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August 15, 2018

Public Sector Retirement News

Federal Employee Retirement and Benefits News

Category: Featured

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TSP and Divorce: How The Court Will Handle Your TSP and Other Federal Benefits | Linda Jensen

The number of couples getting divorced each year is quite high, and dividing up assets can be tricky. If you’re a current federal worker or a retiree who is getting divorced, it’s important to understand how the court will affect your TSP. 

 

Currently, there are no federal laws that former spouse automatic access to the TSP balance. You can either agree to add it to the division of assets, or the state will provide the awarded amount. The TSP will need a Retirement Benefits Court Order after the divorce. This can come from the divorce decree, legal separation or annulment or it can come from the court-approved property settlement agreement. 

The Qualified Domestic Relations Order may also serve as the RBCO.

The TSP has a Court Orders and Powers of Attorney booklet that you can find on the TSP website under “Forms and Publications.” It’s a 31-page booklet with a plethora of useful information, layman language and a checklist to help you and your attorney to create legal-looking documents. You can also find RBCO requirements in the booklet.

 

Once you have a court order in place, the TSP account will be frozen, and you won’t be able to get a loan or make withdrawals until the divorce is finalized. If there is an outstanding loan on the TSP account, the remaining loan balance is added into the account balance to determine how much the spouse is permitted to have unless the court order deems it can be excluded. The court order will provide the award in either percentage or award amounts. The TSP cannot be made to pay more than the current account balance.

 

The TSP goes along with the FERS annuity and CSRS, which means there are different rules for each one. You can learn more about these rules by going to the Handbook for Attorneys on the Office of Personnel Management website. If you’re getting divorced, it’s imperative that your divorce lawyer has a good understanding of the rules regarding federal benefits. It may not be enough to have a standard QDRO unless specific criteria are met. If there are no attorneys who understand the federal rules regarding your TRP and other federal benefits, give them the handbooks to read and familiarize themselves with.

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Linda Jensen is the principal and owner of Asset Care & Preservation Services with offices in Olympia, WA.  Linda began her career with Prudential Preferred in 1994 where she was an agency leader.  She earned the credentials of a financial planner and has been in practice as an investment and insurance professional since that time.  Linda started her own company in 1997.

 

Articles from Linda Jensen:

Linda Jensen | How to make the most out of your TSP Plan

Linda Jensen | Top Four Tips for IUL Shopping

Linda Jensen

Is The TSP Affected By Oil Prices?

Over the last year, oil prices have been in a continuous bull market, with the trend increasing more and more. For nearly five years – from 2010 to 2015, a barrel of oil cost roughly $100. With an increase of shale technologies, it led to a rise in U.S. oil output, which means the worldwide supply and demand balance leaned more on the supply side.

 

With more supplies of oil on the market, it meant there was more inventory of oil than being demanded.

 

With an oversupply of oil on the market, the prices of a barrel of oil dropped significantly. When this happened, the less efficient oil suppliers reduced their production, and many oil-producing countries were in agreement that they need to cut their production to boost up prices. This means the worldwide supply of oil stayed flat for several years before worldwide consumption was able to catch up.

 

Oil production dropped in two countries for two different reasons:

 

Venezuela reduced production because of the country’s political instability

Iran decreased its output because of Trump’s decision to back out of the Iran deal

This meant the balance between higher prices and consumption was about even.

oil prices can affect the TSP

What Effect Do Oil Prices Have On The Stock Market?

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Oil producers see good things from high oil prices. After all, the costs to produce the oil stays the same but how much profit they see increases. Oil and gas stocks are presented by three funds – C, I and S Fund.

 

  • The C Fund makes up six percent.
  • The I Fund makes up six percent.
  • The S Fund makes up five percent.

 

This is not a perfect relationship. After all, higher oil prices resultin higher inflation. The cost to make plastic, food, commodities, manufactured goods and more goes up, which means the cost to transport them also goes up. When this happens, the end-user pays more.

 

While inflation is good for certain classes, it also means an increase in interest rates, which ensures consumers and companies will end up paying more to borrow money.

 

It also means that prices at the pump will rise, which impacts a household budget. For instance, the average household will pay about $1,000 a year in gas. The interest rates on debt will rise if there is inflationary pressure.

 

It is the belief of some analysts that the huge drop in oil prices for the last years helped lengthen the current economic expansion and bull market. And, it’s no big surprise as to why. A drop in oil prices means consumer spending increases, which ensured interest rates and inflation stayed extremely low.

 

When oil prices increase, consumers are hurt and will find ways to reduce their spending. Higher commodity prices and inflation are tell-tale signs of late-stage economic expansion.

 

How much oil prices rise is affected by an array of parameters, and political events could cause a change in consumption or supply. With a drop in solar energy prices and consumers switching to electric vehicles, it can lessen the world’s need for oil.

Get A TSP Loan To Attain Money You Need

BUDDY NIDEY – When you need money, and you have a Thrift Savings Plan; you can take out a TSP loan to help you out in those tough times. Many employer-sponsored defined contribution plans let you take out loans – either for a primary residence or general purpose. In some cases, it can be for both.

 

There is one key restriction in getting a loan from the TSP – you may not borrow any more than $50,000 even if you have much more money in it. If your TSP balance is less than $100,000, you can only borrow half of what is in the account. So, if you have $70,000 in your account, you are eligible to take out $35,000. If you have $50,000, you can only request a $25,000 loan.

 

  • General Purpose Loan– This loan can be used for whatever you need it for. There is no need for documentation to prove what it’s used for and can be repaid up to five years.

 

  • Primary Residence Loan –Asking for this loan generally prove of what you’ll be using it for but can be paid back within 15 days. You can check out https://www.tsp.gov/forms/loans.htmlto find out what the specific documentation requirements are. A primary residence loan does extend to houseboats and RVs, so long as you’re using them for your main residence.

2 Requirements Of Either Loan Type

Whether you’re getting a primary residence loan or a general purpose one, there are two key requirements you must fulfill on them. If your TSP plan is funded under the FERS retirement system, you need your spouse’s consent. You’ll also need to pay a $50 application fees, which are used to dray the TSP expenses. You cannot apply for a second loan of the same type within two months (60 days) of paying the other loan off.

 

When taking out the TSP loan, the TSP account is reduced to the amount you borrowed. So, if you put money evenly in all five TSP funds and you’re borrowing $25,000, $5,000 would be deducted from all funds. The amount of interest you pay back is based on the G Fund return in the month the loan is granted. You can find this information on the TSP website under “loan and annuity rates.”  The interest paid returns to the TSP account based on the most recent contribution allocation.

 

The loan and repayment need to be comparative between the balances of your Roth TSP and the traditional TSP.

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What Does The Thrift Board Say About TSP Loans

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According to the Thrift Board, it’s never a good idea to take out a TSP loan, as people are borrowing from their retirement and may not be fully available at retirement. Their assumption is based on many TSP participants making investments in stock funds (C, I and S) where the return tends to be more than the G fund. There are exceptions here – 2008 and 2015, for instance.

 

If you’re paying on loan and leave federal service (for whatever reason), you are given two choices:

 

  • Pay the loan back
  • Take a taxable distribution

 

The TSP will be given notice that you are leaving the agency (usually 30 days) and will send you instructions on how to repay the loan. The notice informs you of the date the loan must be repaid by.

