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TRW  
#1 Posted : Tuesday, April 16, 2019 3:25:24 AM(UTC)

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I’m a retired AF E-7 (retired in 1998). Conventional wisdom has always said that as retired military, it doesn’t make sense for me to buy back my military time and get the additional 20 years, 8 months credited to my FERS retirement. Bored one day, I decided to test this theory and crunch the numbers. I was surprised to learn that by buying back my time, 20.8 years at a cost of approximately $16,940, and retiring with 37 years under FERS instead of 17, as I had previously planned, I would actually end up with a gain of $750 a month in my gross pay. I would be giving up my military retirement ($1782 per month) to get a $4250 a month FERS annuity. Without buyback, and only 17 years, my FERS annuity would only be $1718 a month.

Without buyback: $1718 (FERs annuity) + $1782 (military retirement) = $3500 gross pay.

With buyback: $4250 (FERS annuity) + $0 (military retirement) = $4250 gross pay

$4250 – $3500 = $750 net gain for buying back my military time.

Buyback payoff: $16,940 / $750 = 22.5 months to pay off the buyback amount using my $750 a month net gain.

After 22.5 months I would have the buyback amount paid off and starting in month 23 be enjoying my net gain of $750 a month ($9K a year) for the rest of my life.

For calculation purposes, I’m a GS-13 Step 7 equivalent (NT-05) in a 33% locality area and I expect my high-3 at retirement to be about $125K.

Buyback amount: $16,940 – based on 3% of my military base pay earned between 1978 and 1998, plus interest. I do have the cash saved to pay the deposit in one lump sum.

FERS multipliers used:

17 year retirement: 17 X 1.0 = 17%
37 year retirement: 37 X 1.1 = 40.7%

I also have a 10% VA disability of about $140 a month which I assume will not be affected or will lose as a result of the buyback.

Just throwing this out there for a group sanity check. Am I overlooking or missing anything? It seems a no brainer to me.

Edited by user Tuesday, April 30, 2019 5:33:20 AM(UTC)  | Reason: Not specified

Mac86  
#2 Posted : Tuesday, April 16, 2019 9:09:50 AM(UTC)
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TRW:

I'll leave the numbers check to others, but let me point out that military retirees receive a pretty good COLA each year, while there has been a push by the President and the Congress to (retroactively)do away with the COLA for FERS retirees. Even if they don't succeed, isn't the COLA that military retirees receive always better than what FERS retirees receive? Also, can you still hold onto Tricare if you buy back your military time(I've been told that Tricare is cheaper than FEHB in retirement)? Finally, will you owe interest on the $10,500 buyback for your military time, since you did not buy back your military time right after you left the service (I think there was a 2 year grace period when I bought back my 4 years of military time).
thanks 1 user thanked Mac86 for this useful post.
someoldguy on 4/16/2019(UTC)
TheRealOrange  
#3 Posted : Tuesday, April 16, 2019 9:51:16 AM(UTC)
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Originally Posted by: TRW Go to Quoted Post
Buyback amount: $10,500 – based on 3% of my military base pay earned between 1978 and 1998.

I do have the cash saved to pay the deposit in one lump sum. Unfortunately, I’m over the three year grace limit for “interest-free” payback, so I will have to pay accrued interest, and I’m not sure how much this will be yet. Paperwork to determine this has been submitted and I should find out in 6-8 weeks. Obviously, any interest would increase the buyback payoff time. How much? Not sure yet and this is definitely a factor I will consider.

The interest can be multiples of the base amount depending on how many years are being calculated. For instance, I know of someone who left an agency in 1991 and the base service credit deposit was right around $200. With interest added from after the grace period, he owed over $2,000. It was still worth it for him, but it's a major consideration. The annual interest rates are available at the OPM website, although 2018 has not yet been added. I will try to reprint them below. As I understand, interest is compounded annually and is charged to the date the deposit is paid in full or annuity begins, whichever is earlier. Interest is charged at a variable rate determined by the Department of the Treasury every year.

https://www.opm.gov/reti...d=&url=interestrates

Interest Rates

Beginning in 1985, interest rates vary each calendar year, according to the interest rates earned by new retirement fund securities. Interest rates through 2017 are:

