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May 28, 2020

Federal Employee Retirement and Benefits News

Category: Todd Carmack

TODD CARMACK

Todd Carmack has been one of the lead writers at psretirement.com for over a decade now. His excellence and knowledge of the field is second to none. Over the years he has been writing and debating on the public sector retirement news and his verdict is really valued in the community. He knows about almost every aspect of the game.

Visit Todd Carmack’s author page to read more.

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The COVID-19 Economic Turmoil’s Impact on Baby Boomers sponsored by Todd Carmack

The COVID-19 Economic Turmoil’s Impact on Baby Boomers sponsored by Todd Carmack

 

As per Todd Carmack the impact of COVID-19 on every sphere of human life, especially on the economy, has been drastic and out of bounds. The damage caused by an invisible virus will take a lot of time and effort to overcome economic fiasco. However, one thing is clear that it has changed people for good. The older citizens of society are those affected by this pandemic. It has worked to destroy their retirement plans and life goals; i.e., the glorious seventies.

 

The data collected from across the world shows that the people who are above 80 have the highest mortality rate due to this novel COVID-19. Todd Carmack said the numbers are a little less severe for those above 70, but still a lot higher than younger people. The virus becomes even more deadly for those who have a history of chronic diseases and health failures. Thus, this pandemic has sounded a death-knell and became a global emergency for baby boomers.

 

Baby boomers—the people born between 1946 and 1964—represent almost 20 percent of the population of the United States. A huge chunk of them is still actively working in the market and will do so depending upon the current economic turmoil. About a fifth of boomers provide eldercare to either their parents or loved ones. This leaves them at the front lines of sufferers due to this global pandemic, and Todd Carmack said it has only added to their dismal vulnerability by highlighting the inability to help directly.

 

Here, in the United States of America, the largest cluster of deaths has been reported in a nursing facility, and the government has turned it into quarantine. This has limited the entry and access to the facility except by medical personnel or in “end of life situations.” Therefore, depending on the longevity and severity of the current economic havoc and the necessary steps needed to isolate and contain this virus, the following could be long term impacts on Boomer’s retirement.

 

Young Boomers will Suffer More.

   

A study showed that the younger boomers (the people born in 1960 or later) would be affected much more by this economic turmoil of COVID- 19 than the older boomers (born in the 1940s). This is due to the global economic recession of 2008, which slammed late boomers greatly snatching off their labor jobs, and many settled for lower-paying jobs with retirement plans. Due to this reason, the late boomers accumulated much less Wealth in terms of 401(k) (a retirement savings plan sponsored by an employer) and the IRA (Individual retirement account) money. In 2016, even after the seven years of the great depression, the late boomers 401(k) balance was on a downward trajectory than before. This means they have to accumulate more to have the same level of retirement savings than early boomers. Another survey conducted shows how this crisis will affect late boomers more and followed by Gen X (people born between 1965 and 1980). Thus, the economic crisis of COVID-19 will wreak havoc on late boomers and strip them off from their job security.

 

 

Working Longer Will Get Harder

 

The old factoid that each day 10,000 boomers turn 65, the retirement age, has been put to question in recent years amid the continuous shrinkage of baby boomers labor force up to 5,900 per day since 2010. This is due to the reason that this generation has outrun the previous two generations (Silent Generation and the Greatest Generation) in working hours, supported by the fact that in 2018, 28 percent of the oldest boomers were looking for jobs. There has been a sharp increase among old workers who want to work past 65 and retire afterward or might never. While this desire is rising, the harsh reality is that once these boomers lose their jobs, only one in ten percent gets the same benefit again. The rest have to compromise their retirement plan or social security benefits, rendering them to the overall low accumulation of Wealth, and therefore, working longer will get harder.

 

Boomer’s Wealth will be Affected More by Panic.

 

A major blowback effect of COVID-19 is that it has created great panic in the bear market, and the investment is on a nosedive. The sinusoidal activity will enable the market to rise again after COVID-19. Still, the Boomer might not be able to gain the benefit as happened in the 2008 economic crash when many pulled out investments and missed the 2009 rebound. The issue lies in human mentality, which pursues to liquefy stocks in the crash, and one ends up on the losing side after the quick recovery of the market. As explained by financial planner Kristin McKenna, in the S&P 500, the best daily gains occurred after the worst ten days of the market. Had one stayed in those days, one would end up earning more than those who pulled out. Thus, it is extremely important for boomers not to dive into this panic and survive through this economic crisis by maintaining their financial status in shape.