 

Failure to repay the loan by that date means the loan goes into default and the remaining balance is considered taxable distribution. The TSP sends you an IRS Form 1099.  The tax can be avoided paying if you transfer an equal amount of the remaining balance into an IRA or another tax-deferred account.

 

You cannot take out any money from the account until the outstanding loan is closed. If you don’t plan to pay the loan back, it’s imperative to contact the TSP and make a request for immediate determination of distribution.

Buddy Nidey, Financial Expert

As Certified Public Accountant and a graduate of the College of Financial Planning in Denver, Colorado, Buddy “Bud” Nidey applies his strong analytical background to his work as an investment advisor representative. He enjoys coordinating clients’ investment portfolios with solid financial planning that takes income taxes, diversification and safety into consideration.

Articles by Buddy Nidey:

Buddy Nidey | FEGLI Life Insurance Options

How does Divorce Affect your TSP?

TSP Stocks Face Uncertainty In Response To Worldwide Uncertainty With Tariffs

The Dow Jones Industrial Average had a rough start to 2018, with last month seeing a one percent decline in the C Fund, a two percent drop in the I Fund and a 0.2 percent increase in the S Fund.  However, an increase in U.S. interest rates are putting down negative pressure on stock valuations, but it’s the fear investors have on the trade wars that are affecting the TSP performance.

 

This is why you should diversify your portfolio.

Will There Be Higher Worldwide Tariffs?

For many years, the U.S has had relatively low import tariff rates compared to other parts of the world. With the nation threatening higher tariffs, there are two possible outcomes that could happen:

 

Other countries could lower their own tariffs, aligning them with the U.S. tariffs, ensuring that U.S. tariffs stay low. This means U.S. products would be able to compete ina global market.

Other countries could resort to retaliatory measures such as raising their tariffs, which would mean high tariffs for all nations, reduced worldwide trade and boost protectionism.

 

The Trump Administration has already announced it would implement tariffs on an extra $200 billion of Chinese products, and even flirted with the idea of imposing a 25 percent tariff on all European car imports. The current European car tax rate is 2.5 percent with European trucks taxed at 25 percent. The EU taxes the U.S. vehicles at 10 percent.

 

With countries looking at the second option in response to the U.S.’ moves, it means markets are on shaky ground. Many well-known U.S. companies – Apple, Caterpillar andothers, see a large part of their revenue from countries like China. For them, a trade war is risky.

 

For smaller companies that don’t have a lot of international exposure, tariffs are unlikely to affect them as much. Thiscould be why the S Fun appears to be doing better than the C Fund.

 

OPEC Will Boost Oil Production Slightly

 

Energy stocks have seen a boost thanks to OPEC’s decision to increase the production of oil slightly. This helped to ease investors’ concerns that OPEC would continue to reduce its production, which would have a negative impact on the energy stocks.

 

OPEC’s decision would help in one of two ways – stabilize the market or decrease the price of oil slightly. This would help consumers and businesses who often face higher prices during the summer months. When oil prices are astronomically high, it causes the economy to slow down and cause a recession. Therefore, a decision to boost oil production output can decrease the potential of this happening.

USPS job bidding is an important part of the job.

How The TSP Funds Could Be Affected By Tariffs and New Governments

Two things are affecting the worldwide financial markets – changes in the European government and international tariffs.  The TSP funds most affected by tariffs will be the stock-based TSP funds and this impact could last through the end of the year.

For months, U.S. President Donald Trump said he would impose tariffs on imported aluminum and steel but gave a temporary pass to Canada, European Union, and Mexico while negotiations were ongoing. However, the pass recently ended when the tariffs were imposed on the U.S. closest allies. When that happened, the countries announced it would impose retaliatory tariffs on many of the U.S. exports. The amount of money involved isn’t having too much of an effect on the national economy, but some sectors are feeling the pinch more than others. Some analysts suspect this could lead to even more U.S. tariffs, which could lead to even more retaliatory tariffs. This could lead to a drop in worldwide trade, isolate the U.S. from its allies and impact any involved economies.

 

Of course, it remains to be seen if any other tariffs will be imposed and how impactful they will be on the U.S. trade deficit the president’s administration is trying to improve. The risk could hurt jobs, economic production, and international trade. The positive could be that the Trump administration can come up with new, more favorable trade agreements and reduce the U.S. trade deficit.  This typically benefits the currency exchange rate and domestic economic production that could steady a country’s share prices such as the C Fund holdings.

The New Government Of Italy

A little while ago, global markets were rattled by Italy’s new government. However, some of these concerns have smoothed out, but still has left uncertainty in the I fund that stands to be watched a little closer. Italy held elections in March that led resulted in ambiguity. Although there were three key parties, none of them won by a clear margin, which means a hung Parliament.  The League and Five Star Movement, which were the two successful parties, considered building a coalition government.

 

This potential coalition was in jeopardy after the country’s president refused to agree to the proposed finance minister offered by the coalition because of the stance it has against the shared Euro currency.  When this happened, there was a market sell-off in worldwide equities because of concerns Italy would need to hold more elections to address the uncertainty. The president, however, changed his position, after some re-arranging of the government picks and another finance minister. This alleviates some investors’ short-term concerns, but still, long-term concerns are affecting the market.

worldwide events can affect the TSP

The New Government Of Spain

Spain is in political turmoil

Another EU problem is Spain, where the prime minister was forced from office by the parliament in a no-confidence vote because of the corruption scandal going on in the political party. Although parliament has appointed his opponent the prime minister, his power is rather shaky because he controls only one-fourth of the country’s parliament.

I Fund Concerns

Most people may recall the European sovereign debt crisis that led to the global crisis in the market from 2010 to 2012. Due to the unaddressed primary issues plaguing the market, investors are worried Spain and Italy may spark those concerns once more.

 

Another possible issue is that many European countries have one currency – Euro – with agreements in place to keep reasonable levels of debt despite some nations already exceeding the agreed-upon standards. Many countries, the U.S. and Japan, have control over their currency. If the debt is high, they can inflate themselves out of the issue rather than default. Some countries don’t have a say in their national budget. A shared currency means individual countries entangled with other countries. One country’s debt problem could affect the entire system.

 

As it currently stands, Italy has the highest debt-to-GDP ratio; the Eurozone’s third-largest economy. The United Kingdom never had a part in the shared Euro currency and is currently leaving the EU. However, France, Germany, Italy, Netherlands, Spain and other Eurozone nations still have an array of obstacles that are the result of countries who share their currency. Italy is the biggest issue.

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TSP Officials Provide Explanation Of Law’s TSP Withdrawal Guidelines

Federal government officials recently announced how they’re going to offer TSP participants for additional flexibility in response to the law President Donald Trump signed last year.

 

The 2017 TSP Modernization Act lets federal employees and retirees make several age-based withdrawals from their accounts and still be eligible for the partial withdrawals when they finally leave their government position. People who leave their government post can make several partial post-separation withdrawals as well.

