Federal Employees that are covered by the Civil Service Retirement System (CSRS) Offset retirement plan and paying into it are also paying into Social Security, meaning retirement credit is being earned under both of these. When it comes to CSRS Offset, all CSRS rules apply. This includes the age and service requirements for eligibility for retirement.
You may be wondering what the difference is. When CSRS Offset employees retire, their annuity is calculated similarly (under the same rules that apply) to a worker under full CSRS. Although, when a CSRS Offset employee retires and becomes eligible for Social Security, which is generally around the age of 62, the CSRS annuity will be reduced (or “offset”) by the value of the Social Security benefit that was earned over the course of federal service after 1983 (while covered by CSRS and Social Security) by the Office of Personnel Management (OPM).
In most cases, the employee receives an approximate amount of the offset from Social Security when applying for benefits, meaning no loss of annuity.

There will be no offset of the CSRS annuity if a retired CSRS Offset employee does not become eligible for Social Security benefits.
After the age of 62, should the federal employee then retire and become eligible for Social Security benefits, the offset would be made at the time of retirement.

The FEGLI (Federal Employee Group Life Insurance) program is, worldwide, the most extensive group life insurance program. It covers over 4,000,000 federal retirees, employees, as well as their family members. Several of those employees covered don’t entirely understand what they have in coverage and what options they have. They signed up the opportunities that seemed most efficient, and there is an emerging trend of people not re-examining their choice since their date of hire.

A Federal Employee who was hired while young possibly had a family member or someone depending on their income. Since that time there have been changes and in some cases that employee may not require as much life insurance if any at all. Here we will examine the four parts of FEGLI and the effects it may have while you are working.

FEGLI Basic

‘Basic’ is the first part of your life insurance. FEGLI Basic is your salary rounded up to the nearest 1,000 plus $2,000. As an example; if you earn $52,800 a year your coverage would then be rounded to the nearest thousand ($53,000); plus add on an additional $2,000. So, the essential coverage of death benefit for your salary would be $55,000.
This cost of the primary option is fifteen cents per $1,000 in coverage per pay period. It is worth noting that the price per 1,000 will not increase over time.

Some advisors are not familiar with Federal Life insurance program. They may advise people incorrectly to cancel this insurance because it “gets too expensive as you get older.” This could be true of some parts of FEGLI, but not necessarily true of your primary options.
You can quickly reference your leave and earnings statements to see what you’re paying for your Basic coverage. Sometimes FEGLI Basic will be shown as the FEGLI Regular deduction on your Leave and Earnings statement.

You get what is called the Extra Benefit if you are thirty-five years old or younger. Extra Benefit will double your primary coverage for no additional cost. Beginning at age thirty-five it declines by ten percent per year until at the age of forty-five the Extra Benefit will end, and all that remains is Basic coverage.

Option A

An optional flat $10,000 additional coverage. Based on your age, the cost will continue to go up every five years. The coverage remains an even $10,000. This coverage is something you can either elect or decline.

Option B

FEGLI Option B is an optional coverage that must be elected. It is an additional one to five times your basic pay.

Based on your age, the cost will go up every five years. The price per 1,000 is competitive in the private insurance marketplace until you reach age fifty-five.

You will want to pay attention to what you’re paying for Option B. As previously stated, the cost goes up every five years, but how much will they increase?

The increases are mild until age fifty. In the chart below it is shown that the cost rises by about 50% between the age of fifty and fifty-five. If you take a look at the increase at age sixty, your costs may be more than double.

It is recommended that you examine your leave and earnings statement. Check for a deduction that says “FEGLI Optional” or if you have a second FEGLI deduction with a high premium.
Age Group Bi-weekly Holding per $1,000 of Insurance Monthly Withholding per $1,000 of Insurance

Option C

For family coverage we will take a look at FEGLI Option C.
This option is for coverage where you may elect coverage for your spouse and/or eligible children. You may choose in increments of five-thousand dollars for your spouse and twenty-five hundred dollars for your children. Up to five multiples may be elected for each family member. This cost is based on the age of the employee and increases every five years.

How can I tell how much coverage I have?

Reviewing your SF-50 may be the best place to find this information. Your recent Standard Form 50 Notice of Personnel action will have a detailed description under “Box 27 FEGLI” what coverages and at what multiples you currently have. It is also possible to reference your leave and earnings statement. With most agencies that will not give you the coverages, but usually the costs.

Can my coverage be increased?

There are only a few instances in which you can enroll and increase your coverage. Outside of open enrollment season, eligible employees can improve or enroll in coverage by having a physical exam with a Qualifying Life Event. Open season for FEGLI life insurance is extremely rare, and none are scheduled currently. OPM’s website and your agency will announce when there is a life insurance open season is coming up. The most recent FEGLI open seasons took place in 2004 and 1999.
Is it possible for me to cancel my coverage?
At any time of the year, you can cancel some or all of your FEGLI. You can keep some coverage but cancel; the other. For instance, you would be able to cancel Option B but keep your Basic.

Another option would be to reduce your coverage. If Option B‘s5 times your salary has unexpectedly become too expensive, you would be able to cut it to one to 4 times your wage. However, you may not be able to re-acquire that same coverage once you have elected to reduce it. It is essential to be sure that it is something you want to do before taking action.

Is buying outside life insurance an option instead?
This is a possibility, but you may want to consider a few things beforehand. There are various kinds of life insurance, and an outside plan requires underwriting. An individual plan could save you money if you are healthy. But meeting with a life insurance professional who is familiar with the single life insurance marketplace as well as the Federal Life Program. Unless the new life insurance program has approved you, do not cancel or reduce the FEGLI.

A Federal Employee who was hired while young possibly had a family member or someone depending on their income. Since that time there have been changes and in some cases that employee may not require as much life insurance, if any at all.

Here we will examine the 4 parts of FEGLI and the affects it may have while you are working.

FEGLI Basic

‘Basic’ is the first part of your life insurance. FEGLI Basic is your salary rounded up to the nearest 1,000 plus $2,000. As an example; if you earn $52,800 a year your coverage would then be rounded to the nearest thousand ($53,000); plus add on an additional $2,000. So, the basic coverage death benefit for your salary would be $55,000.

This cost of the basic option is fifteen cents per $1,000 in coverage per pay period. It is absolutely worth noting that the cost per 1,000 will not increase over time.

