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!
For more articles, visit our articles’ section.
Small Investment, Big Returns/by Aubrey Lovegrove
Let’s say you’re curious about investing but have never done it before. You don’t want to throw all your money into a world you don’t quite understand, but without getting your feet wet, there’s no way you’ll be able to learn the ropes. But that shouldn’t scare you, because, for as low as 100 dollars, you can start investing today and see significant returns over time. Here are a few ways how:
1. Retirement Fund
While $100 bucks might sound like small potatoes, you can begin your retirement savings today with jut that tiny amount. While certain criteria must be met as per the rules of whatever financial institution you’re looking to set up your account through, the easiest way to start saving for your retirement is through a plan that is offered up by your employer, typically, some sort of 401(k) with the company matching back a certain percentage amount, thus compiling your savings even faster. This is usually contributed to right out of your paycheck, and require no much management after initially setting the parameters of the account up.
But if your employer doesn’t have this kind of plan, or if you’re self-employed or looking for additional accounts, you can also look into the following:
a.) A Traditional IRA, which is when you defer the taxes on your income by putting it into an account where it can grow, and won’t have to pay taxes on it until you go to take the money out, at which point it should have grown enough to cover it. If you’re under the age of 50, you can put away up to $6,000 into a Traditional IRA each year.
b.) A Roth IRA, which differs from a Traditional IRA insomuch as you will pay the taxes on the money before you put them into the account, meaning that when you withdraw from a Roth, you will not be paying any more taxes on that money. The same as with a Traditional IRA account, folks under 50 can put away up to 6,000 dollars yearly.
c.) SEP IRAs, or Simplified Employee Pension IRAs are geared for people who operate their own business and are often able to be deducted from your taxes at the end of the year. Additionally, you are permitted to put away more money than in the other IRA options, up to 56,000 dollars annually.
Maybe retirement is just too far away, and you have more immediate needs for your savings; paying off a mortgage or purchasing a new vehicle, let’s say. With just 100 dollars, you can invest in the short-term and get a return in less than three years. While not as lucrative as retirement savings, you will be able to get your money sooner for those big purchases or emergency needs.
A few short-term investments worth looking into are the following:
a.) Government bonds are an excellent place to start, as they have a fixed return rate and can be cashed out after a set amount of time as determined by the terms of the bond
b.) Short term bonds function quite the same way as government bonds too, except these are purchased through corporate entities instead of the government. Terms also vary per bond.
c.) CDs have a fixed interest rate too and are backed up by the government with a set date, functioning similarly to a bond as well.
3. Passive Investment with an App
Have you heard of the term robo-advisor? It’s a website or an app that does all the work for you, and you can start investing with some of them with 100 dollars, or even less. They are as the name implies, completely automated, using different types of equations and algorithms to figure out the best place to put the money to get the outcome you desire.
Different robo-advisor programs have different minimum balances required, and also they charge different fees for their service, but some go as low as 5 dollars to start with, or even less.
With the various options these days, you can start your investment journey with basically just pocket change. Investing is no longer the purview of men in business suits. It’s something you can do from the comfort of your home, with very little capital to get the ball rolling.
Over 50? Here’s How to Start Saving Today/by Aubrey Lovegrove
A lot of people reach the age of 50 and realize they haven’t put anything away for retirement yet. While that is not the ideal situation, it doesn’t necessarily mean it’s too late either. Here we will review several ways to start saving today, even if you are nearing retirement.
1. Opt Into a Plan
Most employers offer up some time of retirement plan that you can opt into with automated payments directly from your paychecks. These include both Traditional and Roth 401(k) plans, the difference between the two depending on when you’re going to get taxed on that money. You get taxed before you contribute in a Traditional IRA and you’ll pay less currently because you’ll be deferring your contribution as taxable income in the future when you go to take the money out, or with the Roth you pay the taxes on it now, and won’t have to again when it comes time to withdraw it. It all depends on your current tax bracket, and if you are a person who makes a lot of money or contributes a lot to their 401(k) it might make more sense for you to stick to a Traditional account, so you won’t be slammed by the IRS at the end of the year.
2. Investment with Target Date Funds
Target-Date funds are a great place, to begin with for a novice investor. You pick the year you anticipate retiring, and then the fund builds the best portfolio for you off of that information. Like if you plan on retiring in 2040, let’s say, then most of your money will be put towards stocks currently, and switch over to bonds as you get closer to that date. It is done so to grow your investment as much as possible while mitigating any risk you have for investing.
3. An IRA Not Through Your Employer
You can also look into additional investments with a Roth IRA, not through your place of employment. Roth IRAs are typically one of the best investments because of the minimal amount of taxes you’ll have to pay on that money.
4. Contribute More Than the Minimum
The IRS lets folks over 50 contribute extra income towards their accounts to catch up on any retirement investments they may have missed, surpassing previously established max out amounts. For most 401(k) type plans, including the TSP (the federal government’s retirement savings fund) you can contribute an additional 6,000 dollars per year after the 50 year age mark, and an additional 1,000 dollars per year on any IRAs.
5. Get a Second Job
Your Social Security benefit is based on your 35 highest-earning years average, so contributing more to Social Security by getting a second job can raise that amount when it comes time to collect. Start putting more in now however you can, so you can collect more later when you retire.
6. Get the Right Financial Advisor
Sometimes you need to get some advice and seeking out a financial planner is the next move, especially once you start beefing up the money in your accounts. But be wary of who you seek help from, as fee-only financial advisors are the best way to get advice without commission rates swaying their opinion in a way that could benefit them.
