It is nearly impossible to make a broad generalization pertaining to a specific investment and think that it will apply to all individuals. Whether that applies to the world of investment or any industry, that is the reality, and downside, of any generalization.

That is why the generalization that annuities are bad for consumers is not true across the board, as there are always outliers or situations that prove the contrary.

Not all annuities are “bad,” but there are many aspects of annuities that are less than favorable to investors and the future of their wealth. Here are four downsides to annuities

1. High fees

This generalization may prove to be true in every case, and it’s pretty simple. If you lower your cost, you will get a better deal, and your investment performance will improve.

So how can one determine if the fees are high? Often, investors will compare annuity costs to those of a mutual fund. However, the comparison is not equal. An annuity could provide benefits that a mutual fund does not. Therefore, it’s best to compare your annuity to a similar annuity plan with similar benefits. If the annuity you compared yours too has significantly lower rates, well then you know your fees are too high.

2. Purchasing products you don’t need

Don’t we all dream of reaching that place of financial independence where we can purchase anything we want, “guilt-free?” Annuity extras, on the other hand, are often add-ons that can only contribute to the complexity of annuities. These optional add-ons come in the form of death benefits, extra income benefits, lifetime income, and more. If these are important to you, then they aren’t necessarily a bad thing, but if income isn’t a concern, and you have an income rider that’s costing you 1% each year, then that’s a bad situation. Therefore, be sure only to add rider benefits that specifically address your needs to increase income and lower costs.

3. Not understanding your annuity

A word to the wise is to avoid anything that you don’t understand or can’t explain.

One of the most common problems, when consumers purchase an annuity, is that they don’t fully understand how they operate. While you don’t need to reach expert status, you should be able to recite and explain the basics to another person. Investors also typically don’t understand how they can grow and how the benefits work. Especially seen in indexed annuities, if you own an annuity of this type, you should understand how growth can be limited by a participation rate or index cap. Lastly, investors often fail to understand that early withdrawals could cause a surrender charge penalty of up to 10%. If you’re unfamiliar with the terms of your annuity contract, you could find yourself in a bad place.

4. Being misled

Since annuities are insurance products sold by insurance agents, not all annuities are held to a fiduciary standard. For some agents, their only goal is to sell as much product as possible to receive the maximum commissions. Often, widespread annuity advertisements, such as television shows or radio commercials, won’t share all of the important details about an annuity contract. Many purchasers of annuities don’t fully understand the terms of their condition, which only leads to disappointment down the line. For example, some indexed annuity advertisements include a promise that you can “participate in the gains of the S&P 500 with zero downside risk.” In most cases, this is true, and growth options can often include an index option linked to the performance of the S&P 500 or a similar index. What they don’t mention, however, is that gains have participation rates and cap limitations and that by participating, you’ll have to surrender full liquidity for 6-10 years. It goes without saying that an advisor making these misleading claims is a bad sign.

Bottom Line
This does not mean that all annuities are wrong. However, they do come with a tradeoff. If you find an annuity contract with terms that suit your needs, you fully understand the limitations, and the costs are low, annuities can be an excellent financial tool. If it sounds too good to be true, it is, and you should explore your retirement income options elsewhere.

Amidst growing concern over the aging workforce, employers are finding alternative ways of supplementing their defined contribution plans. The goal? To help employees have a guaranteed income source and to stabilize the financial health of their workers.

Many people have mixed feelings about annuities, yet it could be a solution that we will start to see more of in the future as more of our workforce heads towards retirement. Willis Towers Watson found in its “2019 Lifetime Income Solutions Survey” that since 2016, nearly 25% more employers are now offering one or more lifetime income solutions. With 30% of employers currently offering multiple lifetime income solutions, an additional 60% are considering offering them to employees in the future.

Ready for Retirement  

Employers who already offer lifetime income solutions typically provide them in the form of in-plan managed account services, lifetime planning, and education solutions, and standardized withdrawals throughout retirement. An increasing number of employers are starting to shift their focus towards retirement readiness, with nearly 50% announcing their change to a DC plan from a defined benefit plan.