 

During the Federal Retirement Thrift Investment Board meeting, project manager supervisor Tanner Nohe informed others that agency employees were working on implementing the new law, which went into effect in November 2017.  The law’s full implementation is expected September 2019.

 

According to rules presently in place, TSP participants can only make one partial withdrawal in their life – one after they leave federal service or one in-service at 59 1/2. Once the withdrawal has been made, they can no longer take money out of the account unless they want to make a total withdrawal – either in the form of an annuity, monthly payment or lump sum.

 

Nohe said the latest rules allow for participants to make multiple withdrawals –once every 30 days. They can also make in-serve based withdrawals four times a year if they want.  He said the change is more of a processing rule than anything – a way to avoid duplications and mistakes.

 

The law gives participants more flexibility in how much and how often they want the monthly installment payments to be. Before the act was passed, former federal employees could get payments on a monthly basis, with changes as to how much made only during the open enrollment season – October through December.

 

With the impending changes, participants can choose to receive their TSP payments three ways – monthly, quarterly or yearly. They can also make changes to the amount and frequency whenever they would like and participants will be allowed to stop and start the installment periods. Retirees can make partial-post separation withdrawals even if they’re getting regular payments.

 

Nohe said before the new laws’ provisions are enacted, the TSP will stop the account abandonment practice in August. According to current TSP and ITS rules, a 70 1/2-year-old participant is required to make a full withdrawal and take the necessary minimum distribution amount out every year.

 

A person who fails to do this means the TSP moves their money into the G Fund – the government securities that amass a statutorily mandated interest rate and forces participants to make them aware of changes.

 

Kim Weaver, spokeswoman for the Agency, said this typically causes people to reach out to them, letting them know how they want payments to be set up and what amount of money is to be reinvested in their other portfolios.

 

Nohe said the change means a full withdrawal option is no longer needed. Rather than abandoning accounts, the agency sends participants a check for the minimum withdrawal payment as noted by law. Participants can also choose if the required payments be withdrawn from their Roth or standard account or the combination of them.

 

Trump threatened a government shutdown this September

Buddy Nidey | September 2019 Is The Date For New TSP Rules To Go In Effect

BUDDY NIDEY – Many federal workers have wondered if a date has been set for the new withdrawal rules for the Thrift Savings Plan.

 

The TSP Board announced recently that new withdrawals options would become active starting September 2019. The changes were in response to investors moving their money from the TSP to IRAs after they left their government job because the TSP had a limited number of choices to pick from. The TSP would have to revisit rules, rewrite forms, upgrade computer systems, etc.

 

Some additional changes that retired or separated investors will have to include the allowance of making monthly, quarterly or annual withdrawal, stopping and restarting the withdrawals and choose where the money can be withdrawn from either their Roth or traditional balances.  Anyone working past the age of 59 ½ could make up to four withdrawals without incurring a tax penalty each year. Right now, they are only permitted one withdrawal in their lifetime.

 

Kim Weaver said the idea was to phase the various aspects in but wasn’t leading to any time-saving benefits. She said, in the end, the TSP Board decided on an official date to implement all aspects of the law.

 

Weaver said she knows participants want it sooner rather than later, but this was as soon as it could be pulled off.

Understanding The TSP Required Minimum Distribution

If you decide to quit or retire from your federal job, the Internal Revenue Service requests that you take out some of your TSP beginning the year you turn 70 1/2. This is called the required minimum distribution, which is based upon the average life expectancy.

 

If you fail to withdraw or allow for monthly payments to begin, the plan must ensure there is a required distribution before April 1 of the next year. If you go with the withdrawal option, the TSP looks at the amount being paid to you as being the minimum distribution. The TSP will let you know how much your minimum distribution payments will be.

 

Be aware that the required minimum distribution is taken from both the Roth and traditional balance if you have both of them.

If you continue working after 70 1/2, MDR won’t apply to the money in the TSP but will apply to other tax-advanced plans like IRAs. I

 

If you do not take the required distribution amount, you will be subjected to a 50 percent penalty on the amount you should have withdrawn.

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As Certified Public Accountant and a graduate of the College of Financial Planning in Denver, Colorado, Buddy Nidey applies his strong analytical background to his work as an investment advisor representative. He enjoys coordinating clients’ investment portfolios with solid financial planning that takes income taxes, diversification and safety into consideration.

Other Articles from Buddy Nidey:

Buddy Nidey | FEGLI Life Insurance Options

How does Divorce Affect your TSP?

Buddy Nidey, Financial Expert

Battle Regarding Official Time and TSP Takes Place On Capitol Hill

Capitol Hill recently held a touchy hearing and debate about the practice of union federal employee members being paidwhile carrying out representational duties. The matter ended with an executive order to reduce its use.

 

House Oversight and Government Reform Committee Republicans attacked the official time practice in a hearing that didn’t include any information from employee groups. According to Republicans, this official time is a waste of taxpayer money. It was more of a subsidy.

 

Democrats, on the other hand, said official time leads to agencies saving money. Their explanati0on is that they help foster relationships between management and labor, decrease the number of formal grievances and litigation and let the parties work alongside each other to ensure more efficient operations are in line. They also work together to deal with future issues and enterprises.

 

Republican lawmakers looked at the 2017 fiscal year and found that more than 980 employees spent half their time on official time – 221 of those employees were earning $100,000 a year. Perhaps the issue was a vision because the very next day, President Donald Trump made it easy – through a series of executive orders – to fire employees who were not performing their duties and restricted their use of official time.

 

In one order, agencies could limit employees’ official time use to 25 percent of their workday when they were negotiating with unions. It barred employees from using the time to represent employees who were filing a grievance or appealing negative personnel action.

 

Federal employee unions have since denounced these executive orders, claiming they were nothing more than an assault on collective bargaining. The National Treasury Employees Union and American Federation of Government Employees said they were considering possible legal action to stop the orders from going into effect.

 

TSP officials, however, said they were in the initial phase of increasing the default contribution rate on any new federal employees, which would mean they could automatically benefit from the matching contribution the federal government provides when they become a public servant.

 

Ravindra Deo, TSP executive director, said starting in October 2019, all federal civilian employees hired after the date would automatically submit five percent, rather than three percent, of their pre-tax income into the 401(k)-like retirement savings program.

 

Kim Weaver, TSPspokeswoman, said the program has more than 70 percent of its participants contributing five percent, which is the maximum the federal government offers in matching funds. Weaver said the announcement about the increase in the default contribution rate gives agencies time to prepare their fiscal 2020 budget proposals for the new policy.

 

TSP officials said they were making the necessary moves to implement the 2017 law that allows federal workers and employees be able to easily withdraw money from retirement savings accounts. The implementation is set to go into full effect September 2019. When it does, participants can request partial withdrawals once a month after leaving federal service and four times a year for those still working for the government and are 59.5 years old.

 

For those already getting their withdrawals, they can make changes to how often the payments and how much the payments can be anytime rather than waiting until the open season period.

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TSP Account Holders Will See More Withdrawal Options In September 2019 | Linda Jensen

LINDA JENSEN – The Thrift Savings Plan will have broader withdrawal choice come September 2019.  This may be disappointing news for investors who were hoping the action would come quicker. Authorities in charge of the changes did not enact them until late 2017 despite years of backlash that the withdrawal choices were extremely limited.