7. Debt Reduction
Of course, the best thing you can do before heading into retirement is to get rid of any outstanding debt, and working to pay off anything you owe should be your top priority. Beyond that, looking to consolidate any debt under a credit company that offers a low-interest rate is the next best thing you can do, as varying rates and accounts are sometimes hard to manage. Setting timelines and goals can also help with debt reduction in figuring out how much you need to spend per month on paying off what you owe. Think of it the same as your mortgage, a recurring bill that never wavers, until you pay off your debt (and your mortgage too) completely.
These are all just tips, of course, and they may not apply to your situation, but figuring out which avenues to pursue in order to reach your retirement goals is the first step you’ll need to take, even if you are past the age of 50.
How Defaults Effect Your Retirement Savings/by Aubrey Lovegrove
Your default contribution for your Thrift Savings Plan can affect how much your saving for retirement in ways you might not even be aware of. The default contribution refers to the amount that is taken from your check automatically and put into the TSP regardless of how much you opt to put in. It is, essentially, the contribution choice they choose for you. And, as shown in a recent study by the National Bureau for Economic Research, employees who contribute to the default fund end up saving less than other employees who take a more active role in their TSP.
The study made this determination by looking at the difference in the default contributions after the amount changed, for people working at the OPM. Recently the TSP was switched to a lifecycle fund, after being a less risk-averse fund government securities fund, as it was prior. What the study found is that the lifecycle fund should yield a higher percent return over the securities fund it was earlier, but employees are less likely to change their money allocation once it is set up and miss out on a lot of the benefits of such a fund, like getting a match-back percentage from your employer, thus maximizing the potential of your savings. Because it is all taken care of, employees spend less time thinking about it and therefore end up interacting with their savings less and end up with less money in their accounts come retirement time.
This comes on the heels of another study which suggested that automatically enrolling employees in programs like the TSP leads to greater participation. While that is true, it also leads to more passive investors, and people who are unaware of their savings potential. Most rates of contribution are not set to maximize and employees investment, and as such, there are a lot of federal workers missing out on future savings potential and might not even know it.
A good time to review your contribution is today, to make sure you get the biggest bang for your savings buck.
Keeping Your Vision and Dental Insurance After You Retire/by Aubrey Lovegrove
While most government workers know about the Federal Employees Health Benefits Plan or the FEHB for short, many don’t quite understand their other insurance, namely vision and dental, which is covered under the FEDVIP or the Federal Employees Dental and Vision Insurance Program, nor do they know the process of carrying those benefits with them into retirement the same way they do with their normal health insurance.
So how does the FEDVIP differ from employees other health insurance?
First, there is the period in which you can even enroll in the program, which is within the first two months of your hiring, after a significant life change like a marriage (to cover your new spouse,) or yearly, during November and December. FEDVIP is available to all working and retired federal employees, their spouses, and their children until age 22.
The cost is the second thing to take note of, which shifts if you continue coverage past retirement. While you’re working your premiums are paid before taxes are taken out of your paycheck, but after you retire, you will be taxed on your money before you can use it to pay for FEDVIP premiums.
There is also a difference in cost between vision and dental premiums too. Vision premiums are determined by the plan you have opted into, while dental premiums can vary and are based on your plan, and also where you live.
Lastly, there is the process of continuing your FEDVIP coverage as you retire. With the FEHB you have to be employed and covered for at least five years before your retirement date, but with the FEDVIP no such restrictions exist. You can also enroll in the FEDVIP after you retire, even if you hadn’t while you were working, which you are not allowed to do with the FEHB.
Eligibility depends on a few factors, the first of which is how you retire, which must be with an immediate annuity. People with deferred annuities will not be able to continue FEDVIP coverage. You are also eligible if you have retired with a postponed annuity under MRA+10 provision.
Reviewing the SF 3112E Checklist for Disability Retirement/by Aubrey Lovegrove
The SF 3112E checklist must be filled out if you are filing for disability retirement under FERS, or else the Office of Personnel Management might not approve your application. Therefore, it is important to go through this checklist and make sure that it is completed properly and filed away correctly.
FERS Disability Retirement, or FDR, is mainly made up of three parts that need to be completed in order for you to be approved. One part is for the SF 3112C form, which is for your doctor to fill out corroborating your claim. The SF 3112B, SF 3112D, and SF 3112E are for the agency to fill out and process themselves. But the final piece of the pie, the SF 3112A is for you to fill out, and it’s where you put your own claim and plead your case. The three parts should all be in agreement as to what the disability is, and you are asking for, thus helping to prove to the OPM that you should be collecting benefits from your FDR.
The checklist, form SF 3112E, is the table of contents when it comes to your claim, providing all the information at a glance, and showing what applications and paperwork should be included in your FDR packet.
The best practice is to obtain a copy yourself of the SF 3112E before you start preparing for your FDR, that way you can make sure you have all the forms need, and paperwork filed, as you get ready to submit your applications.
A significant problem that can occur though, when approaching the SF 3112E checklist happens when you’ve been out of federal service for over a month, 31 days. That is because you alone are then responsible for making sure that you get the SF 3112B, SF 3112D and SF 3112E forms the agency so you can fill them out and give them to the OPM yourself. And while the agency usually has no issues with getting you the SF 3112B and SF 3112D forms, they are often reluctant, and at times flat out refuse, to give you the SF 3112E form. It’s a bit of a catch-22 situation because the SF 3112E form is supposed to come from the agency that has verified your application and all the requisite paperwork therein is filled out. However, if there is a separation preceding your appeal for an FDR, then you become responsible for submitting those forms, not the agency (as they would do if you were currently working), and since the agency isn’t submitting the forms, they don’t have a way to verify that they’re all completed and intact, which is what the SF 3112E is supposed to do. It can be a real headache for people looking to retire on disability.