There are some advisors who are not familiar with Federal Life insurance program. They mayadvise people incorrectly to cancel this insurance because it “gets too expensive as you get older”. This could be true of some parts of FEGLI, but not necessarily true of your basic options.

You can easily reference your leave and earnings statements in order to see what you’re paying for your Basic coverage. Sometimes FEGLI Basic will be shown as FEGLI Regular deduction on your Leave and Earnings statement.

You get what is called the Extra Benefit if you are thirty-five years old or younger. Your basic coverage will be doubled by Extra Benefit for no additional cost. Beginning at age thirty-five it declines by ten percent per year until at the age of forty-five the Extra Benefit will end and all that remains is Basic coverage.

Option A

An optional flat $10,000 additional coverage. Based on your age, the cost will continue to go up every 5 years. The coverage remains an even $10,000. This coverage is something you can either elect or decline.

Option B

FEGLI Option B is an optional coverage that must be elected. It is an additional one to five times your basic pay. Based on your age, the cost will go up every five years. The cost per 1,000 is competitive in the private insurance marketplace until you reach age fifty-five.

You will want to pay attention to what you’re paying for Option B. As previously stated, the cost goes up every five years, but how much will they increase?

The increases are mild until age fifty. In the chart below it is shown that the cost rises by about 50% between the age of fifty and fifty-five. If you take a look at the increase at age sixty, your costs may be more than double.

It is recommended that you examine your leave and earnings statement. Check for a deduction that says “FEGLI Optional” or if you have a second FEGLI deduction with a high premium.

Will you be required to pay taxes on retirement income?

It depends on what sources of income you have and where you live.
For most retirees, Social Security is their primary source of income, and in the majority of the U.S., your state will not tax you on it. The federal government, however, may. This depends on how much you earn.
Thirty-seven states in the U.S. do not tax Social Security benefits. No matter how much your interests are, or what other forms of income you may be receiving, they will not tax you. While Washington, D.C. isn’t a state, they also do not impose on Social Security benefits.

You can relax and enjoy your social security benefits free of state taxes if you live in:

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Delaware
• Florida
• Georgia
• Hawaii
• Idaho
• Illinois
• Indiana
• Iowa
• Kentucky
• Louisiana
• Maine
• Maryland
• Massachusetts
• Michigan
• Mississippi
• Nevada
• New Hampshire
• New Jersey
• New York
• North Carolina
• Ohio Oklahoma
• Oregon
• Pennsylvania
• South Carolina
• South Dakota
• Tennessee
• Texas
• Virginia
• Washington
• Washington D.C.
• Wisconsin
• Wyoming.

If your income is more than a certain amount, you may still end up paying federal tax on your benefits. Income to define if you’ll need to pay federal tax equals the sum of all your taxable income from other sources, some non-taxable income, in addition to half your Social Security benefits.

By that definition, if your income is at least thirty-two thousand dollars if you are married and are filing jointly or $25,000 for all other filing statuses, up to fifty percent of your Social Security benefits may e subject to taxation by the federal government. For married joint filers, if the combined income escalates to $44,000 (or $34,000 for others) up to eighty-five percent of benefits may be taxed. There are also some states that do not tax pensions.

It is extraordinarily rare for workers to retire with a pension providing a guaranteed income from an employer (also known as a defined benefit pension) many government employees, usually members of the military, and some private sector workers will receive retirement income from it.
For those of you receiving a pension, states who do not tax pensions are:

• Alaska
• Florida
• Illinois
• Mississippi
• Nevada
• New Hampshire
• Pennsylvania
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Taxes in some states are limited on pensions. Or are sometimes certain types of annuities are exempt from tax, such as military or government pensions. These include:

• Alabama
• Arkansas
• Colorado
• Delaware
• Georgia
• Hawaii
• Iowa
• Kentucky
• Louisiana
• Maine
• Maryland
• Michigan
• Missouri
• Montana
• New Jersey
• New Mexico
• New York
• Ohio
• Oklahoma
• Oregon
• South Carolina
• Utah
• Virginia
• Wisconsin

You may grant a breaks, but the IRS typically taxed some or all money from a pension. If you did not contribute to the pension or annuity pension payments are fully taxed. If your employer did not withhold contributions from salary, and you received tax-free contributions to the pension your pension will be imposed. You are not taxed on returns on your after-tax contributions because pension payments are only partially taxable if you made contributions using after-tax dollars.
Veterans’ disability retirement benefits are not subject to federal tax, but military retirement pensions based on length of service can be.
Some states do not want tax withdrawals from retirement accounts
The money you take out of your statement isn’t subject to tax if you have a Roth 401(k) or Roth IRA. Depending on where it is that you live, your state may or may not tax this income.

You will not be taxed on distributions from retirement accounts if you live in

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

These states don’t charge any state income tax, so the absence of a state income tax also explains why Social Security benefits and pension are not subject to tax in these states…

Tennessee and New Hampshire, don’t charge taxes on wage income but do enforce a tax on some types of investment income.
There are areas where they treat distributions from retirement accounts differently than they treat other income, while some places charge no tax on that income and others allowing for exemption of high amounts of money.

Illinois, Mississippi, and Pennsylvania will not tax on distributions from your retirement accounts. But in Colorado, Georgia, Kentucky, Michigan, Oklahoma, South Carolina, Virginia, and West Virginia, you can exempt an extensive amount of income from taxes.

As a senior, if you have a choice in where you live, it would make sense to choose a tax friendly state. When you are living on a fixed income from investments, social security benefits, or a pension, there is no reason to give more of that money to the government than you have to.

On Thursday, a fiscal 2019 appropriations package 217-199 that effectively endorses President Trump’s proposal to freeze federal civilian employees’ pay next year, was approved by the House, fining it planted in opposition to the Senate.

The Financial Services and General Government appropriations bill, included in the minibus package (H.R. 6147), generally acts as the vehicle for congressional action on federal employee compensation. The law effectively endorsed Trump’s proposal to keep pay at 2018 levels because it is missing any mention of across-the-board pay raises for civilian workers.

However, several House Democrats have endorsed a bill that would provide civilian federal workers with a three percent raise in pay in 2019. Though it has not been acted upon.