 

According to the board, the date would ensure the changes would go into effect, despite rumors that several of them would be offered earlier.  The Board said the law’s implementation would take time, using most, if not all, the two years it was given to enacting it.

 

Surveys were conducted about the TSP, and it showed that many separated participants put their money into other retirement accounts like IRAs. Why? These offered provided them with more options to withdrawal. In its current form, the TSP only allows participants to make one partial withdrawal after they separate with an additional withdrawal to cover the rest of the balance.

 

This partial withdrawal isn’t eligible to those who had an in-service “age-based” withdrawal either. This kind of withdrawal is only available one time as well.

 

With the announcement of the September 2019 debt, the TSP included some information about the new policies it would enact. For example, the TSP will limit how many age-based in-service and post-separation withdrawal could be made. There will be four age-based withdrawals allowed each year, with no limit on the number of post-separation withdrawals.

 

The new law would offer greater flexibility in choosing substantially equal withdrawals. Right now, there is the monthly payments option, with account holders given the option to change the amount just once per year. For people who want to stop the payments must withdraw the remaining amount in the account.

 

In September 2019, people will have the option to make changes quarterly or yearly – changing how often or the amount paid. There are also changes to the lump-sum requirement. The law still applies in that investors must the minimum distributions beginning when they turn 70 1/2. What has changed is that they don’t have to make a full withdrawal decision then.

 

The TSP had previously said an upcoming change not included in the law would also be included. It would let account holders with both Roth and traditional balances determine what amount of the partial withdrawal they want removed from both times. At this time, withdrawals must be about equal from each account.

VERA and VISP

Linda Jensen is the principal and owner of Asset Care & Preservation Services with offices in Olympia, WA.  Linda began her career with Prudential Preferred in 1994 where she was an agency leader.  She earned the credentials of a financial planner and has been in practice as an investment and insurance professional since that time.  Linda started her own company in 1997.

Other Articles from Linda:

Linda Jensen | How to make the most out of your TSP Plan

Linda Jensen | Top Four Tips for IUL Shopping

Linda Jensen

Your TSP Account Should Be Prepared For A Long Retirement

retirement can last a long time

 

The National Center for Health Statistics says the average U.S. life expectancy is less than 79 years of age and has decreased in the last two years. However, a 65-year-old retiree may live much longer than that – usually until 85 years of age.

 

Why is that?

you will get old

Average Lifespan Is Only An Average

It’s because there is a lopsided death curve. Once a person reaches 65, they’re past the ailments infants are often inflicted with, no congenital disability that shortened your lifespan or you didn’t die in a car accident that kills more 20-somethings.

 

When you reach 65, you’ve overcome the numerous death risks and made good choices. This is especially true if you’ve retired from your federal career.

 

There’s even a possibility – about 49 percent) that you and your spouse could live to be 90 or 95. There’s an 18 percent chance that you alone could be 95-years-old.

 

For the average person, there are specific health practices that are somewhat in your control such as:

 

  • Cardiovascular disease
  • Cancer
  • Stroke
  • Diabetes
  • Alzheimer’s
  • Suicide
  • Kidney disease

 

If you eat the right, healthy foods – no sugar or processed foods – and avoid smoking and drinking excessively, you reduce the chances of suffering from this diseases and others. You boost the possibility of reaching the 90s and 100s.

be careful about the market

How To Make Your TSP Account Lasts Longer

If you were to live until your 90s, this means you live 25 to 30 years beyond retirement. How are you going to survive during this time?

 

Think of it this way: You have $250,000 in your Thrift Savings Plans, and it continues to earn six percent each year from stocks and bonds. You could withdrawal $15,000 a year for your living expenses to complement your pension. The money in the TSP would last roughly 28 years.

 

If the money only earns up to five percent each year (not entirely unrealistic for the portfolio of a conservative retiree) or if the market suffers a severe drop (recession), the money may not last any more than 20 to 25 years. How will you survive then if you live past this time?

 

This is why it’s essential to plan for all contingencies – you and your spouse could live into your 90s, even reaching 100, the market may not be good at some point, or you may have higher than expected retirement expenses such as expensive medical bills.

IRA Accounts Are Another Way To Save For Retirement

Most people are under the mistaken assumption that once they start to contribute to a Thrift Savings Plan (TSP), they can no longer put money into an IRA. This fallacy hinders their retirement wealth.  The reality is this – if you have a fully-funded TSP account, you can send money into an IRA account.

 

Now, your income level may affect the contributions deduction to a traditional IRA, and you may be unable to contribute to a Roth IRA. However, so long as you are 70 1/2 years old or younger, contribution to a traditional IRA can be made and you can take advantage of the tax protections it offers.

Looking At Traditional IRA For Anyone Under the Age of 70 1/2

Anybody who is younger than 70 1/2 is permitted to contribute to an IRA, but the limit is $5,500. If you’re 50 and older, the limit is $6,500. People who fail to meet the income criteria can have their contributions deducted from their taxable income. People who earn more than the income deduction limits are still allowed to make contributions but are ineligible for a federal income tax deduction.

 

When it comes to Roth IRA contributions, there is no age limit, but an income limit does exist. People who have income that exceeds the income limit continue to contribute to a traditional IRAand set up a “backdoor conversion” that goes to the Roth IRA.

Contributing to an IRA is like planting a money tree

How Much Compound Interest Can You See In An IRA?

iras are great

You may be wondering how much retirement savings you’d miss out on if you decide against an IRA contribution. The answer is simple – you’d miss out on a lot of money. For example, an employee making a $5,500 a year contribution for 30 years, earning about five percent a year would end up with more than $370,000 a year after 30 years.

 

Over half of the total amount is due to growth, not contributions.

 

For a person who contributes for 15 years at the maximum amount would have $120,000 in an IRA account. For them, that amount comes from contributions instead of growth.

 

This is the power compound interest has.

 

Why a monthly contribution rather than a single one? When you automate your savings with a monthly direct debit, it means your savings work on auto-pilot and are likely to attain goals you set forth to accomplish.  If you were to contribute to your IRA manually, you might not contribute as often or regularly, which means you don’t save as much.

It’s Time To Start Contributing To Your IRA

It’s imperative to start contributing to your IRA; but, before you do, here are a couple of pointers to remember:

 

Each year, what you can and can’t do with your IRA will change. And, with the 2018 tax year over, there can no longer be contributions made to the 2017 IRAs. Thus, people will need to focus on the 2018 IRA accounts.

 

And, starting with the 2018 Roth conversions, you are not permitted to undo Roth conversions. However, you still have until Oct. 15 to undo a 2017 Roth conversion if you want.

 

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BRS Enrollment and Participation Not As Strong As Predicted

More than 200,000 military personnel have signed up for the new Blended Retirement System. That’s the word coming from the federal government officials in charge of the 401(k)-like retirement savings Program – Thrift Savings Plan.

 

Starting Jan. 1, 2019 the federal government will start to match the TSP contributions of active duty service members. However, the tradeoff is that they will not be offering the kind of defined benefit pension plan current employees are used to. New armed services recruits will be automatically signed up for the BRS, and current active-duty members will have until Dec. 31, 2018to sign up for the program or stick to their current plan.