The thing is, they are required by law to give you that form, so if your agency is refusing to release it you, you can remind them of this fact, which can be found on form SF 3112-2. They can also be reminded that they can fill out most of SF 3112E without actually needing to verify anything, Items 1 through 7, and Items 12, 13, and 14, specifically. If the agency is still not complying, just put an copy of the SF 3112E that hasn’t been filled out in with your application along with a letter explaining your situation and why it is not finished, including any emails you may have exchanged with the agency where they still denied you this form and a number for the department in your agency that should have been responsible for filling out that form. The OPM will take it from there.
If, at any point, the process discussed is not working, or if the OPM itself is not being helpful along with your agency, then I would suggest contacting a lawyer or your worker’s union, someone who has the legal knowledge to file a claim on your behalf and can help fight for you and your FDR.
Retirement Savings Management Help/by Aubrey Lovegrove
Running out of money in retirement is a fear for many people, not just because they are afraid they might not have saved enough, but also because they are not sure how much they can pull out of their accounts each year once they do start withdrawing. Nearly 80 percent of Americans don’t feel like they have the skills and knowledge to manage their own retirement as good as they’d like to.
Here we will look at some of the best ways people can move their retirement savings into an income stream for themselves without having to worry about going broke at some point. Specifically, let’s look into setting up an automatic income for yourself, and a newly reported idea from Brookings Research Group is suggesting a plan (pending legislative approval) that could permanently take the worry about this kind of retirement income away from participants.
First, you would need a pooled managed payout fund, would function like a 401(k) with the idea being that you invest in it after you retire instead of before. Just like with a 401(k), you work backward from a target retirement date, basing your stock options off of that, with more risky funds taken in your early investment years and less risky investments coming as you near your retirement.
With the pooled managed payout fund, retirees would put their money into a pool with other retirees which will be managed by a professional investment company, with a payout determined by you and your advisor to come to you as often as monthly in the form of fixed income. This isn’t a contract, so it is not guaranteed, but like a 401(k) it is built to be low risk, and see returns, and occasionally growth too.
Not only could the pooled managed payout fund be its own 401(k) type plan for working individuals, it will also accept rollovers from the accounts of retired individuals too. It is, like its name implies, a big pool in which everyone will draw from.
Second, this pooled fund would undoubtedly need a side fund to help an individual in the case of emergencies, so the idea would be the set aside 10 percent of the enrollees’ assets to be used for such an eventuality. This is especially important the older an individual gets, as things like health expenses tend to rise quickly. The main difference here is that most funds that exist don’t put aside emergency money when your annuities are set up for incremental payment. This gives the retiree more space to collect income without the worry of their money running out due to unforeseen reasons.
Then there is what is known as a longevity annuity, or a deferred income annuity, you are really investing in your old age by giving the insurance company some of your money now for what is essentially a contract for regular payments to continue through the entirety of your life, typically beginning 20 years after retirement, when your about 85 years old. This is just like an immediate annuity, except for the delayed payment, the benefit of that being you’ll be making a lot more back each month than you would if you were collecting on an annuity in your younger years. And since 85 isn’t exactly young, longevity annuities usually come with a death benefit for your survivors, so even if you don’t get to see the rewards of this investment yourself, you’ll be setting up your family and loved ones financially in the process. With this kind of annuity, you will never run out of money, even if you live to be 140 years old.
While this three-point approach to savings management seems like a no brainer, it still is a little bit away from becoming a reality here in America. A few things would need to happen for that to be the case, but there are legislators and lawmakers now who are working towards regulations on this end, changing how 401(k) funds can be accessed (as it stands they usually only come as a lump payment now) and finding new options when it comes to investments that employers have an incentive to offer. More and more people are retiring on their 401(k)s every year and its about time we addressed how to manage the future of all Americans, especially since so many are in the dark as to how to do it themselves.
Moving After You Retire Could Save You Big/by Aubrey Lovegrove
Taxes are a big reason to relocate, and when you retire, when cashing in all your savings and accounts, could certainly add up to a lot. Certain states like Virginia and Maryland have low sales taxes, while other states like Washington and Delaware have none.
Relocating after retirement could save you big and could save you money on all the big federally sponsored retirement accounts like your FERS, your CSRS, your TSP, and your Social Security benefits, meaning you’ll save much more. There are currently nine states that don’t have state taxes, and they are South Dakota, Texas, Washington, Tennessee, Wyoming, Florida, Alaska, and Nevada.
Of course, there are other reasons to move somewhere besides tax reasons, and things like access to health care and the weather, as well as things to do, are also important factors. That said, across all metrics, South Dakota has ranked first for retirement destinations, oddly enough, with the more obvious choice of Hawaii soon following up. It can get tricky, weighing the pros and cons of a place, because a nicer climate, like Hawaii, may be balanced out by a tax-free place, like Nevada.
In addition to the nine-state tax-free states listed before, there are another group of nine states that will give you a tax break specifically on your annuities through CSRS and FERS, those being Illinois, Kansas, Louisiana, Hawaii, Alabama, Mississippi, Pennsylvania, Kansas, New York, and Massachusetts.
Then there is also the sales taxes to consider, especially if you’re looking to purchase a home in one of the states you’d be moving into. Some states like Oregon have no sales tax, but places like Tennessee see their sales tax at 9.47 percent, which is the highest in the nation. D.C. and Maryland, home to a large amount of federal employees, see their sales take relatively low, at 6 percent, but not quite as low as nearby Virginia which is slightly lower, at 5.3 percent.
Certain states also give breaks on Social Security.
The majority of federal workers heading into retirement are a part of FERS, which is based on a determined annuity that is adjusted with the rate of inflation, as well as collecting on Social Security, and then there is the money they stashed away in the TSP while they were working. All of these accounts can be subject to a variety of taxes depending on where you live and how much you have.