Thursday’s vote increases the likelihood of a fight between lawmakers over a possible pay raise for federal employees. Senate appropriators included a 1.9 % pay increase for federal employees in that chamber’s fiscal 2019 Financial Services and General Government appropriations bill last month. After voting down 29-2 a Republican amendment removing the pay increase provision, the Senate Appropriations Committee approved the bill unanimously.

The full chamber has yet to vote on the spending package, but it is anticipated that senators will support the measure as well as other appropriations bills in a comparable minibus format. Lawmakers from the House and Senate will likely debate as to whether or not they should approve a pay increase in conference committee.

The Senate proposed 1.9 % pay raise would still fall short of the Trump administration’s proposed raise for members of the military. Under the White House proposal, service members would receive a 2.4 percent pay increase in 2019.

Neither has selected the spending package to fund the White House’s proposed one billion dollars inter-agency workforce fund, expected to support agency pay-for-performance pilot programs and billed by Office of Management and Budget officials as a substitute for the customary across-the-board raise.

On Wednesday the Trump Administration issued a final rule clearing the path for the sale of more health insurance policies that do not comply with the Affordable Care Act. They also do not have to cover maternity care, people with pre-existing medical conditions or prescription drugs.
The President had said that he believes that this new “short-term, limited duration insurance” stands to help millions of people who do not need or wish to have comprehensive health insurance that provides the full range of benefits required by ACA.

Mr. Trump has said that the new plans will provide “much less expensive health care at a much lower price.” The benefits will be lower, which will allow for the prices to be smaller, but insurers are not required to provide coverage for pre-existing conditions or to the people who have them.

Democrats have criticized the new policies as “junk policies” that will coax healthy people away from the standard insurance marker, causing premiums to rise for sicker people, putting purchasers at risk.
Representative Nancy Pelosi of California, the House Democratic leader, has said, “After an illness or an injury, many Americans who enroll in these G.O.P. junk health coverage plans will end up being hit by crushing medical bills, finding that they have been paying for coverage that doesn’t cover much at all.”

The current rule, issued by the Obama Administration in late 2016, states that short-term insurance can’t last for more than three months, because it was intended to be a stopgap. Under this new rule, the limit would be three hundred and sixty-four days. Insurers would be allowed to extend policies, but not required to do so. The duration’s maximum would be thirty-six months, including any extensions.

People struggling to afford coverage under the 2010 law may find the new options helpful. “These plans aren’t for everyone,” said Alex M. Azar II, secretary of health and human services, “but they can provide a much more affordable option for millions of the forgotten men and women left out by the current system.”

While stretching the general understanding of the terms, the new rule is packaged as a redefinition of “short-term limited duration insurance.” Some of the new policies could seem to be more attractive options for potentially healthier customers who are now paying higher prices for significant medical coverage but may be willing to take more risk in exchange for lower rates.

Paul Spitalnic, the agency’s chief actuary, estimates that short-term policy premiums would be about half the average premium for coverage sold in insurance exchanges under the Affordable Care Act. Roughly $340 compared to $620 next year.

Some insurance companies, doctors, hospitals, and consumer advocates have expressed concerns regarding the new plans, feeling they would not correctly protect people who develop serious illnesses and may destabilize insurance markets by luring away healthy people.
Those who purchase the new policies and develop cancer could “face astronomical costs” and “may be forced to forgo treatment entirely because of costs, “ said Chris Hansen, the president of the American Cancer Society Cancer Action Network.

Officials from the Trump administration have said they would require insurers to explain precisely what is and is not covered to their customers under new policies.

In just two months the new rule takes effect. Customers may see the new policies in October or November. Since the annual open enrollment period for the Affordable Care, act begins November 1st, so this may create a potentially confusing time for customers who generally shop for insurance that complies with the ACA during that time.

Short-term policies will be subject to state regulation. States will be able to restrict their sale or require specific benefits. Some states have indicated that they intend to do so.

Another rule issued by the Trump administration six weeks ago makes it easier for small businesses to band together to set up health insurance place that works around some of the requirements for the Affordable Care Act.

Assistant vice president of the American Lung Association, Erika Sward, described the rule on short-term insurance as “one more blow of an ax to stable state marketplaces.”

Over the course of the last year, the Trump administration has also cut funds for groups that assist people with signing up for coverage; asked the federal court to discard portions of the Affordable Care Act, including the protections for persons with pre-existing conditions and ended cost-sharing subsidies paid to insurers on behalf of those with low-income.

Some insurers see the new short-term plans as a potentially lucrative opportunity. While the UnitedHealth Group is still actively selling short-term medical plans through Golden Rule Insurance Company, they have largely withdrawn from the Affordable Care Act marketplace,
UnitedHealth says on its website that short programs are available for as low as $23.70 per month — for some unmarried women aged nineteen to twenty-four who do not smoke. These plans have a deductible of $10,000, which is $2,650 more than the out-of-pocket costs allowed under an Affordable Care Act-compliant plan.
A footnote on their webpage states, “Short-term health insurance is medically underwritten and does not cover pre-existing conditions.”
Starting October 1st, Jan Dubauskas, general counsel of healthedeals.com, a division of the Independence Holding Company, known as IHC Group, said her company would go to market with twelve-month plans in states that allow them. Such as Arizona, Arkansas, Oklahoma, and Texas.

Initially, these short-term plans were intended for people between jobs or who needed temporary coverage for other reasons.
“The new plans will no longer be just transition coverage. They will be an alternative to comprehensive insurance. They will split the market into plans for healthy people and plans for sick people,” said Mary Dwight, a senior vice president of the Cystic Fibrosis Foundation.

The administration has acknowledged that making short-term insurance more available, for more extended periods of time, could potentially raise the premiums for individual health insurance coverage in the Affordable Care Act marketplace. Federal costs also rise when premiums rise, because the government subsidizes premiums for more than eighty-five percent of people purchasing insurance in the marketplace.

The added cost to the federal government will total twenty-eight billion dollars over 1en years, according to an official estimate published with the new rule.
Federal subsidies are not available for short-term policies. The administration predicts that most of those who qualify for subsidies will stay in the public marketplace.

However, most people who switch from a marketplace plan to short-term insurance “will be relatively young or relatively healthy” and will likely have annual incomes higher than $48,000 for an individual or $98,000 for a family of four, making them ineligible for subsidies.
Administration officials have said they still wanted the Affordable Care Act repealed and replaced by Congress. Until that happens, said senior advisor to Mr. Azar, James Parker, “We are looking to do everything we can to take incremental steps that will make insurance coverage of any type more affordable.”