Only 52% Currently Enrolled

Tee Ramos, TSP Director of Participant Services, said 205,274 people had enrolled in the new program as of May 31 – reaching 52 percent of the armed forces. He said the number of opt-ins is a bit below than their projections due to a misunderstanding for people who had enlisted in the service before Jan. 1.

Ramos said the projections were off because they had anticipated automatic enrollments of those signing their contracts in 2017 but deferring enlistments until 2018.  He said those that did those were actually not automatically enrolled, throwing the numbers off.

Military Retirement has been confusing for some.

In Other News…

Retirement

The Office of Personnel Management said military retirees and family members would soon be granted access for expanded government-administered dental and vision insurance. Until now, the majority of federal civilian retirees, retired reservists, military survivors and their families were eligible for enrollment in the Federal Employees Dental and Vision Insurance Program.

 

However, the Nation Defense Authorization Act of 2017 gives them increased eligibility for these services.

 

The TRICARE Retiree Dental Plan will end in 2018. This plan offered coverage to those newly FEDVIP eligible participants. Those already enrolled in the TRICARE plan will have a chance to switch to the FEDVIP during the open enrollment season – Nov. 12 to Dec. 10.

 

The OPM said the FEDVIP has no automatic enrollment plan, which means individuals will have to make the switch themselves during that time. The agency has created a website that offers information about the program for the 5.4 million eligible employees and families to alleviate the transition process.

President Donald Trump has been pushing for a pay freeze for civilian federal employees, but a Senate panel recently pushed back against the idea. The panel opted to approve an appropriations bills that offered a 1.9 percent increase to federal workers starting 2019.

 

The Senate Appropriations Committee, in a 29-2 vote, approved the Financial Services and General Government Appropriations bills for 2019 after it voted down the Republican amendment that eliminated the pay raise to these workers. The appropriations committee on the House Side did not have any provisions regarding federal employee pay, which meant the White House could move forward with its pay freeze proposal.

 

A conference committee will have to take a look at the pay increase if both chambers agree to their versions of the spending package.  The Trump Administration has also asked for a $1 billion interagency workforce fund that officials claim would kick-start pay based on performance efforts and office the pay freeze, but no mention of it was in either the Senate or House appropriations bills.

Donald Trump

Linda Jensen | How You Can Successfully Fund Your Retirement Years

LINDA JENSEN- When it comes to the TSP and IRA for retirement, it’s imperative to keep a few things in mind. After all, what you do or don’t do can affect how much money you’ll have in your retirement years.

 

The first thing to bear in mind – you are not eligible to use a bucket strategy for TSP withdrawals but you can for the majority of IRA accounts. What is a bucket strategy? It’s known as a time-based segmentation approach, which allocates money intotwo or more accounts. Based on information from Investopedia, nearly 40 percent of financial advisors advise clients to follow the bucket strategy.

 

For the first bucket, money would be placedinto safe investments – lower yielding investments – that allows you to make monthly income withdrawals when you’re retired. This income bucket should have enough money in it to last for many years.

 

For the second bucket, money would be putinto riskier, higher-yielding investments that don’t need tobe usedfor years to come. Bucket two can be used to fund bucket one.

 

You don’t have to stick with just two buckets either. You could put together a third and fourth bucket to be used later on.

 

With a bucket strategy, you won’t have to make withdrawals from a volatile investment when the market is not going in your favor and gives time for the money to regain their value.

 

The TSP states withdrawals can be respectively divided between TSP investments based on how you set up the allocation. So, if you’re withdrawing $1,000 every month with the account being divided between five key funds, it means $200 would come from the C, F, G, I and S Funds. This means you can’t use a bucket strategy if money is left in the TSP.

 

It’s important also to understand how your monthly payments can be set up using any of the IRS’ life expectancy table. The TSP, however, only lets people use the Uniform table, which works well for people who spouses are close to them in age.

 

If your spouse is 10years older or younger than you, the IRS has another table to be used for the TSP. It’s called the Joint and Survivor life expectancy table. The table permits smaller withdrawals, as a younger spouse is determined to need money for a longer period of timeafter your death than a spouse who is close to you in age.

 

This strategy can also be usedwith an IRA account.

 

What if you decide to use the Joint and Survivor life expectancy table or bucket strategy for your retirement? It means you’ll need to withdraw money from the TSP into another account that offers some flexibility.

 

When the TSP Modernization Act is put into action (come November 2019), the restrictions noted above is liable to stay in place. The fact also remains that employer plans, which also includes the TSP, tends to be more stringent than individual plans such as IRAs.

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Linda Jensen

Linda Jensen is the principal and owner of Asset Care & Preservation Services with offices in Olympia, WA.  Linda began her career with Prudential Preferred in 1994 where she was an agency leader.  She earned the credentials of a financial planner and has been in practice as an investment and insurance professional since that time.  Linda started her own company in 1997.

Other Articles from Linda Jensen:

Linda Jensen | How to make the most out of your TSP Plan

Linda Jensen | Top Four Tips for IUL Shopping

Planning For Retirement in the Light of Proposed Benefit Cuts

News of the impending benefits cuts is spreading like wildfire. Among these proposals are changing from a high 3 to a high 5 tension estimation method, COLA reductions, and hiked FERS contributions.

 

Recently, the Office of Personnel Management asked Congress to help narrow the gap between federal benefits and those of the private sector. Although the proposal has been drawn out, it seems likely that Congress will alter federal benefits. On the other hand, federal employees may create their own retirement plans to cater for their future.

 

But what impact will these proposals have? Below are a few examples to consider. For a deeper analysis of the effect of this proposal see this post.

Change From High 3 to High 5

A change from a high 3 to a high 5 benefit estimation process entails assessing an individual’s years of service, overall salary, and other factors that affect the amounts of pension they receive.

 

Let’s assume an individual with federal service equal to 20% of their high 3 or high 5 for that matter. Next, we require knowing which five years of federal service they had the highest salaries. To compute their pension, we average their highest 3 or 5 years salaries, taking out 20% of this figure. For example, an employee has $70,000, $72,000, $74,000, $76,000, and $78,000 as the highest five years salaries.

 

One may respond that it is impossible to get these kinds of salaries. Even so, there are two factors that are responsible for these kinds of wages. One is that these amounts are the result of periodic promotions or raised somewhere along their highest 3 year period.

 

The second reason could be wherein individual receives a raise during their highest 5 years of service. The proposed changes would extend his pension estimation from high 3 to high 5. If for five years one had a salary of $50,000, then their pension will be based on a salary of $50,000.

 

Let’s consider increases from$70,000 to $78,000, and then their high 3 could be the three last year with an average of $76,000. However, using high 5 estimations, their average would be $74,000. For both cases, 20% of this figure equates to $14,800 for high 5 and $15,200 for the high 3. The implementation of this proposal would create a reduction of $400 to an individual’s annual pension. All the same, a decline of this type is minimal. On the other hand, this reduction may increase due to higher salaries, higher percentages, or because of a salary hike in one year causing a higher average. In regards to one’s total pension, the adjustment from high 3 to a high 5 will cause a lower minimal reduction.

cryptocurrency, though volatile, can be incredibly valuable

Contributions to FERS

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Finally, federal employees will make higher contributions towards their pension schemes. The date of one’s hire determines the amount individuals contribute. Since 2013, the percentage of withheld salary was revised upwards. Though this adjustment was implemented, it only affects those hired since then.