Under 20% of employers offer an in-plan asset allocation system that guarantees an annuity option and a guaranteed minimum withdrawal. Willis Towers Watson Director of Investments Dana Hildebrandt says the numbers aren’t currently there yet for the number of employers offering effective income-generating solutions, including annuities. However, she is hopeful that the workplace will start to see an increase in lifetime income solutions. 

So why aren’t employers quick to offer workers increased lifetime solutions? The complex intricacies of the administrative system is one reason, with more than 30% of companies citing this as their main reason for their hesitation. On the other hand, there was a 19% decrease from 2016 for the number of employers who listed fiduciary risk as their reasoning for the delay. Regardless of employer concerns, the growing demand for employees to be financially prepared as they enter retirement years is more important.

Time for a Shift

Hildebrandt says that as more employers become aware of the benefits that these plans offer, we will start to see an increase in the number of in-plan options. The survey reveals that over 30% of companies are planning on adding an in-plan deferred annuity investment solution while 25% are considering adding, during retirement, an out-of-plan annuity.

The Thrift Savings Plans (or TSP) is one of the most valuable aspects of a retirement plan for federal employees. To get the most out of your Thrift Savings Plan, employees will need to go beyond simply contributing as well as avoid these common mistakes.

1.Not having a TSP plan

One of the most important pieces of the retirement puzzle for federal employees, the TSP is one aspect you should not forget about when setting up your retirement plan. 

Some questions to start asking yourself now are:

-What do you envision your retirement looking like? 

-What do you and your spouse, if you’re married, envision your day to day life looking like? 

-How much risk are you comfortable with? 

-How much money does your TSP need to hold at the time of retirement?

-What does your rate of growth and annual contribution need to be at retirement? 

Being about to comfortable retire means effectively planning your TSP. Unfortunately, no one solution works for everyone, so it takes time and strategy. 

2.Investing too Heavily into the G Fund 

One of the five index funds only issued to the TSP and invested in U.S. government securities is the G fund. The G fund is popular amongst federal employees because it allows individuals to earn interest without the fear of losing the principal, offering the lowest risk. However, because it relies on federal fund rates determined by the Federal Reserve, the G fund generates less than favorable long-term returns. 

You’re exposed to a greater risk of inflation when you invest 100% of your money in bonds. Those who diversify their investments may experience a better long term result once taxes and inflation are accounted for.

Take John, for example:

Following the 2008 financial crisis, fearing losing his nest egg, John started being more careful with his investment strategies. As a result, he invested the entirety of his TSP plan into the G fund at 2.3% with a 10-year return. For the past ten years, John increased his TSP account to $600,000 and maxed out his contributions.

Now on the other hand, if John invested only 60% of his TSP account into the C fund, with 13.7% and a 10-year return, and 40% into the G fund, it would have resulted in a combined return of nearly 9%, opposed to just 2.4%. John decided out of fear that he would lose his nest egg, and as a result, his TSP earned less than inflation. 

Note: This example is hypothetical and is not representative of any specific investment (Your results may vary).

3.Having an outstanding loan balance

If you have an outstanding balance on your TSP after leaving the federal service, you have 90 days to pay it in full. However, if you do not pay the balance within that window, the IRS will deem it as a taxable distribution, which would leave you subject to significant penalties and taxes. Additionally, if you decide to make a withdrawal election after retiring and haven’t paid back the loan, this could affect the processing of the transaction. 

4.Choosing and forgetting a life cycle fund

Comprised of all five of the TSP funds, the lifecycle funds begin to adopt more traditional investments as you near closer to retirement age. There is not just one solution designed to get the most out of your TSP, and while may be a good place to start, the life cycle funds do not account for personal risk tolerance. While you and your co-worker may both want to retire in 2030, but in no way does your retirement look the same and personalized solutions must be designed for every retiree. 

5.Not making at least a 5% contribution

Your agency will match up to 5% of your TSP contributions, so if you aren’t contributing at least that much, you’re missing out.

6.Not updating your beneficiaries

When was the last time you checked your list of beneficiaries? 

