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July 13, 2020

Federal Employee Retirement and Benefits News

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Articles

All the latest articles covering the information that you will be craving to devour will be available via this category. From getting to know how indebted our company is to reading about the presidential elections; from knowing about new retirement plans to finding out how security breaches can affect your life; you can browse it all!

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Will COVID-19 Impact Options for TSP Investors? Sponsored by:Bill Hoff

The CARES Act that came into effect to fight the pandemic may also impact the TSP investors who want to withdraw money from their TSP account but do not want to pay any penalty.

 What changes can change the impact and inclusions of the I fund?

One change is increasing the investment in international stocks, or we call them I funds in the TSP’s Lifecycle funds. The amount in the Lifecycle funds for foreign funds was increased from 30% to 35%. (This percentage increase is in terms of the I fund ratio to the C+ S + me ratio.) This new change came into effect on January 4, 2019.

With this, a higher allocation of equity funds in the Lifecycle Income Fund was also increased from the previous 20% to 30%. The change came into effect from January 2019 and will stay until July 2028. According to January 2020 reports, the L Income Fund has a target of equity allocation of 21.50%.

 Changing contents of the I fund

The government is planning to change the I fund (International Stock Fund). The I fund’s current plan is to measure the stock market performance of developed markets working outside the U.S. and Canada. 

The I fund has stocks from 21 developed markets representing more than 600 companies from large and mid-sized markets. 

 Things creating controversy over I fund index.

A group of senators is requesting the chairman of the Federal Retirement Thrift Investment Board (FRTIB), an agency responsible for the smooth working of the Thrift Savings Plan, to take back its decision to transfer the index tracked by the TSP’s I fund.

According to the new law, the new index will be completely different and represent more than 6,000 companies in the index containing 22 developed markets and 26 emerging markets. It will include large, medium, and small companies. 

Many people who read the new changes commented that the I fund should include emerging markets or separate funds for the emerging market. The new changes will consider these things. 

 $50 billion in federal employee retirement assets are easily accessible to Chinese companies.

This provision to change the I fund index has seen many controversies. Senators Marco Rubio (R-FL) and Jeanne Shaheen (D-NH) commented that changing the I fund to set a new benchmark index would expose more than $50 billion in federal retirement assets, including federal employees. Members of the U.S. armed forces would give birth to undisclosed material risks associated with many of the Chinese companies already listed on this MSCI index.

This controversy was the result of the ongoing market crisis due to coronavirus pandemic and China’s pivotal role in the spread of this virus. Nobody knows the impact of this new change and the controversy on the world and the TSP investors.

 When can we expect to see the changed new I fund index?

Several people reading news have asked multiple times when they can see the new I fund index coming into effect. To answer this question about the new index’s date, Kim Weaver, the Director of the Office of External Affairs for the Federal Retirement Thrift Investment Board (FRTIB), said that the board is working on this and will announce the date soon. 

It seems that the board is still working on the new index and has not come up with any specific date for implementation.

The new provision allows withdrawing from retirement accounts without paying any penalty.

The latest provision in the CARES Act will enable participants of any age to withdraw up to $100k from a retirement account without paying the 10% early withdrawal penalty if he or she is impacted by the coronavirus or was exposed to it. 

That means TSP investors can withdraw up to $100,000 from their account without paying any penalty.

Is this is allowed, and what is the process of taking this step? So far, no specific information on this question has been received. FedSmith asked the TSP what this rule means for the TSP investors. Ms. Weaver replied and said under the CARES Act, participants have this authority, and they have a project team to determine whether and how to implement the process. 

Though this provision looks attractive, withdrawing up to $100,000 from the TSP without paying a 10% penalty, it may be difficult for the TSP investors to pay the amount. It seems that this option will be open for TSP investors, but we don’t know if this will be available to TSP investors, and when it will happen.

The coronavirus is expected to impact our society in ways that we never expected a short time ago. Many TSP investors seeing the rapid drop in the stock market are riding on an emotional ride while watching their investment drop. The number of millionaires in the TSP club has fallen by more than 45% in a short while. 

While the percentage of Lifecycle’s I funds has increased, we have no idea of when the new I fund will come into effect. The CARES Act to fight the COVID-19 crises is expected to open up new withdrawal options for some TSP investors. It might be too early to guess how this situation will help TSP investors. More surprises are expected to come before the pandemic ends. 

After Coronavirus, Are There Any Positive Scenarios for TSP Participants? Sponsored by:Ray Yon

There are historical facts that can be used as a guide to interpreting the current situation. Experts have talked about the health policy and said that some communities were able to avoid the destruction caused by the 1918 Spanish flu and pandemics that hit the world later on. How could some commodities not avoid crises? Specific social distancing and preventive measures implemented at the time could have saved the situation. 

Likewise, experts talked about the economic front and said we should look to history for useful guidelines to deal with long-term investments like Thrift Savings Plan accounts. In a book just published titled TSP Investing Strategies: Building Wealth while Working for Uncle Sam, 2nd Edition, the writer talked about the research of 120 years of the U.S. stock and government bond index activity in context with the average, individual investors who invest in stock and bond index funds spending 30 or 40 years in service. 

To write this book, the writer did research and regularly analyzed U.S. stock and government bond index returns over every 20, 30, and 40 years from 1900 to 2019 to consider the content concerning investing environment. What the writer found after research can be used at this point also. Taking lessons from the last 50+ years of market crashes, we have seen some similarities and dissimilarities between that time and the current market situation. 

In my opinion, the last two significant crises seen in 2000-2 and 2008-9 cannot be compared to the current ongoing financial crises. The recent disasters were some of the most extended market declines ever seen in history, followed by the 1990s U.S. stock market decline after the 9/11 terror attacks clobbered the economy. The recent market drop was steeper – and resembled our condition after another couple of months of our current situation. The 2000s crash created a housing market bubble and a mountain of bad debt. Our present state has come about from an unexpected local event, rather than a financial or liquidity crisis.

Similarly, we cannot compare the current situation with the 1918 Spanish flu because, at that time, the market was already declining due to four years of war in Europe and elsewhere.

The 1957 influenza pandemic can’t be used as a guide because the stock market did not crash as fast as it has dropped this time. That time, the market dropped by 20% or so, but it quickly recovered losses afterward.

I believe we can compare our current situation with the 1987 market. That was the time when the market crashed by 22% in one day. To sum up, we can say the market dropped by one-third in all. But the market which collapsed in the 2000s crashes, recovered quickly. 

By “recover,” we mean measurement from the pre-crash peak account value to the post-crash return to that value. The C Fund took five years to recover from the 2000-2 crash and three years to recover after the 2008 crash, while after the crash in 1987, the C Fund took between 13 and 21 months to recover.

 

Let’s look at some case studies: four sample TSP portfolios.

Let’s start with a new employee who contributes 5% of an entry-level salary of $30,000. This salary may be more than the starting salary of a junior employee who worked in the early 1960s. For this example, we have taken a $30k starting salary as more understandable for current TSP participants. 

Comparing it with the government, this would equal $250 monthly contributions in the first year of service. Let us suppose the annual salary – and so the regular monthly contribution increases by 5% a year; most workers will get yearly increased wages, but this is a drawback for this example. For 35 years, total contributions would be about $271,000 and suppose 50% of this contribution match with the government means that TSP participants might have invested less than $136,000 of their salary over the discussed period. 

To justify this example, we worked on four portfolios. The first one invests all monthly contributions in the S&P 500 (based on C Fund). The second one spends all monthly donations in an account returning the 10-year U.S. Government Bond interest rate, matching the G Fund. The third one invests two-thirds in the S&P 500 and one-third in the 10-year bond, without any money rebalance over time. The fourth one invests in the same mix as the third one but rebalances income at the end of each year back to the same combination. 

What experts have to say

First of all, this market crash looks like a minor dip in an individual’s entire investing career. Still, at that time, that event felt like a considerable drop for the investor, as the total account value invested in the S&P 500/C Fund decreased to $565,000 from $761,000 in a couple of weeks. 