At the end of the day, federal employees need to be informed about the tax status as they retire and beyond.
TSP Changes Starting This September/by Aubrey Lovegrove
New changes to the Thrift Savings Plan or TSP go into effect today (September 15th). This article is going to run through these changes so you can be educated and investigate all of your new options further.
Once you retire or leave federal work, there will be more options coming as to partial withdrawals from your TSP account. If you are still employed and over the age of 59.5 years old, then you have the option of taking up to four withdrawals from your TSP annually. This is a significant change as, before this, in-service withdrawals were limited to only one for the rest of your life, and you had to choose between taking that after age 59.5 while you were still employed, or after you retired.
Additionally, these four withdrawals can be taken out of any TSP account you may have, in any percentage, whether it be your Traditional account or your Roth account. Again, this is a significant change from your options previously, which stipulated that if you were to make a withdrawal, it had to be pulled out of both your Traditional and Roth accounts in equal parts, meaning if you wanted to take a 10,000 dollar withdrawal, 5,000 dollars had to come from each.
While the age of 70.5 marks the point in which you’ll be forced into collecting required minimum distributions from your TSP (for tax purposes) you no longer have to withdraw all your money at that time, as you previously had to do, lest the government mark the account as abandoned and keep your investment. Now, your money can remain invested in the TSP as long as you like.
For retirees, you can set up periodic payments at intervals of either yearly, each quarter, or once a month, and you will have the option to change that at any time, as well as halt payment, or restart it again. Before, the TSP would only allow for monthly payments for retirees, with an enrollment period of only three months at the end of the year to make any necessary changes for the next fiscal season.
These changes give you much more freedom to control your money, but also come with risks, so it is advised to seek out tax and financial help if you have any questions about the new TSP.
Buying Back Your Time From the Military/by Aubrey Lovegrove
Military members that are moving beyond their active duty into work in the private sector are presented with an opportunity to “buy back” time from when they were enlisted. What that means, in the loosest sense, is that if you served in the Armed Forces, the time you spent there could be used as a credit towards your retirement if two criteria are met, the first being that you were honorably discharged, and the second being you make arrangements to buy back the time before you retire from private sector work.
While the concept seems straightforward enough, the execution of it can occasionally be a little more challenging to navigate, so with this article, we’re going to quickly run through the process so you can see if buying back your military time is the best move for you.
Firstly, you are going to need to figure out what your annuity from FERS is going to be in regards to the time you were enlisted. You get 1 percent of your average highest three years of salary contributed towards your FERS annuity. So, for example, let’s say the average of your three year high is 100,000 dollars, and you had 30 years of service, then your annuity contribution of 1 percent would equal $30,00
So to get your time in the military credited to your annuity with FERS, you’re going to need to do what is known ass a Military Service Credit Deposit. Refer to your DD-214 (which can be requested from your personnel office for your service branch) and enter in the pay you received for each year of your service. The deposit amount is figured out from a percentage of what you’ve been paid, and you have a slight period of two years to make this deposit before the interest kicks in.
The question often is, is buying back my military time worth the effort? The answer to that is almost always a yes, and there is hardly ever an instance where it does not make sense. It all comes down to the amount of time it takes to break even (and ultimately payoff) on the initial buy-in of that FERS annuity. Typically, it doesn’t take that long but depending on varying deposit amounts, the interest you owe, and what you are currently being paid, that break-even amount is going to be different for everyone.
You can also raise your spouse’s survivor annuity too by buying back your military time.
Buying back your military time could also expedite your journey to retirement too. Let’s say you have worked 18 years at your civilian job and are 60 years old and you want to retire, but if you do so without 20 years, your annuity will be penalized. But if you opted to buy back the time you spend enlisted, you can use those years towards your time worked, and easily pass that 20-year mark by the age of 60 years old.
Complete the RI 20-97, the Estimated Earnings During Military Service form, which is the first step in buying back your military time. You’ll need your Certificate of Release or Discharge from Active Duty form to complete this step, and once you do, you can give it to the people in charge of finance at whatever branch of the military you served in.
Looser Withdrawal Restrictions on Your TSP/by Aubrey Lovegrove
Only a few weeks until the newest and less restrictive changes to the TSP are about to take place after years of discussion and planning. September 15th marks the official day that the new changes go through.
Because of the withdrawal options previously offered by the TSP compared to other comparable IRA plans in the private sector, these new changes play as a course correction and response to the swaths of enrollees who would close their accounts at retirement and move the funds to more open IRAs or other investment and savings accounts. The idea is that people keep their money invested in the TSP throughout their retirement, and these new steps are engineered to help address part of the issues people have had, and help aide to that end.
As such, the TSP has made some recent announcements, alerting participants to the changes and goading them into reviewing their current policies to ensure all the information therein is correct. One of the other new changes involves online access to your account too, so this is also an excellent time to update your login information and learn how this new online portal works.
At the behest of the TSP, they’re urging enrollees to put off withdrawals if possible until after the September 15th start date, when the new features will be available, in order to maximize their options and not get caught behind with old policy. To that end, the week of September 7th will see a halt to withdrawal requests to allow the TSP time to wrap up all the loose ends with the old policy and ease into a smooth launch of the new policy.
If you have made a withdrawal under the old policy, the new changes will also apply to you, so you will not miss out on any of the benefits of it. Also, there will be other changes made to the hardship based withdrawals you may have made which will make the penalties for doing such a transaction less severe, and resetting the clock for anyone who was in a waiting period after making such a withdrawal from before.