Could Changes be Coming to Your 401 (k) and IRA?

Among a series of changes Congress is looking at, one, in particular, is that 401(k) sponsors would have to show how much income your balance would generate with an annuity on each statement, with the goal of helping you understand where you stand on a potential retirement level. Lawmakers may also lift age limits on IRA contributions. Currently, the threshold stands at 70½ or older. However, if that is raised, then Americans who are older and still working could deposit up to $6,500/year (in either a traditional IRA or a Roth IRA).

Another consideration is a new type of universal savings account. This account would include more flexible withdrawal rules over existing retirement accounts available. Employers could automatically enroll employees in emergency savings accounts, but not to worry, employees would also have the freedom of an “opt-out” option.

Impact on Medicaid and Social Security & Election outlook

The deficit is surging now that the significant tax cuts signed into law last December have started to kick in. Recently, the Trump administration has acknowledged that the deficit could hit nearly $ 1 trillion, beginning as early as next year. The national debt, which is now on its way to hit $33 trillion by 2028, is also growing much quicker than expected.

Now Republican leaders who pushed for these tax cuts say something must be done. These Republican leaders introduced a bill this spring that requires Congress to balance the federal budget, but it failed to pass. The underlying mentality that budget cuts are coming could potentially spell trouble for entitlement programs.

Max Richtman, of the nonprofit National Committee to Preserve Social Security and Medicare, told AARP, “What we continue to worry about is that the next shoe to drop will be Congress saying, ‘Now we have to look at Social Security and Medicare because now we have this ballooning deficit.” The outcome of what could happen depends on the outcome of the November midterms as well as 2020.

By 2021, Social Security will begin paying out more than it takes in, the Trump administration has already warned, and benefits could potentially be cut 23% by 2034. That is unless steps are taken to build it up.

How Are Retirement Savvy You?

According to a recent survey by GoBankingRates, when asked about the most fundamental questions about Social Security and Medicare benefits and retirement ages, only 2% of Americans knew. Unfortunately, not knowing these answers can cost you big! It would be wise to take it and find out if you are in the same knowledge boat as the rest of America.

When it comes to that 4% withdrawal rate, you could be seriously shortchanging yourself.

There is a general “rule of thumb” when it comes to retirement saying that you should withdraw only 4% of your portfolio each year, but you may be able to do better. Maryland-based financial advisor Michael Kitces has researched this and says that living by that rule “will most commonly just leave a huge amount of money left over.”

Kitces’ research (going way back to the 1870s and using data from famed Yale economist Robert Shiller) also accounts for massive stock market SPX, +0.46% crashes like the wipeouts of 2000-2002 and 2007-2009, and he found that the average person (more than two-thirds of the time) ends up with nearly 2.8 times more than what they started with. That’s even with adjustments for inflation. Kitces says, “it’s overwhelmingly more likely that retirees will have opportunities to ratchet their spending higher than a 4% rule than ever need to spend that conservatively in the first place!” The only thing to be wary of would be another Great Depression.

Dana Anspach of MarketWatch also points out that typically the 4% rule fails to consider that there may be other sources of income, such as Social Security and maybe even a pension, as well as the timing of when those sources could be tapped into.

If you were to stop working at the age of 60, for example, would it make sense to stick with the 4% knowing that they will soon generate cash? Aspach says that many retirees won’t do this “because the popularized rule of thumb has made them fearful that they’ll run out of money if they don’t follow the rule each year. In fact, when done properly, often the opposite is true. Customized withdrawal plans increase the odds your savings will last longer.”

No matter what, these things are always best to discuss with a financial advisor.

A $153.2 billion spending bill has been approved by The Senate, which ties together many of the regular annual appropriations measures. This includes the general government appropriations bill that contains federal workplace-related policies. Their version provides a 1.9% (total) raise, which is divided across the board and locality components, but the House’s version of the general government bill has already passed.

Despite requests from the White House to forego a raise in January, The Senate voted for it anyway and created a central $1 billion fund meant to pay incentives for high-demand occupations and rewards for the high-performing employees. However, similar to the previous requests, the message didn’t contain many details. Neither version addresses that the general government bill could potentially put a fund such as this into law.

The Senate version stated: “The administration is concerned that the bill provides an across-the-board pay increase for federal employees in the calendar year 2019. Across-the-board pay increases have long-term fixed costs, yet fail to address existing pay disparities, or mission-critical target recruitment and retention goals. As proposed in the administration’s request for a Workforce Fund, the administration continues to support performance-based pay that is strategically aligned toward recruiting, retaining, and retaining high performers and those in mission-critical areas.”

The idea initially surfaced in the White House budget proposal earlier this year. However, since then, the administration has not provided details required by Congress to write this idea into law. The administration has not said how much of the amount would go to each, but it did mean that part of it would go toward paying incentives for high-demand occupations as well as rewarding top performers. The administration also noted that they intend to use some of the money to “develop and fund innovative solutions aimed at recruiting, retaining, and rewarding high-performing federal employees and those with critical skills sets.” Again, this is without specific details.

There are also many issues that could potentially arise when it comes to making payments based on performance that has not been addressed by the administration. These could include the question of whether or not only top-level rated individuals would receive a reward. If not, then what would the ratio of payments by rating level be? There is also the question of how rewards would be presented; in dollar amounts or percentages of salary. It is also unclear how to account for the different types of performance rating systems across the government.

An amendment to the Senate spending bill that would have barred a recent executive order moving administrative law judges from the competitive service to the excepted service was under consideration.

According to the White House, that change was required. They said it was due to a recent U.S. Supreme Court decision holding that ALJs must be appointed by agency heads. However, many legal associations have stated that the problem could have been solved by the agency head certifying the hiring of an ALJ and that by putting a stop to the previous competitive process along with some qualifications requirements, there is a higher risk of political influence in ALJ hiring. There was a similar amendment that was suggested for the House version, but that was rejected as well.