Well, that wasn’t bad enough. This was when the market dropped 22% in one day, and investors were in shock. That means their already-declining $700,000 portfolio was expected to lose more and go under $540,000 overnight. For an investor with over three-fourths of a million dollars in investments who hoped to turn this into a $1 million value soon, all of those thoughts were smashed. Does it sound familiar?

Despite that drop, the investor’s C Fund account recovered in 21 months, and a few months later, it crossed $800,000 in value. 

Other portfolios took less time to recover from lower values before the drop ruined their account balance. The 65-35 C-G Fund portfolio mix (not rebalanced) took about 17 months to recover, and the 65-35 portfolio took 14 months to recover. This portfolios were able to reach as high as $600,000 before the drop began. (The complete calculations, methods, datasheets, and technical details are mentioned in the GitHub repository of this project.)

The thumb rule is that the investor waited patiently and did not sell the stock funds and continued investing in the stock funds, even if they dropped continuously. These are essential points that we can also apply to our current situation. 

It’s important to note that if an investor is not investing in stocks at that time, he or she may take a longer time to recover from losses. But if you are selling shares when the market is low, you will never improve. 

It may not be highlighted in the chart, but it is essential to be humble throughout the process. Don’t think you have mastered this and can handle the bottom of the collapse. Some might be lucky, and some may end up reinvesting after the markets return to their average. We don’t know and can never guess the bottom stage of the situation. 

Well, they were taking an optimistic approach. All of us know that returns made in the past can’t help you predict future returns. Anything can happen in the investing world. Things may go up or down, but one thing is sure that things will come back to normal. 

Each 30-year period that the writer checked has its characteristics, but the main thing is that the U.S. stock index like the C Fund has performed better than the U.S. 10-year Government Bond index fund like the G Fund.

For our ongoing situation, I expect that once effective treatments are identified – or once an effective vaccine is distributed – people will see a significant sign of relief in both (general public mood and in public markets).

This is a challenge, and the best minds of this world are working on an effective solution. It is expected that it is just a matter of time before an effective treatment or an effective vaccine is made available to bring the economy back to its standard shape in both the United States and other developed and developing economies.

What if we are taking a pessimistic approach? As long as the brilliant minds of the world are working to find the treatment and are not able to find one, and if the virus continues to impact countries for the rest of the year or longer, we’ll have to stay in isolation and, in turn, our stock prices will continue to go down. We will see a downturn in the U.S. and world markets. Markets may drop by 50% from their early-2020 highs so that the recovery time would be longer in both human and economic terms. (From the historical data, we can see the absolute bottom of the 2009 crash was a drop of over 50% in market value, and the investors took 21 months to recover from the phase, then the economy started declining.) But we must mention here that after every great challenge that this nation has faced, our country has recovered and grown stronger and wiser than before.  

The main thing the writer found after studying 100+ years of U.S. stock and government bond index history, is that in all severe cases the total value of a portfolio consisting of the C Fund recovered after a significant drop within one to three years depending on where an investor is investing his or her money.  

The lengthiest declines take a year to three years to recover from losses, but the short-term drops sometimes recover quickly. That means the TSP participants should not sell their stock fund(s) and continue to invest. 

 

This coronavirus event is expected to impact all aspects of our financial lives as it continues to spread nationwide. Additionally, our TSP account values continue to decline, plunging the stock market, and impacting property values. Still, the important thing for all assets is to understand that, just because the market value is decreasing, it doesn’t mean that you suffered a loss. Your act of selling can only give you loss. 

You are advised not to sell your house if its value dropped by 20% or 30% if everything else remains equal, and you did not need to move. Likewise, you shouldn’t see the dropping value of your TSP account as a solid reason to sell to protect your savings. The situation will eventually change, and things will come back to normal. So wait for the day when the value of your house goes back up again, give it some time, and your TSP account value will go up similarly. 

Hopefully, New Lifecycle Funds Will Come to the TSP This Summer

Multiple offices are working day and night within the TSP agencies to bring a new series of L funds within increments of five-year tenure (Yes, you read it right! Five not ten years tenure). The government has been working on this plan for almost two years.

The TSP has an L 2020, L 2030, L 2040 and L 2050, and an L income fund. After a few months, the TSP will add six more funds with increments of five years:

  • L 2025
  • L 2035
  • L 2045
  • L 2055
  • L 2060
  • L 2065

Sean McCaffrey, the chief investment officer for the Federal Retirement Thrift Investment Board, said that the 2065 L fund is for the youngest participants who are members of the military. TSP created the L funds in 2005 with a mission to create a series of funds allowing participants to focus their investments toward achieving their own goals and timelines, considering risks as they come closer to retirement.

McCaffrey said this new addition of five-year increments would help them target their investments, considering a more specific retirement goal. 

He told board members that new and auto-enrolled participants would have their investments plan according to their age by default. Like always, all participants will be free to make their own decisions and make different choices while enrolling in their contributions. They are open to transfer balances to any of the other funds supported by the TSP.

These changes were planned now so that they can run in continuation with the L 2020 fund. The FRTIB will auto-enroll participants in the L 2020 fund into the new L income funds series when the change is required. 

The change-over was expected to begin from July 1, but the plans may need changes depending on the ongoing coronavirus pandemic.

Ravi Deo, the FRTIB’s executive director, said we are analyzing priorities every day, but they continue to change every other day. He assured that the board would update the changes whenever the schedules change because this will be a superb improvement to the TSP and will help participants. It will survive even if the situation becomes weirder than what they already are, said Deo.

The new series of L Funds will come into effect, but the TSP will also continue to administer some new relief measures for federal employees. They are already retired and included by the Congress in its $2 trillion coronavirus stimulus and emergency appropriations packages.

An Individual impacted by the coronavirus or imposed on the virus can withdraw up to $100,000 from their retirement accounts without paying any early withdrawal penalty fee, which is a 10% penalty fee. 

The only thing that needs to be taken care of is that you have to pay back in three years.

There is another provision that should help near-retirees and already retired employees to get hold of some of their savings. The stimulus package has waived off Required Minimum Distribution (RMD) rules for individual retirement plans, including the TSP plan. 

Bringing these two provisions into full-effect need time and energy for the TSP.

In addition to this, the agencies need to maintain TSP operations during the coronavirus pandemic. The FRTIB has come up with a plan that would help to keep contact and operations centers running, which may be done via teleworking.

Some of the contractors aren’t just ready for the telework, but the TSP has assured that the contractors should be able to provide support to participants’ transactions. Transactions via mail may take a longer time. 

The FRTIB said that the Response times on the TSP’s “ThriftLine” are higher because they receive a higher volume of calls than ever. The response time may increase if the centers report a high rate of absentees due to illness.

 

Some unanswered questions regarding retirement checks

One of the OPM’s spokesmen, Anthony Marucci, stated that the annuitants would receive checks continuously. He sent an email and said there had been no discontinuity of retirement services to the participants. 

Many federal employees who are retired will get their checks through direct deposit, and many are expected to get checks via an automatic transaction.

Some employees process annuitant claims via a paper-based process. OPM failed to take up their questions and respond appropriately.

Marucci said OPM Retirement Services is going by the guidance of maximizing teleworking where possible and maintaining check service to the American people. 

How To Take Money Out of Your Retirement Savings

When you withdraw your retirement savings while you are still employed, the entire process of withdrawal revolves between you and the TSP, which consider withdrawals according to each business day. To do this, you need to log in to My Account, or you can also call ThiftLine to ask for the status of your saving withdrawal request. This will help you get information on the date; your funds will be disbursed. It is expected that the system will take ten days from the day the TSP receives your request to the day you receive the check.

But the situation is different when you recently retired from federal service and want to withdraw money from your savings to get some retirement income?

Most new-retirees try to delay their application for the TSP withdrawal until their final paycheck has been deposited, and they get paid for all unused annual leave. Some of them delay withdrawals and wait for the last working day of a post-retirement second career or part-time job. Many wait to take Required Minimum Distribution age of 72 (or 70 ½ if born before July 1, 1949.) According to the CARES Act, an individual does not need to withdraw from his or her TSP account in 2020 for RMD (no restriction of age or employment status). The TSP has planned not to send any RMD payments for 2020. If you are forced to withdraw in 2020, the TSP will delay federal taxes at the rate according to the type of withdrawal you have made without considering your contribution to the RMD. You are free to move to an IRA or any other employer plan. 