Should Retirees Take the Life Annuity or a Monthly Paycheck?/by Aubrey Lovegrove
The idea behind the TSP, or Thrift Savings Plan, is to use it as a piece of a healthy retirement plan, supplementing income, along with your Social Security payments and your FERS annuity. Without the TSP, most people will not hit their retirement goals. Most financial advisors suggest planning your retirement income around 80 percent of your working income, and without the TSP, that number might be exceedingly difficult to reach.
When it comes to the TSP paying out, you have two options: the first being a monthly paycheck, just like when you were working. The other is to put that money in a life annuity. More than half of retirees opt for former, taking the paycheck and taping into their TSP savings. And with the TSP Modernization Act about to launch, you’ll have even more options for how often and how much you’ll be able to collect. And adding to that, the Life Annuities contract for the TSP is set to be renegotiated, so there could be unforeseen changes coming on that front in the months and years to come.
The question is: which option should you choose? Because both are set up to provide payments to you at predetermined times, how are the Life Annuity and the TSP installment payments different?
Firstly, there is the freedom of choice you get with installment payments, especially with the new options available to you come September. Once you choose Life Annuity, that money is set, and your options of how and what you want to do with it after that become limited. Even if the new contract for Life Annuities ends up providing more options in the future, any current or about to retire employees will still be subject to the terms of the annuity when they locked it in.
This is in stark contrast to the new options with the TSP Modernization Act, which will allow you to collect payment either monthly, quarterly, or yearly, and will allow you to change your mind and restructure up to four times a year. This is true for all people who are already retired.
With Life Annuity, your money will be used to purchase an annuity (like MetLife) and is taken out of your TSP fund. Your money remains in the TSP account if you choose to make installment payments.
The thing is if you keep your money in the TSP there is a finite amount, even with the interest it has been accruing. You will have to manage that money closely, especially if it starts to dwindle. Life Annuity is a contract, and as such, comes with a guarantee. You will never run out of money in your lifetime if you invest in an annuity.
On the TSP website there are tools you can use to help figure out the exact numbers in your particular instance, but here’s an example: If your TSP was at 350,000 dollars when you retired at age 57 and you lived until you were 90 years old, the remaining money in the account would still retain a 5 percent interest. Currently, the interest rate for the annuities offered through the TSP is 2.625 percent. If you took out $1,500 a month for a paycheck from your TSP, you’d still have $240,000 in your account when you reach age 90.
Adversely, $1,600 is the amount you’d take in per month under an annuity, and that would remain even if you lived to 120 years ago, but upon your death, the fund is then absorbed into the annuity fund, and there will be none left over.
While installment payments are the most popular option by most employees, it is essential to weigh your individual needs and options when you segue into retirement. As it stands, it seems that generally speaking that the monthly payments are a greater benefit to you than the current annuities the TSP offers.
Will Your Money Last Through Retirement?/by Aubrey Lovegrove
The CSRS, or Civil Service Retirement System, is the older retirement system for federal employees, with most current workers to be retiring under FERS, or Federal Employees Retirement System. But for a lot of folks who are already past their working years, CSRS is what they have. The CSRS is an annuity program that lasts the rest of the retired employee’s life and is based on how long you were employed and how much you got paid. It’s adjusted for inflation, meaning each year the Bureau of Labor Statistics determines how much of a percentage your annuity increases. It is determined by the third-quarter average of the Consumer Price Index from the year prior and applies to CSRS annuities on January 1st.
FERS functions quite differently though, and for folks who’s retirement is looming on the horizon, knowing what to expect is of paramount importance. The money that they put into the Thrift Savings Plan will be a more significant piece of the retirement pie going forward, which is based on an installment payment that the retiree has determined, and can be adjusted, but does not adjust itself for inflation. Over time, this could spell trouble.
The COLA, or Cost of Living Adjustment, is an important perk to any annuity. People retired under CSRS will receive a full adjustment, meaning if the inflation goes up 3 percent, then their annuity will match that. Social Security functions quite similarly. But for FERS retirees, there is a cap to the amount that their COLA will increase, and anything past 2 percent will not be taken into account when the adjustment is made. While your paychecks from an annuity might go up, the amount in your account will continuously decline. If inflation rises 3 percent, your FERS annuity only goes up 2 percent.
The problem with this is time. And after many years, if the rate of inflation consistently is higher than the adjustment, the disparity will increase. Even at a 3 percent rate of inflation, you could lose nearly 31 percent of your annuities purchasing power over the course of 20 years.
Their solution to this is the TSP, and other investments you may have, but those too are limited resources, and decrease over time. Still, going forward, your best bet for a healthy retirement involves a balance of all investments and not just your annuities.
New TSP Changes are Geared for Retirees/by Aubrey Lovegrove
September 15th marks the launch for the new and improved TSP, with most of the changes being implemented geared towards retirees and people who have left government service, with only a handful of the new options designed for people currently working still.
In the past, if you had a traditional and Roth account, any withdrawals had to be taken from the two of them in equal parts. Meaning if you wanted to take $10,000 dollars out, you’d have to draw $5,000 dollars from each account. That is no longer the case, as you can now remove money from either account in any ratio you choose.
One of the changes that will happen to effect people still working is in regards to the waiving the fees and taxes of someone who is over the age of 59.5 but is not yet retired, and who takes a lump sum out of their account. Previously, this kind of transaction was permitted only once per employee, but with the new changes, you can make up to four of these kinds of withdrawals annually, though there is still a refractory period of 30 days between each withdrawal.
Now for retirees, there are many more changes afoot. For those who are retired and looking to withdraw from their TSP, the rule used to be only one partial withdrawal option allowed, and if you took a lump sum payment while you were working still, that option was off the table. But now, with these new changes in place, a retired employee can have as many partial withdrawals as they want without any negative repercussions. If you have other accounts in the TSP, as say an employee and a service member, they will remain separate and the 30-day refractory period does not carry over between them.