The stock market seemed to have performed well for investors in July:
• Dow Jones: up 4.3%
• S&P 500 (the index the C fund is based on) – gained 3.1%
• Nasdaq – up 1.6%

Highest Performing TSP Funds in July

All the Thrift Savings Plan (TSP) funds showed positive returns for July.
S Fund on Top for Past 12 Months & C Fund on Top for July
The S fund seems to be leading all funds for the past 12 months (with a return of 17.46%), while the C Fund came out on top in July (with a return of 3.72%).

When looking at year-to-date, the S Fund shows a return of 7.91% and is on top of all TSP Funds. However, the C Fund is a close second for the YTD with a return of 6.45%.

For more information, the rate of return for each fund by month for each year can be found at TSPDataCenter.com.

How TSP Participants Tend to Allocate Their Investments
Overall, the highest long-term returns are found with stocks over bonds. However, sometimes stocks fall, but bonds don’t. A great example of this is when stocks dropped significantly from 2001-2003, and the C Fund trended downward for three straight years:

• In 2000: down -9.14%
• In 2001: down -11.94%
• In 2002: down -22.05%

However, the G fund went up over the course of these same years:
• in 2000: up +6.42%
• in 2001: up +5.29%
• in 2002: up +5%

G Fund investors were undoubtedly pleased with their decision to put more money into the G Fund overstocks. Although, in the midst of this downturn in stocks where the World Trade Center Bombing occurred. While events such as these are highly unusual, they do happen.
However, for 13 out of the next 15 years, the C fund climbed and finished ahead of the G fund, which in some years this was quite a substantial amount.

The House has approved a fiscal spending bill (HR-6147) that endorses Trump’s recommendation to keep federal salary rates frozen at existing levels next year. The strategy of remaining silent on a raise (the general government appropriations bill that was paired with another for floor voting) is nothing new. This method is one that has been used in previous years, which allows White House recommendations to become effective by default.

Although earlier given the thumbs up by its Appropriations Committee, the Senate counterpart bill provides a 1.9% rise in January. This would be split into 1.4 percentage points across the board while funds for the other 0.5 percentage point would be divided into various amounts by locality.

While at any time the full Senate could approve the bill and set up a conference between the chambers to work out disagreements, there isn’t much time remaining before the August congressional recess. An agreement may not be made until September and could potentially have to wait until after the November elections.

The House bill does state that if a GS raise is paid, then wage grade employees would receive the same increase as GS employees in that area, even though they are not backing a lift. The pay caps for senior executives and other career employees in high-level pay systems where salaries are set within a range would be raised. However, for political appointees, pay would remain frozen regardless of whether or not a GS raise is paid.

Several long-running federal personnel policies would be continued, which would include the maintenance of the moratorium on starting “Circular A-76” studies, which in the past resulted in federal jobs being contracted out.

A study conducted by the Employee Benefit Research Institute found that in each of the three levels of assets, retirees tend to show a similar reluctance to draw down those assets. They also showed a preference to live on the earnings right along with other types of income, such as retirement benefits.

Retirees are divided into three groups regarding their non-housing assets at retirement:
1) Those with less than $200,000
2) Those between $200,000 and $500,000
3) Those with more than $500,000

In the first group, after 18 years of retirement, they spent down around 25% of their assets. The second group has spent down nearly 27%. After 20 years the third group spent down 12%.
The report said, “Why are retirees not spending down their assets? There are probably many reasons. First, there are the uncertainties. People don’t know how long they are going to live or how long they have to fund their retirement from these assets. Then there are uncertain medical expenses that could be catastrophic if someone has to stay in a long-term care facility for a prolonged period. Of course, if people have to self-insure against these uncertainties, they need to hold onto their assets.”

The report continued, “Second, some of these assets are likely to be passed on to their heirs as bequests. But, what percentage of actual bequests are planned vs. accidental is an open question. Third, another possible reason for this slow asset decumulation rate could be lack of financial sophistication, or in other words, people don’t know what a safe rate for spending down their assets is. So, they are erring on the side of caution. Finally, some of it could be just a behavioral impediment. After building a saving habit throughout their working lives, people find it challenging to shift into spending mode. They continue to build up their assets or hold on to their assets as long as possible.”

The report also added that it is possible for many retirees to entirely run out of money in their retirement years (concerning spending down their assets).
Although, about a third of those in the study, despite whatever assets they had at retirement, actually experienced a definite increase overall.
If you have any questions regarding your retirement assets, please be sure to reach out to a financial advisor for consultation.

One method to consider using if you’re in need of life insurance is investing inside a variable life insurance policy. With coverage like this, your premiums would be spent in mutual fund look-alikes, and you wouldn’t be required to pay current income taxes on any of your investment earnings.

There are also even more tax benefits that could potentially be available. These benefits may include the following:

• Taking out policy loans and withdrawals while you’re alive, which if handled with care, can provide some continuing tax-free cash flow.
• Beneficiaries, in the event of your death, could receive insurance proceeds exceeding the cash value of the policy. The good news is that generally, these proceed free from income taxes.

However, borrowing or withdrawing too much can have consequences. If you aren’t careful, then the policy could lapse, which means you could be left having to pay the deferred tax income. It is recommended that you review this with your insurer and/or an experienced financial advisor. It is also wise to ask for assistance in preventing potential policy lapses.

In most cases, you must hold on to a variable policy long-term (or for a certain number of years) for the upfront costs to be offset by the tax benefits. Regardless, if life insurance is a real priority, then these policies can help provide access to tax-free investment income while still meeting that need.

According to Henry Manning, Operations Officer for the Deputy Assistant Secretary of the Army for Military Personnel and Quality of Life, participating in the Thrift Savings Plan (TSP) once opting into the Blended Retirement System (BRS) is one of the best financial decisions a soldier can make.

While the TSP is similar to the well-known 401k employee sponsored plans offered to many civilians, Manning says that the TSP is even better. The TSP, like the 401K, is a method of growing income that Is tax-deferred. However, unlike some other plans, the TSP requires no management fees, and the contributions to the TSP reduce taxable income. Furthermore, the performance record has remained stable over the years.

Manning goes on to say that one of the biggest, if not the most important, is that a soldier’s TSP contribution is matched by the government (up to 5%). Another perk is the customization options, which can be altered at any time without penalty. Individual needs of each soldier can be met with customization ranging anywhere from a mix of stocks and bonds to the more conservative savings fund.