Whatsoever your situation may be, once you have decided to take out money from your TSP account balance, you might start thinking, how long will it take to get the money? It can be just a few months since you retired, or maybe a few years. Then, the process of withdrawal will only be considered an in-service withdrawal process.

To withdraw money, you need to log on to My Account on the TSP website and check “Withdrawals and Changes to Installment Payments” links given on the menu. After doing this, you will get access to an online tool to start your withdrawal. The TSP has asked employees to provide at least ten days from the time they submit their withdrawal request to the time payment is sent. You will get a notification when your refund is disbursed.

According to Kim Weaver, the TSP director of external affairs, once-monthly payments are initiated, they are processed each month, but some holidays and other issues sometimes impact their routine work.

If you want your TSP account payments to coincide with your retirement, you must expect some delay between retirement and the time you raise your request to process your withdrawal request. This is the responsibility of your agency to notify you of the TSP of your separation. It’s generally advised that federal employees apply for retirement at least 30 days or up to 90 days before their pre-planned retirement date. It’s essential to check when the TSP has been notified that you’re all set to apply for a post-employment withdrawal from your savings account. 

I recently got an email from a federal employee, Bill, who talked about his discussion with his human resources office about the time it took to send a post-retirement TSP withdrawal. He was informed that his agency takes between six to eight weeks to notify the TSP of an employee’s separation. (This differs from agency to agency. Usually, TSP takes up to 30 days after the actual date of termination for this information to submit it to the TSP.)

Many employees retire but may not feel the need to withdraw money from his or her TSP account, but if you want to create an immediate source of income, look for an in-service withdrawal option before taking retirement if you are retiring after 59 ½ of age. 

Do you know you can also raise a request to get a loan from your TSP account? But you need to make loan payments before you take to retire, and you don’t need to pay back after you retire if you declare the unpaid balance as a taxable distribution. In this case, a $50 administrative fee is charged from your loan amount. And you get 90 days after the TSP receives the notification of your separation, so you get time to decide if you want to partially or fully pay back the loan and save it for later use. TSP withdrawal cannot be processed until your loan account has been closed (this can delay your money withdrawal by three months).

Things to Include While Doing a Retirement Creditable Service Check Sponsored by:Dennis Snoozy

If you are a federal employee planning to retire this year, this article is one of the best sources for you while doing your creditable service check. We want to mention that your creditable service should not only be checked while working for the federal government but also for employment that people tend to forget about—this includes part-time or temporary work while you were a student.

There are many more types of creditable service than what you think of. For example, creditable service includes working with the Peace Corps and Vista, the job as a guide of a United States capitol, working as a substitute postal employee, and many more.

The first thing you need to do is write down every job that you ever did in your career that has any connection to the government. Then tick or cross creditable services. You can get complete information about creditable service at 5 U.S. Code 8332 (readily available online).

This law is useful because its section of the law includes several pages that help you get information on different types of jobs that are eligible for credit inclusion in calculating your service period and are used in your annuity computation.

The next step should be to check your Official Personnel Folder to recheck if it contains all documents of your services.

You may find that some of those services were creditable only for a specific period, and some aren’t.

You may have to contact your personnel office to find if your service comes under creditable service or not. If you took no retirement deductions from your pay, you might be asked to deposit to the Civil Service Disability and Retirement Fund to get some credit.

Everything depends on when you performed your service and the type of retirement system. You will get credit for the time in determining your service duration, but it will not be used at the time of your annuity computation unless you have made any deposit.

There are creditable services covered by other federal retirement systems like TVA or the Foreign Service, provided you aren’t receiving any federal retirement benefits.

To get credit for your services in this case, you need to refund your contributions and deposit them with interest under the civil service retirement fund.

Don’t do that until you are mentally and financially prepared to walk out the door. Retiring without a credit check will only give you credit for some service and delay your first annuity payment until your work history is sorted out.

TSP Delays International Stock I Fund Change due to Pressure from White House

This program’s governing board voted for the delay after President Trump made nominations for three new members for the five-member board replacing members whose duty term has expired. Following directions from White House officials, Labor Secretary Eugene Scalia told media that the TSP’s governing board would stop making further arrangements to bring the changes approved in 2017 and then reconsidered last year.

 

The TSP released a statement and said that due to a different economic environment and the impact of widespread COVID-19 pandemic and the nomination of three new Federal Retirement Thrift Investment Board Members, the changes to implement the international stock I Fund have been delayed. The TSP further added that the officials expect to make the change to the broader I fund index this year, but once the Senate confirms the nominees, the board may vote to cancel the changes. It may take months for nominees to be appointed; Scalia’s letter mentioned that this process might take time. 

 It’s not clear how the board will react to the changes after the direct order. For now, the board has decided to delay the change without an acknowledgment by the TSP that the Labor Department has the authority to route its investment policies.

Thirteen Things You Should Know about In-Service Withdrawals from Your TSP Sponsored by:Bill Hoff

Do you know TSP participants can withdraw from their Thrift Savings Plan while working, but only under certain conditions? In this article, we have listed 13 things that everybody should know about in-service withdrawals.

1. Differentiate between types of in-service withdrawals: age-based or hardship.

2. In-service withdrawal depletes your TSP account permanently, and it cannot be paid back.

 

3. To take an age-based withdrawal, you must be 59 ½ years old.

4. You are allowed to take only four age-based withdrawals in a year.

5. For federal income taxpayers, an age-based withdrawal is an eligible rollover distribution. 

6. You will have to pay federal income taxes in an in-service withdrawal (exempting qualified withdrawals from your Roth balance).

7. You will have to pay the penalty on hardship withdrawals if your age is under 59 ½ at the time you take an in-service withdrawal.

8. Like other withdrawal options, an in-service withdrawal will be deducted proportionately from your Roth and traditional balances unless you mention it. 

9. You can opt for a hardship withdrawal for these four reasons:

a. Negative cash flow

b. There will be legal expenses in context with separation and divorce

c. Unpaid medical expenses not covered by insurance

d. Due casualty losses not covered by insurance

10. A hardship withdrawal depends on your:

a. Hardship demonstrated

b. Contributions and earnings

11. No documents are required for a hardship withdrawal, but you will be asked to swear, under penalty of perjury, that you’re true to your word.

12. If you are under the Federal Employee Retirement System, you need to get signed, notarized consent of your spouse. 

13. The TSP publication, In-Service Withdrawals (https://www.tsp.gov/PDF/formspubs/tspbk12.pdf), has given complete information on the topic last updated in September of 2019 including all changes following the TSP Modernization Act.

Make sure you have not depleted your retirement security by taking money out of your retirement savings while taking an in-service withdrawal. 

 

Things Not To Do While Managing Your TSP During A Pandemic Sponsored by:Ray Yon

Kim Weaver, the Director of External Affairs of the TSP, while giving an interview on the TV show Government Matters this week, said that the government saw a hit in the inter-fund transfers. But that spike has been reported only from 5% of their participants. 95% of the TSP participants are sitting idle and doing nothing. But she advised people to stick to their old plan. 

It is natural to worry about the volatility of the stock market amid the coronavirus pandemic and worry about retirement in general. Kim received an email from a client this week, and we will discuss the email and solutions suggested by Kim. 

One client working under the Federal Employees Retirement System (FERS) had already submitted her retirement paperwork in December 2019. She worked for the federal government for 22 years and will retire on March 31, 2020. This decision was made long ago, so she applied for her Social Security benefits and will be receiving her benefits from May 2020.

But, as all of us know about the third leg of our FERS retirement, the TSP, the client took her TSP last September and gave it to a very reliable financial adviser to manage for her. She also has some of the remaining TSP funds matured since September 2019. She had been actively saving in her TSP since she started her job with the government and actively contributed to the catch-up contribution. Now she can see her retirement savings declining day by day, and she doesn’t have any time to make it up, like the time she had when the market plunged the last time. 

According to her understanding of the documents, her paperwork has been reviewed and approved by the government. Still, she has not received the estimate of her annuity due to the agency’s software problems that the agency uses to calculate the annuity. She has no idea about the money she will receive monthly. She is in the middle of the retirement process, and it’s expected to be completed electronically if things go as planned. It’s too late for her to stop or delay her retirement at this point, so what should she do? She needs to look for a part-time job after retirement, and she didn’t plan on that! 