Retirees will also see new options when it comes to payouts on their account. These installment payments will come to you on a fixed timeline, either yearly, quarterly, or every month, and the amount received from them is based on life expectancy.
Installment amounts are also not fixed, as you will now have the ability to change how often you receive these payments, or how much of your savings are going into each payment. Previously, you were only allowed to make these changes once a year when open enrollment was going on. And on top of that, if you decide to halt your installment payments for any period, you will no longer be required to take the rest of your money in a lump sum, as was previously mandated, instead having the option to put the money into an annuity instead, or combine it with a partial lump-sum payout. Whatever you desire.
Additionally, if you’re payments are coming from one account, say your traditional account, and the money runs dry, it will automatically switch over to the other account, like a Roth, for a seamless paycheck still deposited into your checking account.
One thing that won’t see a change is if you switch to a fixed dollar payment from a life expectancy based payment, you will still not be able to switch back afterward. That said, the deadline for making those decisions (which used to be April 1st after you turn 70.5 years old) is no longer as stringent as it was, though it is still advised to do so before then, as once that date as passed you will be required to take a certain minimum amount out of your account, which will be sent to you automatically, if you have not selected your desired payout method.
Myths That Could Derail Your Retirement/by Aubrey Lovegrove
When it comes to retirement, there are a couple of purveying myths that often not only hinder one’s progress and excitement heading into this next phase in their lives but also could end up costing you big financially. In this article, I will explore some of the more popular myths surrounding retirement and give you some tips on how to avoid getting caught up by them.
1. Human Resources Has All the Answers
While the human resources department might be an excellent resource to utilize, it is far from the end all be all when it comes to answers, and simply informing them that you are retiring is just the first step of many more that you will have to take.
Your human resources person might be well versed in the different options that your particular retirement accounts offer you, they are far from financial advisors, and will likely not understand the bigger picture when it comes to your individual retirement plan. HR is simply meant to collect your information and help process all the paperwork. When it comes to giving advice, they are neither properly studied in the area, nor are they allowed to share.
It is up to you, the retiree, to figure out all your options, and it takes a lot of planning to make sure everything is allocated properly.
In order to avoid any issues, it is suggested that you learned how each of the seven different benefits offered to you by FERS is figured out, what it does, and what kind of penalties you might receive if you don’t accept it. On the FERS website, they have practice applications that you can fill out so you can get used to the red tape of it all, and it will help you make your eye keener when it comes to spotting any irregularities that might come up from misfiled applications.
2. You Have Time to Plan
Obviously, you will know when your retirement date is approaching, but even still, making sure you have allocated enough time to get your affairs in order is essential, and often times people don’t realize how much work will need to be done and done give themselves enough time to do it in.
When you first started employment with federal service, you signed a whole bunch of paperwork while onboarding. This could have been years, or even decades ago. This includes the retirement paperwork you’ll need now, as you prepare to segue out of working life.
The truth is, its all comes down to familiarity and comfort with the material. There is a lot of terminology you might not be familiar with, and a lot of tools (such as the TSP calculator) that might confusing when it comes to how it works. The more you look into it, the more you will be faced with these sort of hurdles, and the learning curve is steep. If you are overwhelmed and start putting off the process, it will only compound this issue.
What you need to is start with your retirement planning as soon as you possibly can. Even if you’re a new hire, and retirement is still years away. FERS can be complicated, and the more familiar you are with it now, the easier it will be to navigate when you actually need to. And when it comes to figuring out how much you’ll need to save, constantly review what you’ve been doing and adjust accordingly.
3. There’s No Button You Can Push That Can Fix Everything
Employers often offer classes for people approaching retirement. You see this and think you’ll attend, learn the ins and outs, and be set to go. Unfortunately, the amount of information you’ll likely need to know is too big for a single class to hold, and these employer-sponsored seminars will often leave you overwhelmed and even more stressed out than you were before you began.
The problem is, knowing information simply isn’t enough without the knowledge plan ahead to execute them, and that’s not what most of these classes are designed to do. Being told over and over what your benefits are and how to access them will do little for you when it comes to actually implementing a successful retirement plan that suits you and your individual needs.
If you intend to take classes focused on retirement, what you’ll need to do is find ones that focus on what you need: planning and methodology. And don’t wait until the last minute, you should seek out these classes now, especially if you’re in the onset of your career, and start your savings right.
The truth is that FERS is a solid program that should help immeasurably with your retirement plan, but that plan is something that is not just going to work itself out. You’re going to need to do the legwork yourself.
Start with a base of knowledge, learn the benefits FERS offers and what they do, then build the architecture of your retirement plan around what you have determined to be your sources of income and savings. This can include not just your FERS, but Social Security, TSP, and other annuities or investments you might have. And then before you start signing all that retirement paperwork, review what you’ve done and make sure you’ve taken all the proper steps to land you where you wanted to go.
You don’t need to be stressed out about retirement. Take control of your future, get informed, and start taking the steps you need to take today. Your future self will thank you.
Law Enforcement and Air Traffic Control: When Should You Change Positions?/by Aubrey Lovegrove
Contract positions in the private sector for people under FERS who are retiring, or approaching retirement, are often an option for certain individuals, notably those working as air traffics controllers (ATCs) or law enforcement officers (LEOs.) When it comes time to consider this, you must first make the important decision: is it time to leave government work behind for good?
Before you sign any paperwork consider three factors that a good position should have to meet: those being the amount of money you’ll make, the stability of the job in question, and how strongly you want to do the job that is being offered.