 

Nonetheless, this proposal will affect current federal employees not just those hired after 2013. At present, it is impossible to predict how much an employee’s contribution will be with some workers paying 0.8% to 4.4%. This proposal will affect some employees more than others. According to the Congressional Budget Office, this amount may increase with 5.8%.

 

For example, if we apply this percentage to $100,000, then itis possible to estimate the actual reductions. Changing from 0.8% to 5.8% is a considerable jump. However, it is expected to be introduced through phases, meaning this is an increase of $5,000 for a $100,000 salary.

 

As this $5,000 figure comprises an employee’s taxable income, the reduction would be less. Consequently, it might be just a few dollars on an employee’s paycheck. For instance,an employee used to pay4.4% of his salary towards their pension ends up paying 5.8%. This will still make a difference in their pay, though this will be on their net taxes not as a reduction.

 

Only time will clear up the situation. Interestingly, lots of concern will be expressed regarding these changes. Keep checking with us for more stories about these developments.

You Could Soon File Insurance Claims with Robots

What is TSP?

Nowadays, Artificial Intelligence is the rage across different industries. Surprisingly, the insurance industry is a significant investor in AI-driven technology.    A 2017 Global Trends Study estimates that the insurance sector spent an average of $124 million in AI technology. Interestingly, this amount is $54 million more than the average of other surveyed industries. Recently, QBE, a global insurance powerhouse, invested massive amounts of funds in HyperScience, a machine learning company. What’s more, this is not QBE’s only AI investment.

 

Even so, a raging debate is ongoing regarding the benefits and drawback of AI technology. As a result, players in the industry have organized a summit to address the use of machine learning.

 

In the AI ecosystem, chatbots are essential elements. For instance, Allstate introduced a chatbot known as Allstate Business Insurance Expert (ABIE). Additionally, Singapore Life’s SingLifeChatbot helps clients on Facebook process their life insurance applications.

 

Consider the above examples as just the tip of the iceberg as many more companies are adopting the use of AI in business. Nonetheless, this is not to imply that the insurance industry has a monopoly over AI-powered chatbots. What is most surprising is the industry’s affinity for AI.

 

Despite perceived unsexiness of the insurance sector, it stands to reap tremendous benefits from AI applications. In particular, the widespread adoption of chatbots is a trend, now and in the future. Below are a few ways in which chatbots benefit insurance companies:

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Benefit # 1: Reduced Customer Confusion

investing doesn't have to be hard.

Data from a recent survey indicates that insurance jargon confuses 72% of clients. For instance, most consumers find it challenging to tell the difference between whole life insurance and term life insurance. But that needs not be the case, as chatbots can help reduce or eliminate confusion. Chatbots can translate complicated terms into everyday language as well as guide consumers through processing steps.

The difference between the FERS or CSRS Annuity and the TSP is that the annuity is based on your years of service, rather than how much you have contributed, and is also voluntary, as opposed to the annuity.

Regardless of which retirement system you qualify for, contributing to the Thrift Savings Plan is vital to your retirement, primarily if you contribute early. TSP compound interest means that the earlier you start to make contributions, the better. However, if you did not start saving at an earlier point, committing to a steady and consistent contribution schedule will almost always produce positive results.

Benefit # 2: 24/7 Availability

Regrettably, difficult controlling events lead to insured claims. In the event of a disaster, policyholders are restricted to filing claims during business hours. Unlike human who needs to recharge, chatbots can work 24/7 365 days. Even better, chatbots can handle all types of traffic without fatigue. This meansthat clients no longer need to wait on hold for a customer care rep.

Man and woman discuss their TSP
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Benefits # 3: Process Streamlining

Also, chatbots can help reduce the amount of paper and superfluous processing stages when filing insurance claims. Regrettably, most consumers dread the claims filing process. Despite the challenges involved, chatbots are helping transform insurance processes. In early 2016, for example, Lemonade Insurance’s chatbot, Jim, settled a claimwithin3 seconds.

 

Not all insurance chatbots can settle claims in record time. However, chatbots can reduce processing and wait times significantly. Besides that, the evolution of machine learning is still in its infancy. On the flipside, chatbots have no human empathy and are easy to manipulate. Luckily, developers are working on overcoming these drawbacks. Even so, chatbots are one way of solving challenges in this industry.

New Ruling States Federal Employees Must Reveal Cryptocurrency Holdings

If you have invested in Bitcoin, Dogecoin, or any number of other alternative cryptocurrencies, you may be obligated to reveal those holdings.

A new US Office of Government Ethics (OGE) order requires all federal employees to disclose any crypto assets they own. The guideline issued on June 18, 2018, affects 2 million federal executives and departments. This guideline includes the Departments of the Army, Homeland Security, Justice, and Veteran Affairs.

In its foresight, the OGE does not recognize cryptocurrencies as legal tender or real currencies. All crypto assets, regardless of the acquisition means or distribution channel, are subject to the OGE’s published guidelines. For this reason, employees should report all digital currencies where an asset’s value exceeds $1,000 or an income of over $200. Plus, employees must provide names of the digital currency and the exchange or platform holding it.

 

In its rationale, the OGE argues that due to the popularity and increased adoption of cryptocurrencies, federal employees holding virtual assets are ethically concerned about disclosure obligations.

Bitcoin is a very popular form of cryptocurrency
cryptocurrency, though volatile, can be incredibly valuable

Hence, the OGE ruled that federal employees must file all transactions involving crypto asset investments. Even so, reporting depends on whether a digital asset qualifies as security. Where doubts exist, employees should periodically report all digital transactions exceeding the reporting threshold.

 

As digital currencies are an “investment asset,” they can create a conflict of interest for the owner. What’s more, no conflict of interest exemption applies to employees holding digital assets. Nonetheless, the OGE will provide further guidance in tandem with the evolution of digital currencies.

 

In March this year, South Korea banned public officials from transacting or owning cryptocurrency assets. Interestingly, it’s the first recorded instance of the state prohibiting its public officials from holding digital assets. As a result, any public official transacting in virtual currencies violates civil servant’s code of ethics and practice and is liable for disciplinary action.

Why Military Pensions can be Insufficient to Retire On | Rick Spruill

RICK SPRUILL – In most companies and industries, employee sponsored 401 (k) plans phased out traditional retirement plans. Still, the military offers its uniformed members a pension scheme. Typically, military members receive a pension equal to 50% of the highest three-year base pay. Each year, pension amounts increase by 2.5% for members with twenty and above years of service.

 

Though this amount is significant, it might not be enough for you and your family’s needs, mainly since most military members serve for less than 20 years. This means that after discharge, you’ll most likely have no pension.

A New Blended Retirement System

In January 2018, the Blended Retirement System (BRS) was introduced for service members who leave before the 20-year mark. It has three retirement options: pension only, a Thrift Savings Plan (TSP), or a reduced hybrid (pension and TSP) option.