Kim replied to her email and said, “If you think you’re not ready to retire, you still have time to hold your retirement application. Taking retirement is a voluntary action, and you haven’t left your job yet. This guidance comes from the Office of Personnel Management only: an agency must allow a federal employee to hold or withdraw his or her retirement application before the effective date of retirement, giving a valid reason and explaining the reason in writing to the employer.”

Though the retirement processing will go slowly during this ongoing period of world crisis, if this situation worries you or if you think that you don’t have a 3- to 6-month emergency fund, you can delay your retirement until you feel financially strong enough.

In the mail, the client mentioned that she withdrew most of her money out of her TSP and put it in the safe hands of a very reliable financial advisor. Kim said that when any financial professional asks you to do so, they should give an apparent reason for their activity.  

Kim said that a client’s financial advisor must have recommended some options to rebalance your investments corresponding to your retirement plans for this year. That doesn’t mean you would stay safe from the declining markets, but you should have some savings in your account to keep you stable while you withdraw savings from your retirement account without being impacted by the ups and downs of the changing market. 

“It’s common for professional financial advisors to contact their clients in situations like this and give them some certainty. I hope your financial advisor contacted you,” said Kim. Those who plan to retire or have recently retired from services must check these tips from the below-mentioned resources: 

  • Janet Novack has written an article on ways that coronavirus will impact boomer retirements. He has written in his report that in times like a “bucket strategy,” allocating retirement savings always work well. Taking an example, an individual nearing or already retired should save money for at least 3-5 years of essential expenses in cash or equivalent to cash like laddered CDs or Treasury bonds. 
  • Josh Sacndlen of Heritage Wealth Planning said this bucket strategy helps you to segregate your current income needs into an emergency account. In this way, you don’t need to worry about times like this when the market is getting crushed, and buying food is difficult. 
  • Mark Keen has talked about many TSP issues that federal employees and retirees face in a webinar at the NARFE Federal Benefits Institute on February 27. Its saved copy is available for free to members of NARFE.
  • Micah Shilanski said that TSP account holders who reserve a long-term plan for their savings and investments are not scared of the current market volatility. He further added that such employees in this condition consider this time as a buying opportunity because the stock market is low. He and Kim will be coming up with videos on March 27 and March 31, addressing retirement planning issues during the current situation. 

Last but not least, the reminder from the TSP looks relaxing during this time of market uncertainty: By the time you understand the situation and plan to react to it, the entire market situation might have changed. If you skip one or two small ups in a decade, your TSP investments may give the average market return for the entire term. It is advised to stick to your plan and don’t attend these bouncers. 

States That Do Not Tax Social Security Benefits Sponsored by:Wray Mathews

COVID-19 has created chaos worldwide, as it has changed the socio-economic landscape around the globe. Due to the lockdown situation, most of the population of the world has been confined to their homes, as they can cause the spreading of the virus. So, in this situation, unemployment is hanging over the government’s heads like a dangling sword.

Now, unemployed people are looking towards their government, and up to a considerable extent, the government of the USA is meeting the expectations of people. Unemployment payments and Social Security benefits from the state and federal governments cause colossal convenience for people to live their lives.  

Now, here comes a question in mind whether Social Security benefits are taxable, or are they exempt?

In answer to this question, we will tell you about 37 states that do not tax Social Security benefits. Let’s look over these states and see how they proceed.

What are 37 states that do not tax Social Security benefits?

Social Security benefits are serving millions of people in the USA who have no other source of income. Although these are meager benefits, their addiction to the other payments indeed causes a handsome amount. To have maximum benefits out of these Social Security benefits, people want these benefits to be free of taxes so that they could make maximum use of this money.

So, keeping in view the needs of people, 37 states have declared Social Security benefits as non-taxable income, and soon, one more state will join this number, and the total amount will be 38.

Let’s look over these states who do not demand any kind of tax on the payments gained from Social Security benefits.

  1. Alabama
  2. Alaska
  3. Arizona
  4. Arkansas
  5. California
  6. Delaware
  7. Florida
  8. Georgia
  9. Hawaii
  10. Idaho
  11. Illinois
  12. Indiana
  13. Iowa
  14. Kentucky
  15. Louisiana
  16. Maine
  17. Maryland
  18. Massachusetts
  19. Michigan
  20. Mississippi
  21. New Hampshire
  22. New Jersey
  23. New York
  24. Nevada
  25. North Carolina
  26. Ohio
  27. Oklahoma
  28. Oregon
  29. Pennsylvania
  30. South Carolina
  31. South Dakota
  32. Tennessee
  33. Texas
  34. Virginia
  35. Washington
  36. Wisconsin
  37. Wyoming

Apart from these 37 states, West Virginia is also in the pipeline to remove taxes on Social Security benefits. In 2020, these taxes will be cut by 35% of the total charges. In 2021, about 65% of the total tax will be deducted from the total tax. While, in 2022, the total tax on Social Security benefits will be uplifted in West Virginia. 

Something that comes to mind is whether these people will keep on receiving non-taxable Social Security benefits for the whole of their lives?

How long will these people enjoy non-taxable Social Security benefits?

Living in any of these mentioned states, you don’t need to worry about the local government money that you have as a Social Security check. But it does not mean that these people will not be taxed by the federal government, as there are strong chances of federal taxes on such people. 

For the sake of peoples’ welfare, these taxes only apply when your income meets a particular criterion; otherwise, below that value, your income will be a tax-free income. 

Following are the possibilities for taxes:

  • Single filers will have to face up to half of their benefits taxed if their income is ranging between $25,000 to $34,000. Meanwhile, for these filers, if their income is more than $34,000, they will be taxed 85% on their benefits. 

  • On the other hand, if we talk about a married couple, they will have to pay the tax up to 50% in case they are earning from $32,000 to $44,000. Meanwhile, if their earnings exceed $44,000, they have to pay 85% of the tax on benefits. 

However, these are the ratios of taxes that people pay on their earnings. But these taxable earnings are not calculated, as they are computed along with half of your Social Security benefits and all other sources of income. Meanwhile, earning from non-taxable resources is also added in this calculation. So, this is how taxable income is concluded by summing up all other sources of income. 

Moreover, if you still have a problem with calculating your taxable income, you can do using a calculator readily available on the internet. 

Should someone move from one state to another to avoid taxes on its Social Security benefits?

As has already been said, 37 states do not charge any tax on Social Security benefits, and West Virginia is ready to get mainstreamed in this category in 2022. But the remaining states charge taxes on the Social Security benefits, and people appear to have questions in their minds whether they should move from one state to another or not to avoid paying taxes on their Social Security benefits. 

Many benefits are counted in calculating the taxable income, and moving from one state to another might save you from local government tax, but you still have to pay your federal taxes. Therefore, you should carefully take this decision about whether you should do it or not. 

Of course, you may get rid of paying your taxes to the state in the name of Social Security benefit taxes. 

Final Words:

So, among the crisis of COVID-19, people are more concerned about the tax status of their Social Security benefits. But, fortunately, there is no adverse impact of COVID-19 over this issue. Moreover, the more significant benefit will be implanted to the residents of those 37 states which do not charge any tax on the Social Security benefits. 

Moreover, West Virginia will also be among these states by 2022. So, if you are overly concerned about the tax status of your Social Security benefits, and you do not want to pay tax on these benefits, you might get your way to any of these 37 mentioned states, as you will not need to pay these taxes charged in your state. 

The Economic Crisis No one Really Knows About – Expected to Come Soon Sponsored by:Dennis Snoozy

The ERISA Industry Committee (ERIC) is a committee of large employers sponsoring benefit plans for their workforce through their multiemployer pension plan, and in association with the Retirement Security Coalition, containing a group of employers, political leaders, and labor unions to request Congress to fix the multiemployer pension plan crisis. The efforts of working with Congress have been redoubled to fix the problem as early as possible this year to get to a bipartisan compromise and repair the broken chain. 

