No restriction on the amount of salary they can earn;
- the amount of salary earned has no effect on the annuitant’s CSRS or FERS annuity or Thrift Savings Plan (TSP);
- more opportunity to save for retirement in the form of a private employer-sponsored pension plan such as a 401(k) plan and/or contributing to one’s IRA; and
- being eligible for employer-sponsored benefits that may or may not be available to Federal annuitants, but at a lower or no cost to employees of a private sector employer.
A CSRS or FERS annuitant who keeps his or her Federal Employee Health Benefits (FEHB) health insurance into retirement (with the federal government continuing to pay on average 72 to 75 percent of the annuitant’s FEHB premiums) means that the annuitant does not need to enroll in any group health insurance plan offered by a prospective employer. The annuitant may therefore be able to negotiate a higher salary with a prospective employer. Why? If a prospective employer does in fact offer a group health insurance plan to its employees and pays most of the premiums on behalf of its employees, then the annuitant can say to the employer to pay him or her a higher salary with the money the employer is saving in not paying for health insurance benefits for the annuitant. Note that the higher salary has no effect on the annuitant’s CSRS or FERS annuity.
Furthermore, since the private sector job is covered by Social Security and the working annuitant is paying Social Security (FICA) taxes on his or her salary, the annuitant is adding to his or her future Social Security retirement benefits. The only restriction is that a FERS annuitant younger than age 62 and who is receiving the FERS annuity supplement is limited as to what he or she can earn without losing some, if not all, of the FERS annuity supplement. For example, during 2018 a FERS annuitant receiving the FERS annuity supplement and who is working can earn no more than $17,040 without losing any of the FERS annuity supplement.
Many private sector employers offer some type of retirement plan to their employees; for example, a 401(k) plan, a simplified employee pension (SEP) or a 403(b) plan. Many of these employer-sponsored retirement plans include employer matching contributions. A federal retiree with a TSP account will, in most cases, be able to contribute to an employer-sponsored retirement plans and after leaving this employer, would be allowed to directly transfer at least the annuitant’s contributions and earnings back to his or her TSP account with no limit on the amount and the number of transfers.
In terms of other benefits, some private sector employers offer dental and vision insurance, short and long term disability benefits, and pay most if not all of the premiums on behalf of its employees. Federal retirees have access to dental and vision insurance through the Federal Employees Dental and Vision Insurance Program (FEDVIP). But annuitants pay the full cost of the FEDVIP premiums with no federal government contribution. The annuitant may save much in premiums by being enrolled in the private sector employer’s group dental and vision insurance. Also, the federal government does not offer either short or long term disability income insurance to most Executive Branch employees.
Also, a federal retiree younger than age 70.5 who continues working after retiring from federal service is allowed to contribute to a traditional IRA. During 2018, an individual over the age of 49 can contribute a maximum $6,500 to a traditional and/or Roth IRA. A federal annuitant over the age of 70.5 can contribute to a Roth IRA. The only requirement to contribute to a Roth IRA (like a traditional IRA) is that the IRA owner must have earned income which a federal retiree who continues to work has.
In short, a federal annuitant who works after retiring from federal service has additional opportunities to save for retirement.
Other Advantages for Working After Retirement From Federal Service
Perhaps the biggest non-financial advantage for continued work after retiring from federal service is the fact that a federal annuitant is able to use his or her mind keeping it sharp, and more importantly feels a sense of accomplishment and usefulness. A 25 to 35 year retirement period can be devastating to an individual who has no sense as to how to use his or her skills and achieving goals that may have started long ago but were not accomplished when the individual retired from federal service.
Furthermore, there have been numerous studies on today’s retirees and their lifestyles. Several of these studies have shown that those retirees who keep an active schedule – working, volunteering and/or going back to college or vocational school – in order to enrich their minds, tend to have the least amount of medical problems that typically affect senior citizens. With the retirement eligibility rules for federal employees not changing, the advantages of post-federal employment will hopefully help current and future federal employees and annuitants accomplish their lifetime goals.
Perhaps the one disadvantage to working after retirement from federal service is that an annuitant has less freedom to travel or to do other things such as returning to school compared to an annuitant who is completely retired.