The first determination you need to make before accepting any contract positions is eligibility. At your age, and with how much money and time you paid into your accounts, will the benefits from FERS, FEHB and your FEGLI be good enough to cover you during a period that you may not be able to work? Or will they cover any gaps in benefits coverage offered by the position you are offered?
ATCs and LEOs especially have time to contemplate these things, as they have a few more options that are even better than the already good FERS retirement program. Under FERS, both of these particular professions have the option to retire after 25 years of service, or at age 50 (if they’ve already worked for 20 years.) If you can start collecting benefits immediately upon retirement, the pressure is off, and you’ll be able to shop around for the best contract offers.
When it comes to the financial aspect, it should be easy to determine. Figure that with your retirement money from FERS now coming in, do the terms of the contract make sense for you? Is it enough money? Enough benefits? Things like health coverage, or even more annuity or 401(k) options are all excellent perks that a contract position could offer. This should all be weighed against continuing employment in a federal position, where you can continue to build the annuity in your FERS, getting that 5 percent match back from the government too. That’s like getting free money.
Next, you need to consider the stability of the contract position offered. How likely is it that you will stay employed in that job. Usually, working for the government is a stable move, but if you are looking elsewhere, what does the industry look like in the long term? You don’t want to take a contract somewhere, thinking you’re making the best move for yourself financially, and then have the contract end quicker than you thought, and now you’re out looking for work again. How big is the industry you’re working in, and how many other options for employment are there in that industry? These are all crucial factors to consider when you’re looking into a contract position.
The last thing you should consider is how much you want to do the job that the contract position is offering. It sometimes gets overlooked in favor of money or stability, but the desire to do the job should factor in just as much. If you like your federal job, then maybe looking for work in the private sector isn’t the best move for you. Adversely, if you are feeling burned out and want a change of pace, then maybe it is time to seek out a good contract position. Always consider your mental contentment when shopping around for a new position.
Before making any substantial life changes though, consider that if things were not to work out the way you wanted them to, would your retirement be enough for you to survive on. And if you do need additional income, then how difficult is it going to be to find additional employment in that industry. If you are not set up to survive on retirement alone, then perhaps continuing federal work (or even pushing off retirement entirely) is the way to go.
TSP Investors Dropping the Anchor/by Aubrey Lovegrove
A TSP investor behavior recently noticed by the Congressional Budget Office is something that they’re calling anchoring, which means an investor who never changes their investment, up or down. Like a ship anchor, these investors stay put.
These behaviors, while comfortable for the risk-averse, can have some noticeable effect when it comes to the TSP’s new changes. The first involves the match back for contributions from the agency, and the second involves new hires and how much money is invested in their retirement fund at the onset of their career.
For 30 years the TSP has kept their match back policy the same, which is, the agency will match up to 3 percent of the employees salary that they invest into FERS, meaning if you put in 3 percent of your own money, the agency will match you with 3 percent of their money into your account too. After that, the agency will still match you, but at a lower rate. The next 2 percent will see a match back of 50 cents for every dollar you put in. The agency will also give you 1 percent just for being employed, regardless of how much you put in. All of this ends up meaning that if you put in 5 percent, you will be matched back 5 percent too.
The agency has set it up, so that from your paycheck and automatic 3 percent is put into FERS unless you implicitly tell them you want to contribute more or less. By the middle of 2020, the agency is planning to increase this default contribution, upping it to 5 percent.
The automatic enrollment and match back program in FERS has pretty much been a success, with 92 percent of employees participating. This is compared to CSRS employees (FERS predecessor) who only see 69 percent of employee participation. FERS employees tend to have more significant investments too, which is most likely due to the match back program.
What it appears though, is that when it comes to FERS employees, most only bump their contribution up to that 5 percent, to maximize the matching percentage, but once they get there, they don’t tend to contribute more, nor do they ever really change their investment. In essence, they drop anchor and never think about it again. Even after years of employment, the average percentage of employee investment has no noticeable change from before matching contribution and default contributions were a thing, meaning that the anchoring strategy is not limited to the particulars of the structure of the FERS program.
This is the logic behind the TSP’s plan to up the contribution that each employee will be putting in by default. If most people anchor, then having a more significant contribution at the onset of the employee’s career would help them save even more.
One reason some employees might not be apt to alter their contributions is that on paper the numbers don’t sound like much: bumping up a contribution 1 percent seems almost negligible. But over time, those numbers can make a huge difference, especially if you’re only contributing the 3 percent and missing out on more of those matching contributions from the agency.
Anchoring, while popular, is not the sounded strategy when it comes to saving for your future, and it might be time for you to review your contribution to make sure you’re maximizing your investment and preparing for tomorrow.
When Should You Retire?/by Aubrey Lovegrove
Picking a date to retire is an essential step in the process, and as such, should not be overlooked. While you are free to retire on any day of the year (even Christmas Day, if you wanted) or even in the middle of a pay period, depending on if you are retiring under FERS or CSRS will put certain stipulations on the “when” part of your retirement plan.
When it comes to FERS, here is the scoop: If you’ve worked for at least five years, the earliest you can retire is age 62. If you have worked for over 20 years, you can retire earlier than that, at age 60. And if you have worked over 30 years under FERS, you can retire as soon as you qualify for the Minimum Age Requirement which can be as early as age 55. You also have the option of the MRA+10 which allows you to retire under 60 but with a penalty of 5 percent reduction for every year leading up to that age.
When it comes to collecting your annuity, you have to retire before the month is up to begin collecting on the next month. If you want to start collecting in April, let’s say, then you’re retirement would have been no later than March 31st. If you wait until the 1st of April your annuities wouldn’t begin until May begins.