The scope of this (multiemployer pension crisis) is enormous and will leave everyone, including workers, retirees, employers, state and federal governments, and every day the situation is getting worse. There are over 6 million retirees and 4 million Americans who depend on multiemployer pension plans, and many of them have run out of money. 33% of workers participating in this plan are on the path of insolvency. The crisis worsens when the federal backstop financially supporting dropping plans (the Pension Benefit Guaranty Corporation or PBGC) is also expected to drop by 2025. According to a report from the PBGC, the expected loss to the economy of the U.S. could be somewhere around $66 million. 

Hundreds of thousands of people have been forced to cut down their retirement benefits, and thousands may soon see a similar situation. For example, some retired workers and working individuals have already started receiving less than 50% of their monthly pension benefit in New York City. A similar situation is seen in Tennessee, New Jersey, Michigan, Pennsylvania, Oregon, etc. The money that these employers need to pay for their withdraw from these plans is increasing, and they are asked to pay more than the actual value in most of the business.

If Congress cannot compromise with the bipartisan this year, the workers, employers, retirees, and the economy’s risks will continue to grow exponentially. Even though the Central States Pension Fund is the most massive multiemployer pension plan, this fund is about to collapse. With participants’ strength of more than 400,000, this plan is expected to collapse in the next five years. Fifteen states will face the worst effect of this phase. The entire country will be impacted by the so-called domino effect that includes losses of jobs in all 50 states, an increase in unemployment, and the billions of dollars losses in tax revenue.

PBGC Director Gordon Hartogensis recently gave a statement and asked Congress to act fast and said only a bipartisan compromise could provide us with a chance to succeed, and this is the perfect time to renew bipartisan efforts like these in such a serious situation. Hopefully, all of us will agree to this. 

Americans are shouting out for a bipartisan compromise. The Retirement Security Coalition created a poll and found that 9 out of 10 voters favored protecting America’s retirees in the hour of crisis. All of them understand the impact of pension failure on retirees and their ability to survive. The poll results supported a comprehensive, compromise proposal and some changes that may help protect retirees, employers, and workers in the long term.

Fortunately, we have paths ahead to get a bipartisan compromise that can fix the financial crisis for all participants of the multiemployer pension plans. Senate Finance Chairman Chuck Grassley and Senate Health, Education, Labor, and Pensions Chairman Lamar Alexander proposed a comprehensive plan to empower the entire multiemployer pension system. In 2019, the House implemented its legislative solution to the crisis. The right legislative solution will protect retirees, current workers, and communities from the effects of this financial crisis for future generations, maintain the PBGC’s solvency, and add more tools to loosen liabilities. Now everyone is expected to come together and support people who are suffering during the crisis. 

The support system should be robust, even in politically divided surroundings. Both parties must agree that the multiemployer pension crisis should be fixed for retirees and achieve the global economy’s long-term success. Americans may not be able to bear the burden of recession. Congress must take the opportunity to use its new legislative developments as a platform for compromise to protect millions of Americans depending on the plan in the hour of crisis. 

Retirement during COVID-19 Sponsored by:Michael Sesler

The outbreak of COVID-19 has made considerable changes in socio-economic landscapes worldwide. The retirement of federal as well as private employees is in an uproar due to the prevailing situation.

 

If someone has planned to be retired earlier than its tenure, he/she must be ready to bear the consequences given below. Moreover, those who have completed their mandate must face uncertainties due to meet in this pandemic.

 

According to Alicia Munnell, director for the center of retirement research at Boston College, “Everything is going to harm retirement security.” In short, there is not even a single situation that is in favor of those who are going to have their retirement during COVID-19. Now, let us look over what would hit the retirement benefits of federal and private employees.

 

What problems are to be faced by the employees retiring now?

 

At this time, taking retirement is not a prudent choice due to specific issues. Let’s discuss these issues that raise the question of the integrity of retirement during COVID-19.

 

Are you ready to face the delays?

 

In the wake of COVID-19, the federal government has issued directives for employees to leave their offices and be confined to their homes. In this situation, how would you get all your retirement procedures done?

 

Of course, at this time, there is no way of having facilitated documentation for your retirement. On the other hand, a report from the government executive also accepts that there will be delays in the paperwork of people who will retire during these chaotic circumstances. The report expresses its concerns in the following words:

 

“Those employees who had the unfortunate timing to retire during the furlough had to live with uncertainty about the status of their retirement claims.”

 

Similarly, the Office of Personnel Management also says that there could be delays in the processes required to achieve benefits associated with retirement. And the reason OPM office-related for this issue is that still a huge part of retirement comprises of paper-based work, and this paper-based work is not possible without the presence of employees at their offices. 

 

This is the situation that federal and private employees will have to face. Individual employees have been put together because most of the private employees carry a 401(k) plan, and the 401(k) plan also requires documentation before having retirement benefits. These delays will equally affect the interest of employees who have served their terms and have now entered the retirement phase. 

 

So, these are the difficulties that have to be faced by federal and private employees. Now let us talk about those employees who are planning to go for the option of early retirement. 

 

Are you planning for early retirement?

 

For sure, you might have made this decision keeping in view your convenience, but in the aftermath of COVID-19, early retirement is nothing more than stupidity. So, if you are planning for early retirement, you must not forget about the uncertainties that you have to face after retirement. 

 

Uncertainties for people planning for early retirement

 

Whether you have a 401(k) plan, TSP, or annuities, you must not escape the adverse effects on the economy inculcated by COVID-19. So, let us see one by one how this dilapidated economic condition proves you wrong in your early retirement decision. 

 

1. 401(k) plan and COVID-19-

 

401(k) and Thrift Savings Plan, both of these have a lot of things in common; the only difference is that TSP is offered only to federal employees, while the private employees follow the 401(k) plan. Typically, a 401(k) plan is a surety for private employees after retirement, and the employer sponsors this surety for its employees. 

 

On behalf of its employee, the employer invests money in some reasonable way from where handsome interest is possible. When retired, the employee gets that money in the form of security that avoids any financial problem in their retired life. 

 

According to the conditions and circumstances, a vast number of employers have terminated the 401(k) plans of their employees, claiming that they have not enough investment to invest on behalf of their employees. Although the federal government encouraged employers to keep the 401(k) plan of their employees continuing, a considerable number of employers have taken their step back.

 

If you are planning to take early retirement, please make sure you have something in your hand. And if you do it without thinking about this thing, you may leave a lot of money on the table that was yours just because you could not wait for the right time.

Therefore, this is how COVID-19 has hit the 401(k) plan, and it would have never been a reasonable choice to avoid the ground realities.

 

2. Thrift Savings Plan and COVID-19

 

Thrift Savings Plan, or TSP, is a program that has expressly been made for federal employees, from where they could have a summed-up amount on tax-deferred payments.  

 

In the tenure of service, a federal employee invests in TSP, and every month puts a particular part of its income in its TSP account. Later on, consulting with a professional advisor, this saved money is invested in funds like G fund or another fund.

 

According to the interest rate of the market, these funds allow you to have the benefit that you earn in the form of interest, and this benefit keeps on accumulating in your TSP account, which cannot be used to withdraw money before you retire.

 

In the wake of COVID-19, the federal government removed all restrictions from using money from TSP accounts. A lot of federal employees utilized this so-called opportunity and started consuming the money that they had saved for rainy days.

 

Being a federal employee, if someone goes for the option early of retirement, he/she might not have enough money to secure their life after retirement.

 

3. Annuities and COVID-19

 

Whether you’re an employee or have your own business, you would never like any situation when you have to worry about money to fulfill your basic needs. In such cases, an annuity appears to be the best option to choose from.

 

The annuitant enters a deal with the annuity company, and the annuitant gets an account where the annuitant deposits money every month. After putting that money into the account, that money belongs to the company, and the company invests that money.

 

This is how you keep on depositing money, and the company lends it to someone at a reasonable interest rate, and the company keeps on saving that accumulated money. Once the annuity is mature, or the annuity reaches the annuitization phase, the annuitant could withdraw that money from its account.

 

So, in the wake of COVID-19, many employees who have annuities as a saving plan will not be able to pay their due amount, and their plan will deteriorate.  