Soldiers who separate from the TSP before retirement eligibility can be provided with a savings account supplemented by DOD contributions plus any earnings. Soldiers who separate after only two years are entitled to all associated TSP earnings, unlike the legacy retirement system. Manning also noted that he had had a Thrift Savings Plan account of his own for many years. Other army personnel that he knows have also chosen to take advantage of this benefit as well.

IMPORTANT STEPS

Manning recommends that soldiers consult with someone who can assist with the customization of where their TSP funds are invested, such as a Personal Financial Manager at Army Community Service.

Opting into the TSP is not automatic, Manning emphasized. Individual enrollment needs to be completed by each soldier, and they must also specify their contribution percentages.

Soldiers who joined the army on or after January 1, 2018, can have government matched contributions of up to 1% after 60 days of service. The government can then match up to 5 percent of donations after two years of service. Manning also says that for soldiers who entered before January of 2018 can immediately receive up to a 5% match as soon as BRS opt-in and TSP enrollment is complete.

TSP account owner, Sgt. Laura Martin demonstrated just how easy enrollment could be. Upon pulling up her MyPay account, she showed the available TSP option to select that includes instructions on enrolling either in a traditional TSP (tax-deferred), or a Roth TSP (not tax-deferred). Her husband is a TSP holding soldier as well. Both of them took out an interest-free TSP loan to pay cash for a house they want to retire in.

In conclusion, Manning noted that many soldiers do not remain in service for 20 years, where they will have the ability to take advantage of a traditional retirement pension. This is why enrolling in the Thrift Savings Plan makes sense and can be a sage financial move for soldiers.

The government spending bill for a January 2019 raise for federal employees that is advancing in the House is silent, which supports the recommendation by President Trump to not push for an increase.
Drafted by an Appropriations subcommittee, this measure is one of many steps in this process, which doesn’t generally come to a close until the end of the year. While some employee organizations, as well as some Democrats, suggest 3 percent, Congress could endorse some raise, but the silent strategy that has previously been used by Congress would allow Trump’s recommendation on the potential non-increase to become active automatically.
In the past, this has produced raises (on an average of 1-2%). However, the mechanics of pay law that had applied to the grant of those raises would also use to a freeze. Congress has until August 4 to take action regarding a raise, and it doesn’t seem like they plan to. If Congress takes no action then what comes next is a notice sent by Trump stating his intent to set an “alternative” raise figure, provided that the end of the year enacts no number. This is the alternative to the raise that would otherwise be put into effect by law. Presidents have consistently reiterated their initial raise recommendations in those messages.
The only reference by this measure regarding a raise is the repetition of language from the past, basically stating that if a GS raise occurs then wage grade employees in the area would receive equal amounts locally.
The White House recommended a 2.6% raise for military personnel, and it seems they are in line to receive that since the versions (from both the House and Senate) of the defense budget that is currently advancing in Congress would provide that 2.6% increase.
Meanwhile, there is no mention within the appropriations bill of a $1 billion performance and incentive fund recommended by the White House which serves as a tradeoff for a freeze of salary rate. The administration has provided no details on how correctly the fund would be used. However, these details would be required for such a fund to be written into law by Congress.

When considering the more excellent points of crediting unused sick leave, there is often one that many federal employees find disappointing when approaching retirement and another that they may be pleasantly surprised by.

Unfortunately, sick leave cannot be utilized to make you eligible to retire. It comes as a surprise often, but it only is used after you have met the service and age requirements to do so.
You will not get credit for any unused sick leave if you leave government work before you are eligible to retire and late apply later for a deferred annuity. If you return to the government to work, the unused sick leave hours will be restored and credited to you.
Annuity of those who qualify under a service and age combination will be boosted. The good news for those who thought that 8 hours of unused sick leave were necessary for a day’s credit toward retirement? Only about 5.8 hours are needed.
Any hours that have been worked beyond the last month of creditable service are added to those days and converted to additional months in the annuity calculation. For those retiring under CSRS, each month will grow your annuity be one-sixth of 1% or 1.1%. Extra months are counted and credited, then any days beyond the last full month will be discarded.

Special considerations:
For FERS employees who will have CR components in their annuity, sick leave hours up to the maximum number they acquired when they transferred to FERS will be credited to their CSRS. Sick leave hours higher than that amount will be credited to their FERS annuity.
FERS retirees who retired before 2014 who later return to work for the government as reemployed annuitants, available hours in the computation of their annuity will be restored to them. The hours will be made available to use to the proper purposes while they are employed, and will be totaled and recomputed annuity they earn through their new employment.
By law, if they are hired to a new position where to receive their annuity as well as the falling salary of their job, the sick leave and any earned while working will be lost once they re-retire because their annuity will not be computed that new period of service.

Q: Can we break down exactly what “creditable civilian service” means?

A: There are two systems of Creditable civilian service, which is a service that counts towards your eligibility to retire under either the CSRS or FERS retirement. There are small variations within these definitions of the two systems so that both versions will be listed and defined here.

Within CSRS retirement, creditable service is service where you will be covered by the CSRS retirement system (e.g., a career or career-conditional appointment). Once CSRS covers someone, non-creditable service may become creditable (e.g., temporary assistance). Temporary service that took place after September 30, 1982, will not be given credit. However, if a deposit is made to the retirement fund to cover that time (for instance: the temporary time took place before or on that date, it is creditable even if a deposit has not been made). Credit is given for retirement eligibility for re-deposit service (service for which you withdrew your retirement contributions), whether or not the re-deposit is made.

Within FERS retirement, creditable service is service where an individual is covered by the FERS retirement system (such as a career or career-conditional appointment). The credit would not be given for temporary service unless there was a deposit made to the retirement fund to cover that time. Deposits may only be made for temporary service that took place before January 1, 1989, with the Peace Corps or VISTA service being the exception. Credit will be given for retirement eligibility for re-deposit service (i.e., service for which you withdrew your retirement contributions), even if the deposit has not been made…

Is there an earnings limit on my pension if I retire under FERS? I’ve been told that if I plan to retire after thirty years, and at my retirement age of fifty-five, and I keep earning money so as not to dip into my TSP early, this may not be a viable option. Is the earnings limit really under $16,000/year? If I go over that, must I repay $1 for every $2 I’ve gone over the limit?