CSRS has slightly different parameters, and here they are: If you worked for at least five years, the earliest you can retire is age 62. If you have worked for 20 years, you can retire at age 60. And if you have worked for 30 years, you can retire at age 55. The monthly cutoff for collecting annuity on that month has a little more leeway, and you have three days past the 1st to do it still. So if you retire on April 3rd, you’d still be able to collect annuities in April, but with a slight reduction for the three days, you missed.
That is a basic overview of those two retirement plans and the provisions as to “when” you can retire under each of them.
How Much Income Will You Have in Retirement?/by Aubrey Lovegrove
Figuring out how much income you’ll have is a big part of the planning retirement, and there are many options available to help you do so, from online services through the OPM to financial advisors, to specialists from the agency itself.
These numbers are important to know. You don’t want to retire too early and start taking your benefits without first sufficiently saving. Otherwise, you might run out of money. But it is important to note, that even with all these tools available that are supposed to help estimate what your retirement income might be, you have to keep in mind that it is never the official number. An estimate, at the end of the day, is really just a guess.
A formula is used to determine your FERS benefits, based off of the amount of time you’ve been employed and the average of your three highest years of pay. The reason it can be complicated to estimate is because of variations in your federal employment, such as if you served in the active military, sick time you may or may not have used, or when you may have stopped and started (or even adjusted) your annuity contribution.
Unused paid time off will not be credited towards your FERS contribution, and if you’re one of the employees whose retirement package is made of up of both FERS and CSRS parts, then that’s two different accounts that money will not be credited for.
The OPM will also run your account through the Retirement Operations Center, which will then help them figure out if you need to provide them with more information, including the interim pay. When all of these elements are settled, and the OPM is happy with it, they send your paperwork to the main office where it will be reviewed for a final time before a determination as to your benefit amount is made.
Social Security is another avenue from which your retirement income will come from, and you can get an estimate as to how much your benefit will be by logging onto www.ssa.gov and filling out an account. Again, though, this is just an estimate and will not take into account any interim and pay reductions you may have due to certain provisions both from your working years in the benefits package provided by CSRS and FERS. FERS retirees can also figure out if they can collect the special retirement supplement while there.
If you are unhappy with the amount in your determination or think an error may have been made, you can make an appeal, but more often than not, these appeals stem from a misunderstanding from the retiree instead of a clerical error. Still, it never hurts to double-check and make sure everything was filled out and filed away properly.
A TSP calculator is also available for those contributing to the Thrift Savings Plan, but like the FERS estimate and the Social Security estimate, this too has to make a few assumptions in order to come up with a number and will not reflect the exact amount you will make when you start to draw from that retirement package also.
Figuring Out Your Cost of Living Adjustment in 2020/by Aubrey Lovegrove
The COLA, or Cost of Living Adjustment, is something that the Consumer Price Index for Urban Wage Earners and Clerical Workers (or more succinctly, the CPI-W) calculates every year. This is applied to a variety of federal benefits and annuities, including Social Security, and is provided to these services by the Bureau of Labor Statistics for implementation.
As of July of this year, that index went up by .2 percent, meaning that the CPI-W calculation was 1.58 percent more than the average of the CPI-W from the year before. The reason you have to look back two years when figuring out the COLA is that it is likely that inflation will stay steady, and help you anticipate any upcoming adjustments.
The average prices in the third quarter of the prior year, along with the third quarter of the current year, is how Social Security figures out what their COLA should be. They tend to not factor in quarter four of the year because of the time it takes to calculate all the averages will last past the January 1st deadline when COLAs go into effect.
FERS tops off their COLA at 2 percent, regardless of inflation rate determined by the CPI-W, but the CSRS will often adjust theirs higher, and for 2019 that number was 2.8 percent.
To get a picture of Cost of Living Adjustments historically, the past ten years look as thus: 2009 was 5.8 percent, both 2010 and 2011 saw a 0 percent increase, 2012 was at 3.6 percent, 2013 was at 1.7 percent, 2014 was at 1.5 percent, 2015 was at 1.7 percent again, 2016 saw no adjustment, while 2018 and 2019 saw a 2 percent and 2.8 percent increase respectively.
Come the middle of October, COLA rates should be announced for the upcoming year.
Tips on Maximizing Your Retirement Contributions/by Aubrey Lovegrove
This year, the IRS has increased the max limits you can contribute to your pre-tax retirement savings account. What this means is that you can pitch in up to $19,000 into your401(k),403(b), most 457 plans, and Thrift Savings Plan. This is a $500 increase from last year’s limits. The contribution limit for an IRA has also increased $500 from 2018 so that the max amount you can put in is $6000
For those age 50 and up, you can save even more. You can add an extra $1000 to your IRA and can contribute another $6000 to your 401(k) and possibly other plans provided by your employer.
Though your savings may not even be close to reaching those maximums, it is always good to check on your savings rates to ensure you will reach your goals this year.
Here are a couple of tips that may help:
1. Small increases still mean progress.
If possible, you should be trying to save up to 10-15% of your yearly salary for retirement. However, if that is something that cannot be done at the moment, don’t fret. For example, if you can only save 3% right now, you can slowly make your way to the ideal 10-15% number.
You can do this by saving an extra 1% each year. Slowly, but surely, this will eventually add up without much pain.
2. Make the extra cash count.
Most of us may be guilty of using surprise money toward a splurge or even bills, but make your retirement savings a priority when extra income or money comes your way.
If you get a raise, you may also want to raise what you contribute to your savings for your future retirement. Maybe those bonuses you get can also go towards your savings.
It doesn’t sound as enticing as buying that new grill you’ve been eyeing or changing the decor of your house, but your future self will thank you later.