Lump Sum Pension Payout?

Mixing social media and FERS together is always a can’t-miss recipe for entertainment.

“What should I do with TSP?” you ask complete strangers.

“Spend it all!”

“You should have done a Roth IRA and not the TSP. 401ks are a scam!”

“70% C, 20% S, 10% I” Without knowing a single thing about you, including your age!

”Never spend it. You’re going to have to pay Eleventybillion dollars a month in a nursing home when your 105 because everyone lives a long time now! And everyone will for sure be in a nursing home!”

“Roll it to an IRA and then give it all away to charity so you never have to pay taxes to ‘this corrupt government!’” (I saw this last week on FB)

In short, you get information about as appealing and useful as a sandwich made out of cigarette butts.

Recently I saw someone ask if they should:

“Get their monthly FERS annuity for life or take the lump sum payout.”

Which really messed with some people’s minds. As with every question on YouBookXerddit, you get every opinion possible. And accuracy is the apathetically-accepted casualty. The real goal is getting your opinion posted. Facts be damned. This question was no different.

Well, can you take a lump sum payout of your FERS annuity?

The answer is no, of course not.

Some private pensions and state pensions might allow you the choice. Say, $4,000 a month for the rest of your life, vs. a one-time payout of maybe $200,000, and then no future monthly payouts. So, $200k now or $4k a month for life. You’re left to do the math to see how long you are going to live, whether you want the money spaced out forever, or all up front to invest right now. You take whatever gives you the best value over the rest of your life.

We don’t have that option in FERS.

What we do have that sometimes can be confused based on the way the person is asking the question, is the ability to get a refund of all FERS contributions in lieu of an annuity. Like the money you’ve paid into FERS.

Spoiler alert: Hate to be the bearer of bad news here, but your annuity isn’t free. It isn’t paid 100% by the government. You pay a portion too. And some of you are paying way more than the person sitting right next to you, to receive the exact same amount of annuity because the rules all changed in 2013 and 2014.

Depending upon when you were hired and what job you do in the government, each of you is paying one of the following amounts of your gross pay each pay period:

.8%

1.3%

1.35% (Foreign Service)

3.1%

3.6%

4.4%

4.9%

For example, right before I retired, I was paying 1.3% every pay period. About $75. The person working in the desk next to me doing the same exact job, getting paid less was paying 4.9%. Over $200. I’m paying $75. He’s paying $200. Because the rates changed. Ouch! You new hires are paying way more than we were paying. But you’re getting the same percentage on the back end. It’s the continual watering down of FERS.

You can look on your SF-50’s in Box 30 to see what code you are in (there are LOTS of options. Some of the more common ones are M, MR, MF, K, KR, KF but there are many). That corresponds to what rate you are paying. And you should verify you’re in the right code, by the way, which is an article for another time. But I’ve seen mistakes caught way down the road where the government owed the employee a lot of money or where the employee owed the government a lot of money.

Anyway, back to the task at hand. If you leave the government before you are eligible to retire, you can take a refund of your FERS contributions. All that money you paid in over your career. Most payroll processors post the amount of money you’ve paid in over your career at the top of each pay stub, aka leave and earnings statement if you want to see what you’ve paid in. I was just looking at one a few minutes ago where he has paid a little over $30,000 in his career into FERS. Not unusual.

You don’t HAVE to take the refund if you have at least 5 years on. If you have 5 years on, you are vested in FERS and you’re eligible for an annuity check sometime in the future, even if you’re not eligible now. If you have less than 5 years on when you retire, they’ll Danny Ocean you (cash you out, on your way out) and you are no longer allowed to play at the FERS table.

There are many reasons why you might want to cash out. There are also many reasons to leave your FERS contributions in if you are vested. Maybe you know you’re never coming back. Or maybe you are planning on coming back later. If you do come back, your FERS contributions pick up where you left off, unless you cashed out. If you did take a refund when you left, you’ll have to make a redeposit of that money to get credit for that time again upon your rehire. This has been allowed since 2009 (Public Law 111-84)

Interest

I learned something new recently. If you worked at least one year under FERS, and you take a refund of your FERS contributions, you will actually receive interest on your contributions when you get your refund. The amount of interest is variable. Each year, the government assigns an interest rate based on government treasury interest earned in the Civil Service Disability and Retirement Fund (where all these FERS contributions are going to in the first place, and where all my monthly annuity checks come from now).

It was my impression that these contributions did not earn interest. See—you can’t even trust what I say! I know I’m not the only one because I’ve heard that taught in retirement seminars for years. That’s why it’s always best to ask for chapter and verse on the rules if you want to verify something. And just so we’re clear, Facebook and Reddit aren’t chapter and verse. Your HR isn’t chapter and verse. I’m not chapter and verse. You need to cite a website that ends in g-o-v.

To that end:

Federal Law governing interest on FERS contributions: 5 CFR 841.601

OPM page describing FERS refund and interest attributable.

Each year, this rate is published in the Federal Register. And OPM will also send out a benefits letter. For 2026, the interest rate is 4.25%. BAL 26-101, dated 10/1/25.

Your FERS contributions when refunded are not taxable (you already paid taxes on this money before contributing remember), but the interest you receive on the refund will be taxable.

There are other options you might have with some of this money, such as rolling it into an IRA or the TSP. Consult a CPA on that if you’re interested in that route.

How exactly do you ask for your money back?

The world might run on Dunkin, but the government runs on Standard Forms, and this is no exception. It’s always been curious to me that a sentient being, full of free will, intelligence, and compassion for his fellow man will be a complete stone until an SF-Whatever is placed in front of him. Then he is instantly an animated, contributing member of society, that is, for all intents and purposes, all-powerful in that moment.

Anyway, the paper equivalent of an AED machine to resurrect the OPM clerk’s heart into action in this instance so they can send money to you is the SF-3106. It also has some good information on it about rollovers and so forth, so read that as well.

Bottom line: Lump sum pension payout is not really a thing in FERS, but you can take all your FERS contributions out and never get an annuity if you’d like. So if you hear someone talking about a lump sum FERS payout, make sure they are talking about a refund of the money they paid in. Not a large, one-time, up-front, payment of their pension.

If you’re interested in pulling your money out and forgoing any future FERS annuity, talk to someone that understands finances and the time value of money before you do this.