 

Although they have a contingency plan after their early retirement to pay the dues of their annuities, they must think that their contingency plan would work in these difficult circumstances.

 

However, you are rich enough to pay the due amount of your annuity plan; you should still think again before going with the option of retirement. Therefore, this is how employees having annuities as their saving plan must not leave their job in this situation.

 

Final Words:

 

COVID-19 has changed the behavior of the global economy, and this change adversely affected every aspect of life. Among all these crises, one of the most significant blows is faced by federal and private employees who served their tenures and were planning for early retirement. 

 

Those who are advertently committing the mistake of retiring early might have to face severe economic uncertainties in their retired lives, as neither 401(k) plan nor TSPs are stable. 

12 Most Important Things about Installment Payments from Your Thrift Savings Plan Sponsored by:Mark Heinrich

The federal government has taken measures to contain the coronavirus. There have been several changes in the payment systems since the coronavirus pandemic clobbered the economy. We have seen many things changing in the Thrift Savings Plan also. To make things simpler, we have come up with 12 essential ideas about the installment payments from the TSP that everyone needs to know: 

1) You can choose your payment intervals from three different options: monthly, quarterly, and annually. Before the TSP Modernization Act came into effect, the installment payments were only monthly. The monthly payments option is the most popular one because retirees get their FERS pensions and Social Security benefits once a month, so taking installment payments periodically from the TSP makes sense.

2) Federal income taxes are withheld from installment payments more than ten years and from life expectancy-based payments in case you are married, filing taxes jointly, and claiming three dependents. 

Under these circumstances, your taxes will be taken seriously, and you might end up paying the tax penalty. In case your installment payment lasts more than ten years, don’t forget to save some money for federal income tax withholding.

3) Federal income taxes are withheld from installment payments that will prevail less than ten years at a 20% level. You can request that they are withheld from the fees, but it cannot be reduced. 

4) The TSP does not refuse to accept state income taxes. If you are living in a state that applies taxes on your retirement income, you need to be prepared to pay estimated payments to your taxing authority.

5) Your spouse needs to sign and give notarized consent for any TSP withdrawal.

6) Installment payments can be made according to the IRS Uniform Life Expectancy Table or in a specific dollar amount. 

7) You can make or stop installment payments at any time, but you cannot switch from a fixed dollar amount paid to payments according to the life expectancy table.

8) Payments that are supposed to last less than ten years qualify for rollover distributions. Payments that may last ten years or more than that cannot be rolled over.

9) If you fail to specify separately, installment payments like all other withdrawals will be taken proportionately between your traditional and Roth balances.

10) You are allowed to change the payment source (Roth or traditional balances) at any point in time.

11) You may or may not choose the type of funds from which your installment payments are taken. All TSP withdrawals will be made proportionally based on your account allocation.

12) Installment payments are the most talked-about options of the TSP withdrawals

Deciding Your Retirement Age – 3 Things to Consider Sponsored by:Todd Carmack

At what age are you going to retire? This is a question that plagues many, and it’s something we begin to think about from very early in our career. One of the worst things you can do is select an arbitrary age just because it sounds good; research is always the key to a firm decision. If you choose the wrong age, you face the potential to run out of money or regret working too long when you had enough saved much earlier.  

 When making this big decision, we think there are three primary considerations: 

1. Life Expectancy 

This isn’t something that anybody enjoys, but we recommend thinking about your health and how long you expect to live. For those in great shape and with a good family history, you’ll be planning a longer retirement than somebody in poor shape and with a lousy family health history. If you fall into the latter category, an earlier retirement will allow you more time to enjoy life towards the end. 

Recently, the Aegon Center for Longevity and Retirement said that four in ten people now retired were forced into the decision earlier than initially planned. Health problems are the most common reason for early retirement, so consider your health and the likelihood of developing issues.

2. Savings 

While some people have good savings, others are forced into working longer because they need the time. Unfortunately, we can’t provide a single number for the amount you need to retire. It depends on your spending habits and plans for retirement (and expected length of retirement); one Charles Schwab survey predicted a requirement of $1.7 million in savings for the average worker. 

To find out the status of your potential retirement, we recommend using a retirement calculator. After entering your retirement age, it will show how much you need to save per month. Play around with different ages and compare what you need to save next to your current savings plan. 

3. Social Security Claiming Age 

For millions of people, Social Security is an integral part of retirement. Not everybody retires and immediately starts claiming, but there’s certainly a relationship between the two. Full retirement age (FRA) is as follows: 

 • Born after 1960 – 67 

• Born before 1960 – 66 (or 66 and a handful of months) 

You can wait until FRA to get the full benefit amount or claim after 62 to get a reduced amount. If you’re able to wait until the age of 70, we highly advise it since you can potentially earn one-third more per month. 

Again, the time you start claiming Social Security benefits will depend on your current savings, life expectancy, and other plans. Some people hold off on benefits because they want bigger checks (and this also means waiting on retirement too). 

 Summary 

We know it’s stressful, but we urge you to consider retirement carefully. Most Americans are behind on retirement savings, so don’t panic. Plan as early as you can and take action (knowing you’re behind and taking action is better than not knowing until it’s too late!). If you need help, don’t be afraid to contact a financial advisor for tailored advice. 

Federal Employee Health Benefits (FEHB) and the Advantages Sponsored by:Mark Heinrich

In the wake of COVID-19, economists have warned people about the stretching of a severe economic recession. In the viewpoint of most of the analysts, this recession due to COVID-19 will be the biggest economic recession after the crash of Wall Street in 1929. Although the bailout package of $2 trillion from the Senate would provide people with economic relief, the situation is still not in favor of the masses.

So, sticking to my topic of the day, in all these crises, the presence of Federal Employee Health Benefits (FEHB) is quite a relief for the people who could benefit from this. The mainstreaming of this department was done in September 1959. According to this provision, on-duty federal employees, retirees, and their family members were subject to this provision. They were allowed to take health benefits under this provision of law.

Still, this is the most extensive employer-sponsored health insurance in all over the world. Now, in these severe health conditions, this health benefit appeared to be one of the biggest blessings from God. For the time being, there are about 280 different health plan offerings available in the program, and most of them do belong to the Health Maintenance Organization (HMOs).  

Therefore, in this article, we will let you know how the program proceeds, and people can take advantage of this facility.  

Enrollment Procedure in this Plan

The enrollment procedure for this plan is easy to adopt. The employee who starts a job under the federal government may get eligible members of his/her family enrolled. The enrollment has to be made within 60 days since it’s based on your start date. If you cannot get someone enrolled in the program, don’t worry, the government also facilitates you in this option.

 

This enrollment can be made in the session called annual health benefit open season. This open season continues from the second week of November to the second week of December. During this period, you can get all those family members enrolled that were not present in this list earlier. Moreover, the enrollment procedure remains the same, whether you get to enroll in the early days of the employment, or in the annual health benefit open source.

On the other hand, the facilities that are provided to the enrolled people have nothing to do with whether enrollment was done earlier or later. In short, the advantages of this process remain the same throughout the eligible family members. In case of any treatment, they need not waiting for confirmation from any source. Meanwhile, there is no waiting period, and no medical examination is required as a prerequisite of the treatment through this plan.

Enrollment Options

Hereunder this plan, there are three enrollment options, and you can choose any of them keeping in view your needs:

#1. Self Only

This enrollment plan includes no one other than you, and this is possible only when you have no one in your family, or you deliberately skipped members to be enrolled in the plan.

#2. Self Plus One

Under this option, the employee can choose one more person that will be subject to the treatment under this provision of the law. That one person may be anyone from your family.

#3. Self and Family

This is the most picked option, as, under this option, the employee has a facility of choosing all family members: spouse, children, and other people whose age is not more than 26 years. Under this option, it becomes impossible for the federal employee to get their parents adjusted in the program, as the issue regarding their age appears to be a hurdle.

So, these are three options that are intended to benefit you when it comes to any medical emergency to you. Moreover, if seen in the present day’s perspective, it will be evident that this provision of the law is not less than any blessing for those federal employees who themselves or their family members fell ill due to COVID-19. They all got the best treatment without spending 70% of their total medical bills.