 

After January 2018, enrollments into the BRS are automatic. If you have less than 12 years of service, you can elect to enroll into the BRS. Members with fewer than eight years can leverage the BRS’ provisions to save more for their retirement.  But why is that so? It is because your matching contributions can exceed your pension’s total value. But this requires that you remain in service for twenty yearsor more to qualify for a military TSP.

 

Depending on your status, it is challenging enrolling in the BRS if you have between 8 and 12 years of service. Additionally, your TSP contributions and base pay may affect your eligibility. Often military members with 20 or more years prefer a pension based retirement scheme.

Rick Spruill talks about military retirement

But What is a TSP?

Careful investment in the TSP can be a great idea

It is a retirement saving scheme for service members and federal employees. This plan remits 1% of an employee’s base pay into a TSP with a further 4% to 5% matching contribution. With a TSP, you can choose to invest your contributions in any of the five index funds or a lifecycle fund.  An advantage of TSP indexed fund options is their relatively low expense ratios. Typically, expense ratios are 40 cents per $1,000 that you invest. Plus, you can opt between a traditional TSP, a Roth-based TSP, or a hybrid TSP. All matching contributions are deposited in a conventional TSP no matter what option you enroll in. For 2018, the maximum contribution value for a TSP is capped at $18,500.

What Other Saving Options Are Available?

Option# 1: Traditional and Roth IRAs

 

With this approach, members can contribute to Roth and non-deductible IRAs as well as TSPs. You can open either of these investment accounts at your local brokerage firm. What’s more, both function independently and contributions are capped at$5,500 per year. However, they are limits on incomes for eligibility.

 

Married service members can have their spouse make IRA contributions where applicable. Spousal IRAs have a contribution limit of $5,500 each year.

 

Option #2: Taxable Brokerage Accounts

 

Another alternative is to invest additional funds in a taxable brokerage account. Unlike IRAs and other retirement schemes, brokerage accounts charge no penalties for early withdrawals. Also, brokerage accounts impose no contribution caps.

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Estimating How Much You’ll Need for Retirement

  • Know Your Needs

 

Estimating how much money you’ll need requires understanding what retirement means as well as its implications. So evaluate your lifestyle to determine the finances you require. Below are factors that can affect your financial status during retirement:

 

  • Maintaining a large house or living in a low-cost maintenance home
  • Whether you’re traveling internationally or living closer to home
  • Spending on hobbies such as golf or engaging in volunteer work
  • Taking up a part-time job

 

Although you are retired, you might secure a part-time job, earning you some much-needed income. If so, you are better off with fewer retirement savings.

 

  • Craft A Retirement Budget

 

After knowing what type of retirement you’re looking at, it’s time to create a budget. Start with known expenses to gain an idea of your retirement expenses. Let’s say you spend $5,000 each month; you need $60,000 each year to meet your living expenses. So if you retire at age 63 and live for another 27 years, your retirement estimate equates to $1,620,000. Of course, other costs and inflation might push this figure upwards. Nonetheless, it is a reasonable ballpark estimate.

 

Increased life expectancies and kids who need support beyond college might stretch your military pension. This means you’ll have insufficient finances to cover all your needs. Typically, retirees withdraw 4% of their retirement benefits each year.  With the above example in mind, you require about $1,620,000 to cover $60,000 in monthly expenses.

 

Besides that, how much you need depends on the factors below:

 

  • Your place of residence as tax rates differ across states
  • Lifestyle choices you make during retirement
  • Any debts you might be paying while retired
  • Whether you have family members depending on you for support
  • Your revenue streams either from part-time work, real estate, or other investments

 

No matter your retirement status, a retirement calculator is a great way of simulating different saving scenarios. Alternatively, you can consult with a financial planner like Rick Spruill to help in creating a retirement plan.

About Rick Spruill

Rick Spruill is a  Financial, Retirement, Military, and Civil Service Retirement TSP Fegli and VGLI Life insurance Conversion Expert, as well as a Wealth Transfer, Nursing home, Estate, Consulting and Planning Experts and a Business Tax reduction expert. Contact Rick Spruill at [email protected] and learn how you could save more for retirement.
Rick Spruill

Linda Jensen | Top Four Tips for IUL Shopping

Linda Jensen: Your IUL Guide

LINDA JENSEN – Obtaining a universal life insurance policy that suits your unique needs is often a challenging undertaking. But why is that so? It is because universal life insurance policies are flexible products. Given that, selecting the right one requires that you evaluate between numerous available options. Most likely you might end up empty-handed.

Let us help you help you get acquainted with what it entails to get universal life insurance. Here are our four top tips for buying IUL.

Shopping carts are a metaphor for shopping for IUL.

Tip # 1: Know Your Broker

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Avoid relying on advice found online as there are many providers and calculators out there. Keep it in mind that you might be persuaded to purchase the cheapest option. Nonetheless, this might not be a suitable option for you.

 

Remember that many options are available for you to select from when shopping for an IUL. Consulting with independent brokers pays off when evaluating between multiple providers. Hence, you should go for a broker that specializes in indexed universal life to help you pick the best policy for you.

Tip # 2: Your Financial Status

Having living benefits is a bonus for many life insurance policyholders. Living benefits are policy riders that offer you benefits before your demise. These riders let you access a portion of your death benefit while still alive. Following is a list of all benefits that you are entitled to in an IUL policy.

 

  • Terminal illness benefits: this benefits applicable to terminally ill IUL policyholders with 12 to 24 months to live
  • Chronic illness benefits: applies to insured individuals who have deficiencies in completing essential living activities
  • Critical illness: this benefit is given to individuals who have cancer, kidney failure, or are at risk of heart attacks or strokes. The severity of these conditions determines the size of your lump sum payout. For instance, if you have Stage 3 cancer, the lump sum payout is higher than if you had Stage 2 cancer.
  • Critical injury: this benefit is provided to clients who are in a coma, with traumatic brain injuries, paralysis, or severe Typically, a majority of companies don’t offer this benefit to their employees. This is why you need to talk with your insurance broker to get you a policy that includes this benefit.

 

Note that living benefits are a lifesaver for your portfolio as they provide you with an alternative to other standalone solution, for instance, long-term care. This is especially important for families that have limited resources.

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Your IUL ROI could be great

Tip # 3: Leverage Your Investments

Typically, maximizing your investment ROIs requires lots of commitment, time, and effort. Plus, due to the uncertainty of the stock markets, you can potentially end up making losses. This is why you should look for ways to let you manage any tips that might occur along the way.

 

IUL policies offer a policyholder a means of evening out these dips. Usually, these products provide between 0% to 3% credit guarantees over other products. As a result, your investment is protected against market fluctuations. What’s more, the fact that IUL’s have variance guarantees is all the more reason why you should consider one.

 

But what is the implication of this? Whenever an index gains in value, your provider is bound to credit your policy accordingly. Essentially, your policy either gets capped or credited up to a certain ceiling. Typically, caps are in the range of 8 % to 18%. For example, if an index returns 20%, you receive a cap of 18%. If an index had negative returns, your provider still retains your policy. Nonetheless, the importance of reviewing policy caps cannot be overstated as these can affect the long-term performance of your investment.