Of course, all of your federal benefits should have an updated beneficiary list, but even more so for your TSP. If your designation of beneficiary form is not on file with your TSP, your money will be distributed in the order set by law: 

1. To your spouse 

2. To your children or children equally, not including adopted or step-children

3. Equally to your parents

4. To your administrator of estate or executor 

5. To the next of kin living in your state of residency at the time of your death

By law, the TSP must distribute the funds listed to the beneficiaries on form TSP-3, and if there is no form on file, they must adhere to the order mentioned above. Unfortunately, the TSP does not honor a separation agreement, a will, a court order, a prenuptial agreement, a trust document, or a property settlement agreement when dealing with your account. 

7. Not synching your TSP with outside investments

While your TSP is valuable, it’s best to have more than one investment account. To effectively plan for retirement, the TSP should be coordinated with your IRA and any other non-retirement accounts. This way, all of your accounts are working together to ensure you reap the most benefits and are financially stable and secure throughout retirement. 

8. Investing based on past performance

It’s best to pick a fund that reflects your future financial goals and risk tolerance and not one that is based on previous year’s performance. 

9. Misunderstanding your withdrawal options

You have three options to withdraw money from your TSP: 

1. Withdraw your money in equal monthly payments based on actuarial tables or the dollar amount

2. Request that the TSP purchase a life annuity on your behalf

3. Withdraw as a lump sum 

If you are over the age of 70 1/2, The TSP plan requires you to take minimum distributions. Whether you withdraw your money in equal payments or as a lump sum, you can have a portion of your money transferred into another employer-sponsored retirement savings plan or an IRA to maintain a tax-favored status.

 Widely considered a smart option for sustaining income during retirement, annuities come in many forms, add-ons, and varieties. 

Leader of Nationwide Advisory Solutions based Louisville, Kentucky, Craig Hawley says that despite both the challenges and changing landscape of retirement income, annuities are one of the only guaranteed sources of income that clients aren’t able to outlive. 

Essentially, annuities are a contract between insurance carriers and clients. There is variance in the way funds are invested and disbursed, but what is constant is the promise of a payout. The only question on clients’ minds then is when, and what are the consequences of receiving a payout at one point in retirement versus another? 

One Size Does Not Fit All 

Hawley says the answer lies in the development of a strategic plan. What’s best for one client depends on many variables and may not always be the smartest move for someone else. Clients have to consider their own income needs, alternative sources of income, their health, and life expectancy. 

Every annuity is just as complex and unique as each client. David Lau is the CEO and founder of DPL Financial Partners, based in Louisville, KY, and works primarily with registered investment advisors to offer a range of annuity and insurance consulting services. Lau notes that the features of an annuity’s income are set up to be employed at the age of 65. 

Why Wait?

With that in mind, it may actually still be smarter for clients to wait until age 65 and beyond to reap the income benefits of the annuity, says Lau. In general, it’s not of benefit for the client to wait unless the product has deferral credits. With the ability to increase the payout amount for particular annuities, deferral credits make the income payouts worth the wait. 

Some annuities are set up, so the amount of the payout goes up when the client ages out of one band and into a new one. This was noted by Bryan Pinsky, senior vice president of product development and individual retirement pricing at annuity provider AIG. Pinsky explains that either by an index or market-based performance or guaranteed rate, payments for other annuities are likely to increase over time, and then hold the potential to get locked in after a set period of time.

While they certainly are valuable, annuities can be complicated. Before you consider one, it’s best to familiarize yourself with the fundamentals.  

Quickly gaining in popularity amongst older investors, annuities can help ease the concerns that retirees have over maintaining a stable income. Each year, more and more retirees report that among their top concerns is running out of money. The right type of annuity can provide a reliable income source after the luxury of a steady paycheck ceases. 

The American College of Financial Services researchers Wade Pfau and Michael Finke recently conducted a survey that revealed that adding income annuity can increase the chances of a retiree’s portfolio lasting until they reach the age of 95. The study was funded by Principal, an insurance and financial management company, and found that utilizing both investments and annuities can improve the legacy value of assets long term. 