The facility of changing enrollment options

It has already been told that there are three options, and any of them can be picked. But here is offered one more facility for the changing of enrollment option. For example, the earlier you choose the option of self only, and later on, you want to change that from self only to self plus one, there will be no problem in doing this, and you will conveniently get your status promoted from self only to self plus one.

On the other hand, this decision can be taken, keeping in view the anticipated upcoming medical expenses.

Premiums

According to the provision of the law, this plan works on the contribution from both sides, the federal government and you. The government is subject to pay about 70% to 75% of total medical bills that you have to face in hospitals, and you have to pay only 25% to 30% of that amount. In short, you enjoy a massive benefit from the government.

Postal service employees

It was again a great step that had explicitly been taken keeping in view the needs of the postal service employees. Postal service employees have been provided with the facility that they will pay less than other federal employees, and this advantage will remain there unless they are in service.

Benefits associated with contracts

Every year the plan holder visits the office of personnel management (OPM) for renewing the contracts. At this time, the contracts are renewed, and terms and conditions on the treatment facilities are negotiated once again between the OPM and that federal employee. Moreover, OPM has an executive authority of resolving the issue over the coverage between the plan holder and the plan.

Final words

 Since the Senate approved the bill of Federal Employee Health Benefit in the USA, the present time is that time when it is benefiting the federal employees the most, as such a situation did not erupt in the past. Now, this plan is covering the medical bills of thousands of employees. So, it could be said that it was a laudable step taken by the senators of that time. 

What Next to Manage Your TSP: Buy, Sell, or sit Tight? Sponsored by:Ray Yon

To get an answer to this question, we contacted Abraham Grungold. He is a successful TSP investor and a financial coach known for his thoughts and fantastic words of wisdom. He answered this question and said, “For employees under the Federal Employees Retirement System (FERS), it is the best time to buy.”

The ongoing COVID-19 pandemic is scary. People are losing their lives, and that should not be treated lightly. Everyone needs to stay cautious with his or her personal and financial health. This many end in the coming weeks or in months. The economic health crisis has undoubtedly taken everyone on the chin. Everyone feels knocked down, but we will return and become sharper after the outbreak is over. As far as employees under the FERS system are concerned, employees who have a Thrift Savings Plan will buy in a downward market. It doesn’t matter if you are one year away from retirement or more, it’s a perfect buying opportunity. Grungold said he has transferred his cash balances to the C fund and changed his future contributions to buying C fund as well. For his personal IRA, he is purchasing every time the Dow drops another 10%, buying when the market is low 10%, 20%, and then at 30%.

At his financial coaching site, he has both clients who are federal employees and non-federal employees. His advice is not to sell anything to all clients because you don’t lose anything when you don’t do anything. There are clients he had told that when the Dow dropped to 30%, it is the time to buy. The financial expert’s advice is to buy when the market is low. One of the federal employee clients transferred 50% of his account into the C fund. Another employee, who has both C and F funds, was advised to increase his contributions to the maximum since he could afford to do so.

I also have two non-FERS clients — one purchased a considerable amount in an S&P 500 fund with Vanguard, and the other is waiting to see a drop in the S&P fund. It’s advised to invest in small quantities, and when the market is low, 20-30% of any purchase is a good option. For many non-fed clients who don’t have much cash, Grungold suggested high-quality value stocks going down 25-30% but would come up quickly after the virus dwindles.

“No matter what type of decision you take on, the most important thing is that you feel good and comfortable with whatever you are doing. The money is yours, so the decision to invest it should rest in your hands only.”

Federal Employees – How to Get Financial Help Sponsored by:RICARDO VIADER

In recent months, times have been trying for people all over the country. For federal employees, the coronavirus pandemic has brought severe financial problems. Thankfully, there is help, and we’ve listed some options below! 

TSP and CARES Act 

For those in the TSP, it’s easier than ever to access savings. Thanks to the CARES Act, help is available if you can prove financial loss as a direct result of the pandemic or show that you or a family member has received a positive COVID-19 diagnosis. 

Typically, there’s a 10% penalty that comes with early withdrawals; plus, there’s always the worry of paying tax on these withdrawals. When taking a coronavirus-related withdrawal, this penalty is waived by the IRS. 

Under the new guidelines, some TSP participants can get a 12-month window before repaying on TSP loans. Elsewhere, there could be opportunities to borrow above the standard 50% limit of TSP savings. Some have taken a $100,000 one-time withdrawal before the average age restrictions of 59 1/2; this doesn’t come with the standard hardship demonstration process. 

After withdrawing, another benefit is the ability to reduce the tax burden by declaring the loan over three tax years. If you take $12,000, for example, you can declare $4,000 in 2020, $4,000 in 2021, and $4,000 in 2022. 

If you take withdrawals or loans through the CARES Act, pay attention to the special conditions that come with it. Many routes to financial assistance have deadlines, so contact HR and work with your financial professional. 

FEEA 

On the other hand, federal employees who have been affected by COVID-19 could be eligible for an FEEA loan. Whether you’ve been diagnosed yourself, have cared for a loved one with the virus, or have been forced away from work, you could receive up to $1,000 if you don’t have FFCRA, annual, advanced, or sick leave. 

If a federal employee passes away, they have offered help to children and spouses with bridge grants. If you think you might be eligible, we highly recommend heading over to their website. Even if you don’t get financial help, there are all sorts of useful guides and links to be found on the various pages. They’re also offering face masks to those in regular contact with the public or working with other employees nearby. 

 It’s a tough time for everybody, so it’s good to know that federal employees are getting their fair share of the help. Whether you choose to contact FEEA or utilize the CARES Act to take advantage of your TSP, there are options to help with this short-term problem. With the TSP withdrawals, pay them back within three years, and you won’t be affecting your long-term financial health. 

Real Truth behind Retirement Credit for Military Service

The Civil Service Retirement System covered every federal employee who retired before September 30th, 1982. If any of them served on active duty in the armed forces, they were told not to contribute to the government retirement system. They were getting credit for that time automatically while their length of civilian service was calculated. (Considered while calculating their Social Security benefit, if they had enough working hours under that system to qualify.)

After October 1st, 1982, things took a drastic turn. From that day, employees under CSRS were expected to decide whether they want to make a deposit for their active duty service.

If they failed to make any deposits for their service and retired before age 62, and were not eligible to get Social Security benefits, it wouldn’t impact their annuity. The same rule applies when they took retirement at or after age 62 and were not eligible for a Social Security benefit on the day they retired.

In case they were eligible for a Social Security benefit at either of the points mentioned in time, they would get credit for their active duty service while calculating years of service. Those years would be subtracted, and their annuities would be recalculated without them. For employees taking retirement under CSRS, that may look small, but it was not a slight reduction. It is 2% for every year of active duty service (or we can say, 1/6th of 1 percent per month).

 As for the employees under the Federal Employee Retirement System, the case looks black and white. If you want to get credit for your active duty service, you have to make a deposit. If you are not making any deposits, you aren’t eligible for any credit for that time, and your annuity will be calculated without it.

Though the reduction is not as significant as it seems for CSRS retirees who failed to a deposit, it isn’t some amount that can be fed to a chicken. It is almost 1/12th of 1 percent for most FERS retirees, which is still higher than those retiring at age 62 or later and has at least 20 years of experience. 

 Points to Note: If you are working under CSRS, the deposit amount is 7% of your basic military pay, except for the service performed in 1999 (was 7.25%) and 2000 (7.40%). For FERS employees it is 3%, except for the service performed during 1999 (was 3.25%) and 2000 (3.40%).

 No interest will be charged if you deposit within one day less of two years after the government hired you. If a deposit is made after that day, interest will be charged. The longer you take to make a deposit, the more you will repay. 

Planning for Smaller Social Security Checks Sponsored by:Michael Sesler

At the current timeline, 2034 is the expected end date for scheduled survivors and retirement benefits. In this year, the reserves will be short, and the income received through tax will only cover around three-quarters of planned benefits. 

What does this mean? At the moment, Social Security checks for the average retiree are around $1,500 per month. Should these changes take effect, checks would reduce to just over $1,140 per month. For married couples, it means $1,920 instead of $2,530. 

