What Is Second Retirement?

First, a couple of numbers.

47. That’s roughly the average age of officers when they retire from the Armed Forces.

43. That’s the approximate average age of enlisted service members when they retire from the military.

The mid-40s, in other words. Members of the military are eligible to retire with a full retirement plan after 20 years of active duty. If they join the service out of high school or college, they reach their 20-year anniversary while they’re still in their prime, with a lot of living and working – and earning – yet to do.

It’s fair to say, then, that most people who retire from the military before conventional retirement age don’t really retire, at least not immediately. New challenges await that provide new ways to apply the skills developed in the service. Starting over after a career in the Armed Forces can mean there is still plenty of time to forge a new and lucrative second career as a civilian.

Regardless of when it starts, that new career, if it’s in the private sector and all goes according to plan, can include opportunities to add to the savings already in place as part of the military’s retirement benefits. When the time to stop working for good – a second retirement – eventually comes, these veterans are able to collect benefits both from their military pension and from the retirement plan available through their private employer.

Sweet simple deal, right?

But what if that second career isn’t in the private sector? What if life after the military includes a job in the federal government, one that normally leads to a civil service pension? The number of veterans with federal jobs is enormous. In the most recent data available, roughly 31% of the estimated 2.1 million people in the federal workforce are veterans.

In that kind of second retirement, is it possible to draw a military retirement check and a civil service retirement payment at the same time, which is known as double-dipping? The answer is … well, that’s when the deal gets complicated.

Second Retirement Rules

Maybe not surprisingly – this is the government, after all – it isn’t as easy as simply claiming a military retirement check and a retirement payment from a post-military-career federal job that cover the same amount of time working. The government doesn’t want to pay somebody twice for the same years of service, so there are federal laws standing in the way of that kind of clear-cut double-dipping for a second retirement.

Still, those federal laws allow ways for retired and separated service members to plan effectively for a second retirement after the military if they move into a federal job, without violating the double-dipping policy. In most cases, though, those options come with a cost.

The rules that regulate a military retiree taking a second retirement from a civil service job include:

• The Military Buy-Back Rule: Also called “making a military service deposit,” this option allows a veteran to pay a certain amount of money into a civilian service annuity in exchange for adding time served in the Armed Forces to his or her federal service. It can make it possible to get to a second retirement earlier and increase the Federal Employee Retirement System (FERS) benefits – more on that later – from the civil service position. The military buy-back plan is a blended retirement system, meshing the military with the civil service, and it includes different guidelines based on the year in which the veteran took a job with the federal government. It has one big catch for a retired military member: When it’s time for the second retirement, buying back the time served means waiving his or her monthly military retirement check and collecting only the enhanced civilian retirement check.
• Double-Dipping: As we’ve noted, the government won’t cut checks for both military and civil service retirement plans that cover the same amount of time. That leaves a military retiree with a choice. He or she can either forfeit the military retirement pay and buy into the federal retirement plan (FERS), or keep the military retirement but be unable to count time served in the military as part of the civilian service retirement accrual. That second option might make more sense if a military retiree is finishing up a long tenure in civil service that includes a number of years of building toward a second retirement.
• FERS Deposit: Those circumstances in which a military retiree chooses to waive military retirement pay in favor of adding his or her service time to civilian time will increase the FERS benefits, but the price is a deposit equal to a percentage of the retiree’s basic military pay plus accrued interest. It’s worth noting that the deposit doesn’t apply to any retired military member employed in a civilian federal job before Oct. 1, 1982, and eligible for Social Security benefits at age 62.

As with many government regulations, there are exceptions to the no-double-dipping policy. For example, if a retired member of the military is receiving pay due to a service-connected disability that occurred in combat, he or she can receive credit for time in the Armed Forces in a FERS retirement package.

Under the Uniformed Services Employment and Reemployment Rights Act (USERRA) of 1994, the availability of the Federal Employment Retirement System and the deposit process was extended to the National Guard and commissioned members of the Public Health Service.

Benefits of Civil Service Jobs After the Military

For openers, moving into a federal job after leaving active duty is an easy extension of the service a military member has already been providing to his or her country. And many of the skills developed through a life in the Armed Forces find ready applications in civil service positions.

But there are more tangible benefits to that move, too, including significant ways to add to the retirement you have already earned from a full military career, as well as entry and promotion opportunities not available to external civilian candidates.