The basics of an income annuity are pretty simple: Through a contract between insurance companies and individuals, investors put money into a contract that guaranteed how and when they’ll earn back their money. However, that’s where the simplicity with annuities ends. There are many types of annuities, each with their own set of complex riders, rules, fees, and complications. The guarantee offered by the contract is up to the claims-paying ability of the insurance company. 

It’s wise to be a little skeptical when approaching any investment, and annuities are no exception. Annuities are not necessarily a smart addition to every retirement plan, but it can pay off for those who do their research, make the purchase through a reputable company, and understand how the product will affect their current portfolio. 

If you’re interested in the possible benefits of an annuity, here are a few basics: 

The Five Main Types of Annuities

Fixed annuities: Those who purchase a fixed annuity receive the benefit of a fixed interest rate for a set period. Similar to a certification of deposit, the rate won’t increase when the market is good, but the investor can earn the stated interest rate. The investment also can’t lose money when the market is down or through a decrease in actual dollar value. 

Variable annuities: These types of annuities are directly linked to the stock market or any other investments the owner chooses. Gains and losses are based on the performance of those accounts, so unlike a fixed annuity, this annuity can vary depending on the stock market. If the fund is performing well, then the annuity value will increase, and the owner could receive a larger payout. Even if the fund isn’t doing well, the contract’s guaranteed rate may still offer a stable long-term income.  

Fixed indexed annuities: Combining features of both the fixed and variable annuities, a fixed indexed annuity offers a guaranteed minimum rate of return so investors can protect their Principal. Fixed indexed annuities are also connected to an underlying index, such as the S&P 500, so if the stock market is healthy, there is the capacity to earn more. It’s important to read the fine print on these types of plans because the upside is subject to participation rates, spreads, and caps.  

Deferred annuities: With this type of annuity, the investor makes a payment upfront, but the insurance company delays the payout of income until the investor reaches a specific age. The benefit is such that the payouts can be higher than with intermediate annuities, mainly if the payout start date is far in the future, but the risk is that the investor may not reach the age in which they receive benefits. 

Intermediate annuities: An intermediate annuity allows the investor to make a lump-sum payment to the insurance company to start immediately collecting income payments, usually within 30 days. These types of annuities can be set up to pay out either for a fixed period or over one’s lifetime. Because the payouts are typically sensitive to interest-rates, this could affect the overall income provided by the annuity. 

You, like most people, want to increase efforts to reduce expenses and debt and raise your retirement income. With that in mind, here are five ways to help you fill out your retirement nest a little faster.

1. Increase your TSP savings.

For a quick and easy projection of your account balance growth and future contributions, utilize the Securities and Exchange Commission’s Compound Interest Calculator. To calculate TSP (Thrift Savings Plan) monthly savings, make sure you include agency matching and automatic contributions as well as your own. The TSP has its own calculator, How Much Will My Savings Grow, that can be used to run a number of interest rate possibilities. Additionally, clients can then use the TSPs Retirement Income Calculator to convert the balance into retirement income.

2. Reduce the amount you’re paying in taxes.

Consider reaping the benefits of pre-tax dollars by expanding the amount of contributions you make to your thrift savings plan. However, if you already are saving after-tax dollars with the Roth TSP plan, you’ll reduce the amount of taxable income in retirement. You can choose to pay the IRS now or later. Another option is to cover your health care expenses by using a high-deductible health plan with a health savings account to experience tax-free savings. A flexible spending account will allow you to pay for dependent care expenses and out-of-pocket health costs up to an annual limit.

3. Get credit for your past military and federal service time.

For every month of service, you earn 1/12th of a percentage of your high-three average salary. While the percentage can vary from 2 percent for Civil Service Retirement System workers and 1 to 1.1 percent for FERS, every month or month of your service is worth collecting the benefits of. Be sure that your employment history indicates the start and end dates of each appointment as well as the work schedule and retirement coverage. Locate these records within your electronic official personnel folder and keep a safe copy.