If we look at the broader picture, those who retired between 2015 and 2020 are set to receive $1 million as a couple and $500,000 as an individual throughout their retirement. With the expected cuts, this would fall to $760,000 for couples and $380,000 for individuals. This amount (in real dollars) will double for millennials who reach retirement age around 2050. Individuals will earn $760,000 with the cut and couples around $1.5 million. 

For many, these numbers are a worry, so how can you prepare for the smaller checks? 

Hope for Congress Action 

 

Firstly, many experts claim that Congress ‘needs’ to do something. One expert believes Social Security will be saved by later eligibility, higher taxes, and higher program costs for participants. Unfortunately, the bad news is the damage this could cause for low-income retirees. This section of people might mean working longer, saving sooner, or even making sacrifices in retirement. 

 

If you still have many years ahead of you, start saving now. For millennials with a retirement date around 2050, you have thirty years, which could mean an extra $200 a month in savings. If retirement is fast approaching, one option is to work at least one year extra (potentially up to three years). You save more, but you also reduce the amount you need since retirement is now shorter. 

Create a Plan 

Do you need to take action to replace the lost income? While some won’t have to make many adjustments, others are facing significant losses. For the lowest three income quintiles, Social Security accounted for a substantial portion of earnings in 2014 (between 54% and 72%); this was between 18% and 34% for the higher two quintiles. If you still have time to act, consider financial advice, and create a financial plan to immediately counteract the changes. 

Choose a Healthy Lifestyle

We recommend this tip regardless of retirement plans, but adopting a healthy lifestyle will allow you to work longer and reduce medical bills. If that healthy lifestyle means changing to a job you love, it could also mean a happier life. Top tips include: 

• More fruits and vegetables in your diet 

• No smoking 

• Fewer fatty foods 

• More exercise 

• Stress management 

• Lower alcohol consumption 

Delay Social Security Claims 

Interestingly, you may be able to offset the reduction by waiting until 70 to claim Social Security. The age at which there’s a benefit bonus. For every month you wait, the bonus percentage increases. For those born after 1960, delaying for 36 months means you’ll get 124% of your standard monthly benefit. 

Example – If you were to receive $2,000 per month, this would decrease to $1,520 with the planned cuts. Although waiting would bring $1,880 per month, it’s a much smaller decline than taking benefits straight away. 

 Be Patient 

 We know it’s hard, but some people are taking no action at all. Funds are set to run out in 14 years, and there’s a strong belief that the government will take some form of action to protect Social Security benefits. Do you stick or twist? It depends on your level of risk tolerance; we’re sure some will take action just in case. Even if the planned cuts are unnecessary in the end, taking action still gives peace of mind. 

Coronavirus Brings Numerous Systemic Changes to our Healthcare System and Retirement Safety Net Sponsored by: Aaron Steele

According to the National Bureau of Economic Research, the COVID-19 crises could invite numerous systemic changes that may improve retirement security. Olivia Mitchell, renowned professor at the University of Pennsylvania, said that health insurance and pension plans might be taken over from employers so that workers aren’t at risk of losing their insurance coverage or lowering their retirement savings, in case they lose their job. 

Policymakers may help in making a financial decision and give consumers better data around financial products and pricing. Safety nets may be highlighted to help people who lose their jobs and safeguard them from facing any financial crises. She did an analysis and suggested that there are few ways to rebuild the retirement system and make better pension and healthcare plans.  

Now the bad news. Mitchell wrote, “No one is thinking about society yet. The federal government and health officials still have no idea about the duration of the ongoing pandemic, and no one can tell when the ‘new normal’ will begin.” Before the COVID-19 epidemic, the retirement industry was very optimistic, notably when the markets rebounded from the 2008-09 financial crises. The government had initiated new retirement legislation to improve retirement security in December also. But this ongoing pandemic has killed more than 100,000 people in the U.S. alone and has impacted the progress of the nation. 

In her report, Mitchell wrote that the coronavirus pandemic’s negative impact is expected to last for decades, as seen in earlier events. Now the federal debt levels are increasing at a faster rate and the employment to population ratio in the U.S. has declined from 60% to 52% in the past four months.  

Pensions might be impacted and see underfunding — many of them are already at a higher risk — and it is expected to take years before investment losses can be recovered. The CARES Act has come as a relief and made it easier for workers to withdraw more or get loans from their nest eggs without paying the early withdrawal penalty, which may result in less than retirement. Mitchell said that while some workers may retire earlier than their expectations, others may have to delay their retirement until they have enough savings in their account to support them for their lifetime. “Some workers may voluntarily take retirement early and claim their pensions if they are old enough rather than accepting that there is massive unemployment for some time to come.” If they do so, their retirement benefits will be reduced due to early withdrawal, saving for health in the future. Some workers may plan to phase into retirement and shift to a part-time job or participate in the gig economy while most people take retirement.  

Mitchell wrote that the effects on Social Security benefits are still not known. The program faces a decrease in the next 15 years; at that point, beneficiaries may get a payment reduction. Social Security depends on various economic factors like fertility and employment severely impacted by the coronavirus. This issue, coupled with the longevity of this trend, could affect the retirement systems around the world as the elderly rely on the system as a significant source of their income. 

From the analysis of one of the researchers at the New School, we know that the U.S economy has seen unimaginable levels of unemployment, and businesses across the country, especially small ones, are closing due to the government-issued lockdown. Many elderly Americans are seeing poverty and all earners, low to high, will be impacted by the pandemic in the form of fewer savings, lost investment income, or unemployment. 

Organizations experts in financial planning have suggested ways in which the federal government can help Americans deal with the unwanted retirement planning challenges, especially when the coronavirus pandemic is at its peak. Some of their proposed suggestions are increasing contribution limits so that income savers can prepare and, offering easy access to insurance products, which could help them get guaranteed income, and strengthen their financial literacy so that people are educated enough to make their financial decision for themselves and their futures.

Deciding Your Retirement Age – 3 Things to Consider

At what age are you going to retire? This is a question that plagues many, and it’s something we begin to think about from very early in our career. One of the worst things you can do is select an arbitrary age just because it sounds good; research is always the key to a firm decision. If you choose the wrong age, you face the potential to run out of money or regret working too long when you had enough saved much earlier.  

When making this big decision, we think there are three primary considerations: 

1. Life Expectancy  

This isn’t something that anybody enjoys, but we recommend thinking about your health and how long you expect to live. For those in great shape and with a good family history, you’ll be planning a longer retirement than somebody in poor shape and with a lousy family health history. If you fall into the latter category, an earlier retirement will allow you more time to enjoy life towards the end. 

Recently, the Aegon Center for Longevity and Retirement said that four in ten people now retired were forced into the decision earlier than initially planned. Health problems are the most common reason for early retirement, so consider your health and the likelihood of developing issues.

2. Savings 

While some people have plenty in their savings account, others are forced into working longer because they need the time. Unfortunately, we can’t provide a single number for the amount you need to retire. It depends on your spending habits and plans for retirement (and expected length of retirement); one Charles Schwab survey predicted a requirement of $1.7 million in savings for the average worker. 

To find out the status of your potential retirement, we recommend using a retirement calculator. After entering your retirement age, it will show how much you need to save per month. Play around with different ages and compare what you need to save next to your current savings plan. 

 3. Social Security Claiming Age 

 For millions of people, Social Security is an integral part of retirement. Not everybody retires and immediately starts claiming, but there’s certainly a relationship between the two. Full retirement age (FRA) is as follows: 

• Born after 1960 – 67 

• Born before 1960 – 66 (or 66 and a handful of months) 

 You can wait until FRA to get the full benefit amount or claim after 62 to get a reduced amount. If you’re able to wait until the age of 70, we highly advise it since you can potentially earn one-third more per month. 

Again, the time you start claiming Social Security benefits will depend on your current savings, life expectancy, and other plans. Some people hold off on benefits because they want bigger checks (and this also means waiting on retirement too). 

We know it’s stressful, but we urge you to consider retirement carefully. Most Americans are behind on retirement savings, so don’t panic. Plan as early as you can and take action (knowing you’re behind and taking action is better than not knowing until it’s too late!). If you need help, don’t be afraid to contact a financial advisor for tailored advice. 

Not affiliated with The United States Office of Personnel Management or any government agency