Page 79 - The Informed Fed--Hearn (edited 10.29.20)

CSRS employees contribute 7% of each check, while the FERS
employees put in .08% of their pay. You will find the bi-weekly amount
on your paystub next to the Retire (#) designation. This amount ac-
cumulates all year and is added to the total at the bottom of your paystub
each January. Here’s what you need to know about this money:
• You are guaranteed to get it back in retirement.
• You have paid taxes on it when it was taken out, so it will be tax-
free when it is given back.
• You have an option to take it ALL as a lump sum at retirement
in place of receiving any additional pension. If you do not choose
the lump-sum option, a portion will be returned to you each year
tax-free as part of your pension, and the amount and number of
years will be based on the amount of your contributions and your
average life-expectancy at the time of retirement.
In other words, when you retire, if you have an anticipated life
expectancy of 10 years; they will take your total contribution, divided by
120 months, and that amount will be included as part of your pension
payments each year for the first 120 months of retirement. Part of your
monthly pension check will be tax-free for the first 10 years. If you die
prior to receiving the full reimbursement of your contributions, the
unpaid balance will be paid as a lump-sum benefit to your beneficiaries.
If you live beyond your life expectancy, your pension will remain the
same, but it will no longer have the tax-free portion from your
contributions. This has very small implications for the FERS or CSRS
Off-Set retiree, since the bulk of their contributions were paid to Social
Security, and not into the retirement fund. But for the Civil Service
retiree, this can have a huge impact in the later stages of retirement.

Look at this example:

Frank is a CSRS employee who retires at age 67 after 42 years with
the government.

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