4. Consider paying deposits to your retirement fund.

In some cases, you may have to make a deposit into your retirement fund in order to gain full credit for this annuity service. Rules differ for military and civilian service credit as well as for FERS and CSRS. Be sure to connect with a retirement specialist in your company’s human resources department to determine what kind of effect paying this deposit would have and whether or not you wish to make that decision.

5. Keep working if you’re under the Federal Employee Retirement System.

At the very minimum, it’s best to keep your job until you qualify for Social Security retirement, cost of living adjustments, and the FERS 1.1 percent annuity calculation factor. As in, if you’ve had 20 years of service, work until you reach the age of 62.  

These suggestions are designed to help you surpass your expectations for a stable and steady retirement, and hopefully quicker than you think. 

Sometimes, the unthinkable occurs, and while it’s never a pleasant thing to have to consider, it is important for married couples to get their affairs in order in case of the loss of one of them.

This is especially true for those who are about to retire, as the plans you may or may not have opted into as you transitioned out of work could have lasting effects on the benefits a surviving spouse could receive. Retiring can certainly be overwhelming even without considering that possibility, but there are certain things you can do today that can lower the stress that you or your family will face when one of you passes away. This can reduce not only the worry about the inevitable but can reduce the amount of burden imposed on the survivors when the time comes.

There is a document you can access called Be Prepared for Life’s Events through the National Active and Retired Federal Employees Association which gives a run down on preparing to survive a loved one, including where to file the necessary information beforehand so that you’ll be able to look it up quickly, all the insurance contracts and website passwords one might need to access after you or your spouse passes away.

Things like outstanding loans or unresolved debt in your spouse’s name can come back and bite you hard if you aren’t able to access or at least be made aware of certain accounts that your loved one may have opened up.

And while putting all that information in a safe place for each other should be paramount, it is also wise to keep your benefits through your employer, such as life insurance, even throughout retirement. And if you are a federal employee also, your designations and beneficiaries will surely hang upon your partner’s death, so it’s wise to keep that in mind when filling out the paperwork.

As you sort through your and your partner’s joint paperwork, you’ll see how much there is to do: replacing shared accounts with accounts for you only, figuring out the new tax situation you’ll be in, and deducing which benefits you’re going to be eligible for. Usually, with FERS you have to option to take the death benefit as a single sum or get it paid out over the course of 3 years to help alleviate some of the tax stress it could put on you.

This would also be a period to reassess your own goals and plans for the future, including your housing situation and what you might need to not only take care of your late partner’s expenses financially but emotionally as well.

There are lots of options when it comes to financial advisors for federal workers, so much so that weighing the pros and cons of each can be an overwhelming experience. But, whether they claim to be the best type of advisor or not, it would make sense for you as an employee to look into the different types of financial advisors (and how they get paid from you) before you start seeking their council.

There are typically three things you want to look into when selecting an advisor. How do they do business, including their compensation? Are they acting in your best interest, and does their advice seem to reflect that? And are there any conflicts between the advice they are giving and the amount they’re able to collect for their services?

There are several specific types of financial advisors, which will discuss now.

First, you have the insurance agent, who makes all their money through an upfront commission, without any recurring forms of payment occurring later. Insurance agents are agents because of their business, which is sales, which would normally be annuities, like EIAs, or Equity Indexed Annuities, or FAs, or fixed annuities. They also sell term, whole, or universal life insurance.

Insurance agents will not offer up advice when it comes to investing because that is out of their purview.

The commission they take can vary depending on what you purchase after a consultation, but on the year one premiums on index annuities it can be as low as 3 percent and as high as 10 percent. And for life insurance, those rates can vary from 50 percent up to 110 percent!

So do insurance agents always act in the best interest of their client? Hopefully so, but that is not always the case, as they are trying to sell you on either life insurance or an annuity, and their paycheck depends on what you buy. Of course, they will try to help match you to the right product for your needs, but that doesn’t always guarantee that they are acting with your best financial future in mind.

Insurance agents are who you should be going to if you are looking to put your money into term life or an indexed annuity, but beyond that, they might not offer you much-unbiased help.