Tip # 4: Premium Prices and Underwriting Costs

Even though you can use an IUL to diversify your investments, it isn’t suitable for everybody. For instance, it is very expensive to obtain an IUL in your 60s rather than in your 30s. Often, its cumulative pricing can wipe out your insurance policy. Over time, death benefits and associated charges may reduce the ability of your investment accumulate value.

 

Besides that, there is the issue of underwriting eligibility. For instance, you may receive a low rating if you have a terminal illness. If you are young and have excellent health, IUL is an excellent way of diversifying your portfolio.

 

So there you are! Apply these tips when shopping for an IUL. Also, remember to seek advice from a professionally certified and independent broker who’ll provide you with comprehensive details of your available options rather than what’s in the best interest of an insurance provider.

TSP and FERS are important parts of your retirement

Linda Jensen

CLU ChFC LUTCF CLTC CSA

 

 

Linda Jensen is the principal and owner of Asset Care & Preservation Services with offices in Olympia, WA.  Linda began her career with Prudential Preferred in 1994 where she was an agency leader.  She earned the credentials of a financial planner and has been in practice as an investment and insurance professional since that time.  Linda started her own company in 1997.

Linda Jensen

Michael Wood | How Retirement Cut Proposals Will Affect Federal Workers

Article by Michael Wood

MICHAEL WOOD –

There is much debate regarding the difference in working conditions between federal and private sector employees. On the one hand, private-sector employees think federal employees enjoy better benefits. Why is that so? Over the years, private sector employers have reduced their employee benefits. On the other hand, federal benefit packages are challenging to maintain. However, federal employees’ base salaries are lower than those of private sector employees. In turn, this creates the need for federal benefits to offset differences.

 

Recent White House proposals threatened to reduce federal employee benefits. This letter, from the director of the US Office of Personnel Management, details the proposed measures. These measures target federal employees enrolled in the Civil Service Retirement (CSRS)and FederalEmployees Retirement System (FERS). The goal of these measures is to reduce budget deficits. Already, pay freezes and compensation adjustments to affect federal employee benefits which are less than those of private sector employees are. Below are four possible measures that might be implemented.

Trump threatened a government shutdown this September

Increases in Benefits Contributions

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In the past, private companies offered retirement benefits that require no employee contributions. Even so, most employees prefer 401(k) retirement plans as it gives them greater control over their future. In contrast, public sector retirement plans require recurring contributions. Today, a majority of employees in FERS remit 0.8% of their salaries and3.1% or 4.4% if hired after 2012.

 

Under this proposal, FERS contributions will hike with one percentage point and a ceiling of  7.25% of base pay. This is equivalent to 14.5% of total pension similar to SocialSecurity’s 50/50 allocation of contributions between employees and employers. Paying an additional 6.45% of base pay necessitates pay cuts with no significant change in benefit payouts. Over the next ten years, this will slash deficits by $69 billion and more beyond this period.

Longer Pension Calculation Duration

Currently, FERS and CSRS benefits are computed using an average of the highest annual pay over a period of three years. Typically, this is derived late in an employee’s career when salaries are highest. The proposed law will increase this period to five years. An increase in the calculation period reduces the average as well as initial payouts lasting throughout retirement. Essentially, these proposals attempt to mimic how Social Security uses an employee’s 35-year history to compute pensions. All the same, private sector pensions follow rules similar to the public sector. Implementing this measure will save the Fed $6 billion over the next ten years.

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Reductions in COLA Benefits

Similar to Social Security’s COLA benefits for retirees, federal pension benefits increase about inflation. Growing payouts in this way offset increases in the cost of living expenses.

 

The proposed new laws will reduce CSRS COLA benefits by 0.5% as well as wholly eliminate them from the FERS. This will translate to reductions of $50 billion in the next ten years and onwards.

No Supplemental Annuities

FERS supplemental annuities require that an employee quit service before age 62 and enroll in Social security. Supplemental annuities help determine what an employee’s corresponding Social Security benefits will be. However, proposed measures will eliminate these benefits saving the federal government $19 billion in the next decade.

TSP and FERS are important parts of your retirement
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Final Thoughts

Though the White House can only make suggestions, it cannot enact these measures. Given that, it’s obliged to provide direction regarding these proposals. As calls to reduce budget deficits increase, it is possible that Congress will deliberate on these and other proposals. However, federal employees will oppose these measures strongly, though if they are implemented they certainly will have to endure the cuts.

Michael Wood

Michael Wood is the principal and owner of Integrity Retirement Planning, LLC with offices located in Cambridge, Maryland. Michael began his career in Insurance and Financial Services with Bankers Life and Casualty in 1999 where he practiced insurance until 2002 at which time he started his own company.

Michael Wood

Potential Government Shutdown Looms in Fall

With the start of the next fiscal just four months away, conflict in Congress makes it likely that a continuing resolution may be procured before October 1 to keep the federal government functional. What’s more, failure to reach an accord in Congress may lead to a formal shutdown of the government just six weeks to the midterm elections.

 

But how will this happen? Below is a breakdown of the possible ways this might unfold.

 

  • In recent months, Republicans have made it clear that they won’t allow the passage of a budget resolution in Congress despite federal law requiring

 

  • Subsequently, this makes it impossible to allocate funds for the coming year unless a budget resolution is adopted first before May 1st.

 

  • Although the House had numerous opportunities to debate the appropriations bill for the fiscal year beginning October 1, 2018, the House didn’t take any action regarding2019 appropriations.

 

  • According to gov, the House Appropriations Committee has only approved5 of the 12 2019 Appropriation bills with its subcommittee approving only two others.

 

  • The present condition means that there currently isn’t any tentative approval of the 2019 appropriations

 

  • What’s more, data on Congress.gov indicates that theSenate AppropriationsCommittee and its subcommittees have approved none of the allocations despite having the capacity to act independently of the House.

 

  • Plus, there isn’t sufficient time for Congress to act. Besides, the fiscal year 2019 begins about four months time. Session 42 of the House is set to commence within 95 working days and theSenate has only 61 sitting days.

 

  • But what can change this situation? Only if the WhiteHouse, Senate, and the House jointly can a possible government shutdown is averted.

 

  • With the House FreedomCaucus flexing its political muscles, Democrats not willing to lose any political ground before the midterm elections, and a president willing to prove his mettle after okaying the 2018 appropriations bills reluctantly, gaining consensus in a fractured Congress will prove challenging.

 

  • Also, achieving an agreement between Democrats and Republicans that pleases the president looks impossible. Keep it in mind that the president needs billions of dollars for his border wall.
  • However, the House Speaker andSenate MajorityLeader are doing everything possible to prevent any potential government shutdown before fall. Accordingly, they are relentlessly working to have as many appropriations bills passed.

 

  • Nonetheless, it remains to be seen whether this will be possible with so little time left before the beginning of the fiscal year 2019.

 

  • What’s more, the House Speaker and Senate Majority Leader are keen to avoid short-lived continuing resolutions. Why is that so? It is becauseCRs will keep Democrat and Republican lawmakers in Washington instead of on the campaign

 

  • Consequently, October 1 is a most important deadline marking the beginning of a political showdown regarding a CR and signaling the possibility of a potential government shutdown.
TSP and FERS are important parts of your retirement

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