A second career in civil service can mean:

• Lucrative compensation packages: They might include regular pay raises, a pension plan, health benefits, life insurance, long-term health insurance, dental and eye insurance, flexible work schedules and even work-from-home possibilities.
• Translatable qualities: Employers in the federal government know and value the qualities that make a member of the military productive, and they look for those traits when they’re hiring: the ability to lead people, the know-how to manage change, business acumen, a history of getting results, and experience with teamwork and building coalitions.
• Assistance from the Veterans Employment Opportunity Act: This 1998 act provides veterans the opportunity to compete for positions and merit promotions that aren’t offered to external candidates.
• Veterans Preference (VP): The role of the civil service’s Delegated Examining Unit (DEU) system is to recruit and assess job applicants, and it provides a points-accumulation process for qualified veterans to get preference over non-veterans in hiring and retention.
• Relocation expenses: If the job is in another city, some agencies in the federal government will pay for the move. That information is often in the job announcement.

Disadvantages of Civil Service Jobs

 The transition into a federal job can come with a hassle or two. Recently retired or separated members of the military looking to make that move need to be aware of some of the drawbacks and obstacles.

• The candidate pool for most jobs in civil service is very large. The competition to fill an opening can be fierce.
• The application process requires a much more thorough and detailed résumé than most private-sector openings entail. It’ll take some work for the résumé to make the right impression on prospective government employers.
• While most civil service compensation packages include regular pay raises, the starting salaries generally are established and stable, meaning there might not be much room for negotiation. Plus, the offer is likely to be for the minimum amount in the salary range for that position. It might not measure up to what is available in the private sector.
• Unless they obtain a special waiver, retired members of the military are required to wait 180 days – six months – before they can be appointed to a civilian position in the federal government. The rule is in place to prevent inappropriate favoritism toward veterans, though there have been recent pushes – including proposed legislation – to repeal it.
• Among other bureaucratic complications in the hiring process and beyond, a candidate for a civil service job must go through a National Agency Check, and some positions require background investigations for clearances. It can make for a drawn-out exercise.

What Is FERS & How Is It Used?

Since 1987, when it became effective, the Federal Employee Retirement System has automatically provided the retirement plan for most federal civilian employees hired after 1983 in the executive, judicial and legislative branches of the federal government.

It does not cover active military personnel or people who work in state or local government.

FERS pays out retirement benefits from a three-tiered source system, including:

• FERS Basic Benefit: No matter how much a federal employee contributes to the plan, the FERS Basic Benefit provides a set amount he or she will receive in retirement. That amount is determined in part by how long the employee has worked in the federal government and the average of the highest base salary made over three consecutive years (known as the “high-3” average).
• Social Security Benefit: Employees covered under FERS pay into Social Security just as people working in the private sector do. FERS provides a contribution matching the 6.2% of an employee’s earnings that go into Social Security.
• Thrift Savings Plan Benefit (TSP): Like a 401(k), the Thrift Savings Plan Benefit offers tax benefits and savings. The federal agency for which the employee works deposits 1% of his or her base salary into the TSP, but the employee can make additional contributions that the agency will match up to 5%. Tax is deferred on the additional contributions, and the employee can choose how the funds are invested.

The amount a retired civil servant receives from the Basic Benefit and Social Security will be fixed. The TSP payout in retirement will depend on how much the employee contributed and how effectively the funds were invested.

In most cases under FERS, the government takes 0.8% of an employee’s base pay to put toward his or her FERS pension, and another 6.2% for Social Security. In turn, the agency for which he or she works contributes 10.7% or more of the base pay to FERS.

That makes FERS an attractive package compared to many private sector retirement plans. In the private world, many corporations long ago abandoned pensions.

As we mentioned earlier, the rules about second retirements for military personnel who move into federal government jobs can force a retired service member to choose between FERS and his or her military retirement benefits. If the choice is to waive the military retirement and credit the military service to a federal retirement, that decision should first be guided by an HR official in the federal government and then needs to be recorded by letter or fax to the Retired Pay Operations Center at least 60 days before the planned second retirement.

Takeaways

 Because of the relatively long working time left for many members of the military who retire, a second retirement can significantly improve one’s financial situation for the golden years. But it is important for anyone moving toward that second retirement after a military career to know the rules about how veterans can maximize their monthly checks.

That’s especially true if the second career is in a civilian role in the federal government. Retired service members who find employment in the private sector won’t face as many restrictions on their investment choices for a second retirement, because the government doesn’t consider those retirement benefits to be double-dipping.

Both the government and the military offer help through, among others, the Retirement Benefits Office and the Military Finance Center. They can be valuable resources for a retired service member to research his or her options. A nonprofit financial planning agency can also provide worthwhile advice.