And of course, their pay being commission-based means that there is a conflict of interest between what you spend, and what they get paid. And for those who take an upfront commission, they have no reason to keep giving you advice once they are done making their dollar.

Second, it is similar to an insurance agent, and that’s an insurance company advisor. The main distinction between the two is that an insurance company advisor has more options as to what they can sell you, including variable annuities and mutual funds. Beyond that, all the downsides to working with an insurance company advisor are the same as working with an insurance agent and listed above.

The third type of advisor is the kind that can offer you one-stop shopping, meaning that they have all the training and licenses to give you all the advice you need, including insurance, securities, and investments. These type of advisors will get paid differently depending on what you need, sometimes in commission, and other times work for a flat fee. Commissions are generally collected when you buy insurance, mutual funds, annuities, and securities. The fee-based payment method often applies to things like asset management and can be as high as 2 percent of your total assets.

Will a one-stop shopping advisor have any conflicts of interest? Since commission is in play like with insurance agents, the answer to that is yes. Legally, he must always act in your best interests when it comes to asset management, but when it comes to insurance products, it can vary depending on your needs and the agent involved.

The final type of advisor is the kind that works for a fee-only, meaning no commissions, and his pay comes from you directly based on whatever criteria you need to use them for. A lot of fee-based advisors also sign a fiduciary oath, meaning they always must act in their clients best interest, which unlike the other options listed above, removes any conflicts of interest you might encounter working with them. They can help you manage your money in an ongoing manner, and be paid through a few different methods, depending on what you need them for, but the amount you owe should be known from the get-go.

In the end, only you can decide what type of advisor is going to help you get the financial security you need. Insurance agents are the best if you are looking to buy insurance, but if money management is your need, then looking into a fee-based advisor might make more sense. With this knowledge of how these people get paid, do your research for each individual advisor before going to them, and you should be fine.

Here’s some good news for all us working stiffs: more retirees are making over a million dollars with their employer’s retirement plans than ever before.

Enrollees in 401(k) plans who have attained millionaire status has increased in the last year from 180,000 to 196,000, while the number of IRA retirees who have reached millionaire status is also the highest its ever been, encompassing 179,700 participants. And both those numbers seem to keep growing.

This is in addition to the millionaire participants in the TSP, or Thrift Savings Plan, which is the 401(k) like the package that the government offers exclusively to federal employees, which had a few hiccups earlier in the year before a quick turnaround in the stock market. Over time, the TSP millionaires seem to be rising steadily each year by 38 percent.

Of course, not everyone participating in these programs can obtain millionaire status, but it still is worth looking into the methods they used to achieve it, to see how they might be applicable in your situation.

The biggest provider of 401(k)s in America is a company named Fidelity. Looking at their data, it takes the average retired millionaire 28 years of contributions to get there, with a quarter of those people making less than $161,000 a year.

Extrapolating from that, it seems the trick is to keep investing, even in lean times, when the market is in upheaval, and to use as many resources as are available to them through their individual plans. Investing in the market is where most of these millionaires put their equity, with 16.2 percent of their paychecks getting put into stocks at a ratio of 75 percent. Fear of a recession and acting conservatively because it can make you miss out on the uptick once the market recovers. Changing course on substantial investment just because of market turmoil more often than not leads to worse returns than just riding out the ups and downs. That is because, with a diversified retirement account, you should be less focused on the changing value on the day to day basis, but the longer-term trends, over many years.

Even with a million dollars in your retirement fund, there is still the question of is it enough for you depending on what your lifestyle needs are. But looking at the trend, with more millionaires than ever, it should be a good sign for all retirees regardless if you have a million dollars in the bank or not.

It takes time to reach the million-dollar mark and a sound investment strategy. You can start by contributing the maximum you’re allowed, which is currently 19,000 dollars, except for those over 50, who are allowed to contribute an additional 6,000 dollars to catch up. Start saving today, and be a millionaire tomorrow.

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.

2. Invest!

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.

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.

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.

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.

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.

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.

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.

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.

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.

FERS

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.

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.

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.