This is not entirely accurate, but very close. When figuring out how you want to plan your retirement, you may want to clarify for your future’s sake. Let’s take a look:

Per the Office of Personnel Management (OPM) “Information for FERS Annuitants” booklet (Section 8, Employment in the Private Sector) your FERS pension will not be affected by your outside employment…

• Your FERS pension will not be reduced because of additional earnings after retirement. It is the “ “bridge payment” via Special Retirement Supplement (SRS) that could see the effects.

SRS or Special Retirement Supplement

• A FERS Employee who is receiving SRS benefits will find that those benefits are payable from the date of retirement until age sixty-two. It will be similar in amount to the Social Security benefits earned while employed as a FERS employee.

The SRS approximates Social Security benefits; therefore it will be subject to some of the same rules. Until you reach full retirement age, the Social Security Administration (SSA) caps the income. Depending on when you were born, that range is about sixty-five to sixty-seven years of age. In this case, the Social Security benefit is treated the same as the SRS, so it can be either eliminated or reduced if your earnings limit is exceeded.

The earnings limit before impacting either SSA or SRS payments is The limit for earnings before impacting either SSA or SRS payments is $17,040 as of 2018. The $2 to $1 scenario you brought up is correct. If the $17,040 limit is reached, the SRS benefit is shaved by $1 for every $2 earned (over $17,040) in 2018.

For Instance

In retirement, a FERS employee is receiving $1,000/mo from the SRS benefit. They choose to accept a job not within the federal government, earning $25,040/yearly. Because the amount exceeds the limit, they will be subject to an SRS benefit decrease of $4,000 for the year or $333/mo. ($25,040 – $17,040 = $8,000. $8,000 ÷2 = $4,000. $4,000 ÷12 = $333).

Which means that the original SRS payments of $1,000/mo will be fined in such a way that the real benefit would be approximately $667/mo ($1,000 – 333 = $667).

Generally, you are told to defer taxes now because you will end up in a lower tax bracket by retirement. Modern Federal Employees with retirement savings, pensions, and concerns regarding national debt may find this advice outmoded.

We can delve further into this antiquated idea by inquiring about the following:

• How does someone drop to a lower tax bracket?
• How common is it for federal retirees to drop to a lower tax bracket?

You can drop to a lower income tax bracket by having less taxable income.There are two ways to lower your taxable income:

Imperfect as it may be for retirement savings, you have the easy option of taking home less overall income. The second option would be that you can invest in such a way as to generate tax-free income. This would be money that you can spend during your retirement that will not be flagged as income on your taxes by the IRS. This option is frequently overlooked but is especially crucial for employees who will be receiving forever-taxable benefits in their retirement, such as federal employees

A large number of FERS employees in the last seven years have been incorrectly told they would be seeing “retirement income tax relief”  and have not, simply because, on average, they were not qualifying for lower tax brackets in retirement because they brought home too much taxable income.

Retirement Stool of the FERS

Think about taxation of the three legs of the FERS retirement stool:

1. FERS/LEO Pensions – Over 98% taxable as income

2. Traditional TSP Disbursements – 100% taxable as income

– This is also applicable to Traditional 401Ks and Traditional IRAs

3. Social Security Benefit – Often 85% is taxable as income

– Operating on the assumption that the combined total of your Traditional TSP/IRA withdrawals and  your FERS/LEO pension equals $34,000/year or more

There are three results from what we have charted this far:

1. For most all of Federal retirees that follow the Traditional three-legged outline will be forever-taxable at whatever rate the government chooses.

2. On average career, federal employees will have enough taxable income to stay in the same tax bracket through their retirement as they were during their working career.

3. You will not ever be able to change or adjust the tax treatment of your social security benefits or your pension. Taking action to protect yourself from future higher tax rates will heavily depend on how you choose to invest your retirement savings.

Which leaves the question as to where taxes for your current bracket go in the future? There are a wealth of useful resources to aid you in forming your answers to this question. But with the national debt reaching $21trillion, the government was continually spending on the rise, and new tax cuts scheduled to recede in seven years, it is difficult to assume anything other than taxes rising in the next decade.

Retirement Income Tax Options

We cannot, within the confines of the law, avoid paying taxes outright, the contrast between tax-free and taxable income for retirement for Federal Employees is contingent upon when taxes are paid on savings for retirement.

Option 1: before funds are invested in growing, we can pay tax on contributions at current income-tax.

Option 2: we can pay income tax on our withdrawals (which will equal the sum of both your contributions and earnings) at whatever rate is assessed for your tax bracket in retirement (i.e., paying tax at an unknown rate on the entire “yield” later on). Many analysts predict that these rate increases are imminent. In the interest of quick assessment, let’s suppose tax rates stay the same in retirement as they are currently  and compare our options:

Option 1

    Invest $10,000 (after-tax)

    Total 2018 Tax Liability (at 22%): $2,200.00

    Balance at Retirement (hypothetical): $100,000

    Taxes owed upon withdrawal of $100,000: $0

    Balance After Tax: $100,000

    Sum of Taxes Paid: $2,200

Option 2

    Invest $10,000 (pre-tax)

    Total 2018 Tax Liability: $0 (deferred)

    Balance at Retirement (hypothetical): $100,000

    Taxes upon withdrawal of $100,000 (at 22%): $22,000

    Balance After Tax: $78,000

    Sum of Taxes Paid: $22,000

Realistically, there are a numerous aspects to think about regarding your financial professional or CPA, but if we hypothesize that it cost one thousand percent more to defer those taxes – even with the same rate – because you are not just paying your contributions, but you are paying tax on the full balance of the account..

There are not many legal strategies for generating tax-free income. Which is not at all surprising when you consider that the future of the government’s revenue heavily depends on taxation of the TRILLIONS of dollars being grown by Americans in their  retirement accounts, such as TSPs, IRAs, and 401Ks

Tax-Free Income Strategies

1. Roth TSP/Roth 401K

• No limited earnings
• Annual contribution limits ($18,500/yr)
• TSP Modernization Act = no more ‘Pro-Rata’ rule

2. Roth IRA

• Limited earnings apply (starting at $135,000 household income)
• Annual Contribution limits ($5,500/yr)
• Held for (longer of) 5 years or until 59.5

3. Investment Grade Life Insurance

• No earnings/contribution limits
• Health & Lifestyle factors considered
• Powerful additional benefits available

4. Municipal Bonds

• When interest rates rise, bonds lose value
• Suppressed returns in the low-interest rate environment

This article is very much focused on how the incorporation of tax planning into the fabric of your retirement plan is of the utmost importance to everyone. However, deciding which strategies, or the combining of them, works best for you hinges on various other factors. Your dedication to voicing and acting on your concerns now makes all the difference for your future.