Year(s)/Percentage Rates
2017/1.875%
2016/2.0%
2015/2.0%
2014/1.625%
2013/1.625%
2012/2.25%
2011/2.75%
2010/3.125%
2009/3.875%
2008/4.75%
2007/4.875%
2006/4.125%
2005/4.375%
2004/3.875%
2003/5%
2002/5.5%
2001/6.375%
2000/5.875%
1999/5.75%
1998/6.75 %
1997/6.875%
1996/6.875%
1995/7%
1994/6.250%
1993/7.125%
1992/8.125%
1991/8.625%
1990/8.750%
1989/9.125%
1988/8.375%
1987/9%
1986/11.125%
1985/13%
1948-1984/3%
Before 1948/4%
frankgonzalez  
#4 Posted : Tuesday, April 16, 2019 10:53:56 AM(UTC)
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Interest could double your deposit and so increase the payoff time before you see any real gains. Without knowing where you are in the timeframe (ie only been a fed for 4 years vs 15 years), it is hard to say.

Do you forgo the military annuity when you retire from the feds or immediately upon buyback? That would also need to be added to the calculation (immediate loss of the $1700+ month means you would need to be retired from civil service for many more years before it switches to being a net gain)....A little google-fu and it appears you can collect the military retired pay up to the point you retire from FERS (https://www.opm.gov/retirement-s...on/military-retired-pay/)so this isn't a loss.

The other consideration is what would that same deposit money earn in a Roth IRA or other financial vehicle (like a mutual fund tied to the S&P500)...and have you included that opportunity cost in your calculations.

I'm a retired NCO (retired 2008 with 22+ years) and a higher grade than you, and it was close to a wash unless I manage to become part of the SES (and no plans for that currently!).
You should have voted Cthulu...the greatest of all Evils
TRW  
#5 Posted : Tuesday, April 16, 2019 1:01:31 PM(UTC)

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I'm at ~14 years civil service now. Buying back the 20.8 years would put me at 35 years by this November. If I didn't have the money saved it would be an easy decision (no). The interest rates posted above look kind of scary. I had a break in service from Aug 2002 to Jan 2007 so I'm not sure when the three year grace period starts and ends. Officially, beause of my break in service, my service comp date is recalculated to Jul 2005, so perhaps the interest penalty wouldn't start or be calculated until Jul 2008? If that was the case, the interest rates don't look as scary.

I don't lose Tricare, my retired ID card or my 10% VA disability payment. My military retirement stops the day my FERS retirement begins.

Off topic but I'm 59 and will have to do Tricare for Life when I turn 65 which you only qualify for if you participate in Medicare Part B, which is currently running $165 a month. Not sure what most FERs retirees pay a month for FEHB but between Tricare (~$50) and Medicare part B ($165) my monthly medical premiums will be ~$215.
TRW  
#6 Posted : Tuesday, April 16, 2019 1:06:43 PM(UTC)

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Originally Posted by: Mac86 Go to Quoted Post
TRW:

I'll leave the numbers check to others, but let me point out that military retirees receive a pretty good COLA each year, while there has been a push by the President and the Congress to (retroactively)do away with the COLA for FERS retirees. Even if they don't succeed, isn't the COLA that military retirees receive always better than what FERS retirees receive? Also, can you still hold onto Tricare if you buy back your military time(I've been told that Tricare is cheaper than FEHB in retirement)? Finally, will you owe interest on the $10,500 buyback for your military time, since you did not buy back your military time right after you left the service (I think there was a 2 year grace period when I bought back my 4 years of military time).


I'm pretty sure we get the same COLA raises as social security recipients. Lately, these haven't been very good.

TRW  
#7 Posted : Tuesday, April 16, 2019 1:15:17 PM(UTC)

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Originally Posted by: frankgonzalez Go to Quoted Post
Interest could double your deposit and so increase the payoff time before you see any real gains. Without knowing where you are in the timeframe (ie only been a fed for 4 years vs 15 years), it is hard to say.

Do you forgo the military annuity when you retire from the feds or immediately upon buyback? That would also need to be added to the calculation (immediate loss of the $1700+ month means you would need to be retired from civil service for many more years before it switches to being a net gain)....A little google-fu and it appears you can collect the military retired pay up to the point you retire from FERS (https://www.opm.gov/retirement-s...on/military-retired-pay/)so this isn't a loss.