Those hired in 20013 may have felt tinges of envy regarding other employees hired on at an earlier time. Those employed in 2012 and prior merely paid 0.8% of their salary for retirement, while those hired after 2013 paid as much as 3.1% due to revisions to the RAE (Revised Annuity Employee) law. Despite its name, this law did not revise annuities. In fact, it altered the employee’s share of annuity contributions, with the hopes of policymakers that “no one would notice.”

They did it again after one year. The rate was raised again, this time to 4.4%. The raise was called the FRAE (Further Revised Annuity Employees). Still, with the hopes of policymakers to mislead. There are currently several changed being considered:

• The possibility of elimination of the FERS annuity supplement for employees who choose to retire under age sixty-two.
• Congress is also said to be taking additional increases in the contribution rate under consideration, which would be phased in over a span of years.
• A bill to change the final average salary to 5 years instead of 3 years.

It would seem that we may be reaching a place wherein a cautious fed may find themselves in better financial standing if they “cashed in” their retirement contributions. That said, the best way to do this regarding current law is to resign and receive a refund of retirement contributions. Refunds, unfortunately, do not include a vital factor—interest. With no interest, it would seem that resignation instead of retirement would not be prudent financially.

For the purpose of planning it may still be interesting to crunch the numbers on how much an employee’s contribution, annuity, and high-three would total under the assumption of individual factors. For instance, the current contribution rate of 4.4% and annuity rate of 1% of high-three per year of service, and a base amount of $44,000 salary with annual increases averaging about 5%.  28 year of salaries would total $2,569,693 in earnings with a high-three average salary of $156,572. 28 years service yield an annuity of 28% of high-three.

Where input is concerned, the only variance below is the start year. This has a sizable impact on out of pocket contributions, as you can see:

For retirement costs, it is clear that before 2013 it was an ideal time for employees to begin their careers. When combined with Social Security, and Thrift Savings Plan Participation, the smaller annuity terms are still a decent return on investment.

It can be critical to making decisions about how to outline the choices federal employees have to make when electing Civil Service Retirement System or Federal Employees Retirement System benefits at the time of retirement. These can include:

• Spousal survivor benefit elections for a maximum or partial survivor annuity.
• No survivor benefit in the form of an annuity payable during your lifetime
• An insurable interest election to provide for a person who has an insurable interest in you [as in a financial need for income that you provide
• The option to provide for a former spouse despite the survivor annuity possibly not having been awarded in the court order at the time your divorce was finalized

It is essential to understand the potential cost and value of these elections and the impact they may have throughout the rest of your life, as well as the life of your spouse.

Understand that happens to your benefits when one spouse passes on before the other, is vital. This includes life insurance, Social Security, health insurance, and the profits of the Thrift Savings Plan as well as the election of the survivor’s annuity benefit under FERS or CSRS.

Taking the time to ask each other “If I die before you, will you have enough income to continue your lifestyle?” when electing the spousal survival benefit. Making assumptions as to who will die first because of age or health is not sensible. Nothing is certain.

If both spouses receive Social Security retirement, only the highest Social Security benefit of the two are payable. If the widow’s benefit is payable first the surviving spouse may put off their own earned benefit for a time.

Other important things to ask:

    Who, between the spouses, is the spender? Who is the saver? While the saver may find themselves lonely, they would be more financially stable.

    Upon the death of a spouse, is there any other income from the sale of property of life insurance? Is there other income from life insurance or the sale of property that would come into play upon the death of one spouse?

    When the spouses are no longer two, but one, is there a source of income that will become available? Such as the choice to delay Social Security for one spouse while both are still living so that you are not used to having an additional source of income. The benefits of delaying Social Security benefit may provide a greater widow’s benefit to the surviving spouse. You may want to consider “switching on” the second spouses Social Security at age seventy. Unless one spouse happens to pass away at a younger generation.

Pension Maximization Use For Spouses Who Are Both Federal Retirees

Pension maximization can be viewed as a risky strategy for retiring couples seeking to secure the best possible annuity payout and balance the risk with life insurance.

What makes it “risky?” Because life insurance (a product of pension maximization) value is dependent upon asking the following:

    When will you be dying?

    If at all, how long will your spouse outlive you?

    What will inflation look like over the lifetime of both you and your spouse?

    Are you young and healthy enough to, at a cost that may be less than the reduction to your CSRS or FERS annuity, purchase this product?

    Will the beneficiary be able to manage the proceeds in such a way that they will be sure to maintain enough income if they should survive you?

There is a limited value of life insurance on the date it is sold. Generally, the amount will be the same on the date that it is paid. There no income guarantee or cost of living adjustment on a whole life or term life insurance policy.  Some annuity products will provide a lifetime stream of income. However, there are some caveats. Such as age and health at the time of purchase, as well as how long you intend to delay receiving annuity payments from the date of purchase. As well as the health of the insurance company selling the product. These products can prove very complicated, so be cautious and diligent.

The need to provide protection to a surviving spouse for health insurance continuation is another facet related to the election of FERS or CSRS survivor benefit. To continue coverage for a surviving spouse under the Federal Employees Health Benefits program, they need to have entitlement from their federal salary or retirement. Or they must have entitlement to a survivor annuity, either full or partial spousal election, or be named as the insurance interest election, based on your FERS or CSRS retirement. It may be necessary to elect a minimum spousal survivor annuity, even if you provide a life insurance benefit so that your spouse might maintain FEHB in the event you pass away before them.

“Spousal protection” does not exist on the pension maximization product. Coverage may be changed or canceled without spousal consent. However, this is not so with a spousal survivor annuity under FERS or CSRS, as the federal law protects them under the spouse equity provisions.

Use caution when considering substituting pension max for the spousal survival benefit. There is a commission on the sale of insurance products. If you choose the survivor benefit under FERS or CSRS, there is no go-between or middleman.

Be sure to ask questions when you don’t understand something before you sign anything. It is also highly recommended to get a reference to a resource or policy when you have questions. Be sure to get their answer in writing. Getting documentation in any government work is essential. And that includes your retirement.