The other consideration is what would that same deposit money earn in a Roth IRA or other financial vehicle (like a mutual fund tied to the S&P500)...and have you included that opportunity cost in your calculations.

I'm a retired NCO (retired 2008 with 22+ years) and a higher grade than you, and it was close to a wash unless I manage to become part of the SES (and no plans for that currently!).


My last year as an E-7 (1998) I only earned $27K. We were deep in the middle of the cold war drawdown. I'm sure you did much better retiring in 2008. Timing is everything! Seems like after 9/11 the military was getting consistent 3-4% a year raises for at least the next 10-12 years. I don't begrudge anyone their raises, you guys earned them!
frankgonzalez  
#8 Posted : Wednesday, April 17, 2019 3:04:06 AM(UTC)
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Originally Posted by: TRW Go to Quoted Post
Off topic but I'm 59 and will have to do Tricare for Life when I turn 65 which you only qualify for if you participate in Medicare Part B, which is currently running $165 a month. Not sure what most FERs retirees pay a month for FEHB but between Tricare (~$50) and Medicare part B ($165) my monthly medical premiums will be ~$215.
Actually, once you enter Tricare for Life, you no longer pay for Tricare, only Medicare part B as Medicare become the primary insurance with Tricare secondary. (My father was retired military, and my mother is still on TFL...I have 14 more years to go before I'm in that category. Of course, they could change everything again in that time!)

So your total cost would only be for the Medicare Part B.

You should have voted Cthulu...the greatest of all Evils
TRW  
#9 Posted : Wednesday, April 17, 2019 11:57:21 AM(UTC)

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Originally Posted by: frankgonzalez Go to Quoted Post
Originally Posted by: TRW Go to Quoted Post
Off topic but I'm 59 and will have to do Tricare for Life when I turn 65 which you only qualify for if you participate in Medicare Part B, which is currently running $165 a month. Not sure what most FERs retirees pay a month for FEHB but between Tricare (~$50) and Medicare part B ($165) my monthly medical premiums will be ~$215.
Actually, once you enter Tricare for Life, you no longer pay for Tricare, only Medicare part B as Medicare become the primary insurance with Tricare secondary. (My father was retired military, and my mother is still on TFL...I have 14 more years to go before I'm in that category. Of course, they could change everything again in that time!)

So your total cost would only be for the Medicare Part B.



Good info! Thanks.


TRW  
#10 Posted : Tuesday, April 30, 2019 5:26:09 AM(UTC)

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Was just notified that my buyback amount, including interest, will be ~$16,940.

Based on calculations above in original post, which I have updated with the new figures, this takes my payback period from 14 months to 22.5 months.

I have the money to pay it lump sum, it seems like a no brainer.

They gave me 120 days to decide.

Are there other advantages or disadvanateges I am missing?

My current wife and I were married after I retired from the military. I don't plan on getting divorced but assume that since we were married after I retired, that my retired pay would not be subject to any shenannigans during a potential future divorce, but that my new and improved FERS annuity would be ripe for the picking.

Any thoughts on this?

Edited by user Tuesday, April 30, 2019 5:40:29 AM(UTC)  | Reason: Not specified

frankgonzalez  
#11 Posted : Tuesday, April 30, 2019 8:15:59 AM(UTC)
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Originally Posted by: TRW Go to Quoted Post
My current wife and I were married after I retired from the military. I don't plan on getting divorced but assume that since we were married after I retired, that my retired pay would not be subject to any shenannigans during a potential future divorce, but that my new and improved FERS annuity would be ripe for the picking.

Any thoughts on this?
Your thoughts are correct....

You should have voted Cthulu...the greatest of all Evils
TRW  
#12 Posted : Tuesday, April 30, 2019 12:47:16 PM(UTC)

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Playing with the numbers again.....

Retiring next January at age 60 with 35.1 years would be a net loss of $42 a month. The $16,940 would never get paid back.

This is due to:
- two less years TIS (35.1 vs 37.1)
- Using 1.0%, instead of 1.1% multiplier (must retire at 62 to use 1.1%) (35.1% vs 40.8%)
- Lower high-3 ($118K vs $125K)

Definately will wait until age 62.

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