 

The Cash Bucket Strategy Will Get Fame

 

The current economic crisis will give favor to the famous “Cash Bucket Strategy” (dividing retirement into three distinct phases) by alluring retirees to swim through the current crisis and champion the risk of payment return. The reason is that: even if the market is flourishing during your working years, you might run out of money if the economic crash occurs in your early retirement years. Thus, having a cash bucket strategy in place would help a lot in troublesome times. For example, during the first phase of the strategy, one could have enough cash for the first three to five years in the form of bonds or laddered CDs. Thus, it will help many boomers to get through this economic turmoil without losing much of their economic status and retirement savings during the COVID-19 financial crisis.

 

Cruises Will No Longer be on Bucket List

 

Peaceful and hustle free post-retirement life is a dream of almost every Boomer. For that cause, supported by a recent survey, the 2020 travel plan of boomers shows approximately $7,800 on travel, including international travel. Moreover, a good third of boomers’ international trips include staying at cruise ships.

 

Now, during these global pandemic and panic times, it would be hard to say that the boomers will completely give up their traveling plans. However, staying at a cruise ship might be off the list. This has to do with much-circulated news of many passengers trapped on cruise ships and fearing their life among the COVID-19 outbreak. Even though the cruise industry has recovered from many previous health fatalities (including recent norovirus and influenza outbreaks), this threat seems larger and will leave a longer imprint on boomers.

 

More Importance will be given to Family Time.

 

The effective way to avoid COVID-19 is by social distancing, and staying at home means more family time. This has been one of the main reasons for boomers to pursue their retirement rather than by ill health, financial troubles, or domestic woes. Over the years, it has been seen that planning trips with extended family and friends have been the major reason for boomers traveling. Being closer to their families is also a top-notch reason for boomers’ retirement plans. Thus, in this regard, Todd Carmack said COVID-19 will act to draw people closer to each other by helping boomers to fill in the intergenerational gap with millennials and have quality time at home during the quarantine.

 

Aging at home will become More Compelling. 

 

Amid stripping off cruises from bucket list and nursing home horrors for boomers, the COVID-19 will leave a long-lasting imprint not only on boomers’ minds but also on their adult generation. Aging in place of their marriage, mortgages, and memories is the topmost priority for boomers. But this desire to age at home precedes boomers. A recent study shows that among 20,000 homeowners, 53% move back to their home at 50. Another 17% after retirement, and the remaining 30%, move back home depending upon their financial troubles and health woes after retirement. In this regard, the IoT (internet of things) will affect people’s behavior and help them stay at home by controlling their activities, i.e., pill reminders by remote caregivers. This technology will not only be around us but inside us, like mom has a smart glucose sensor under her skin transmitting and adjusting her insulin levels.

 

Nursing Homes and Facilities will Change for Good.

 

The growing desire among boomers to age at home has wreaked havoc on nursing facilities, and more than 550 facilities have been closed due to high cost and reimbursement pressure. However, it is unlikely for nursing homes to vanish entirely as a last resort, but they will be undergoing important changes over time. This includes hiring health care professionals and experts at nursing homes to look after the boomers. Moreover, the rising trend of senior housing and assisted housing developments will be affected in the future, as they will be looking to spread out more and avoid contagions in case of an epidemic.

 

As rightly said by Coughlin that the early mantra of “social-distancing” for the elderly has turned into “self-isolation” for all. This is a watershed event in medical history, and the boomers coming on the other side of this pandemic COVID-19 will be much different than those before the event.

 

Protecting your 401K From the Coronavirus sponsored by Todd Carmack

Protecting your 401K From the Coronavirus sponsored by Todd Carmack

 

As per Todd Carmack Corona Virus has emerged as a financial threat, and this threat is gaining ground rapidly all over the world. COVID-19 has given a sharp blow to the world economy, leaving the stock markets crashed. According to Steve Sexton, financial consultant and CEO of Sexton Advisory Group, a financial services firm in San Diego, the adverse impact of this virus has also reached the 401(k)s. This uncertainty has led people to quit the purchasing of annuities and all other policies. Moreover, there is a persistent fall in the price of oil and stock markets.

 

If you are a holder of a 401(k) plan, you might have seen a decline in your balance. Todd Carmack said this exact decrease depends upon the fact of how your funds are being invested. Meanwhile, the money that has been allocated in the stock might see an unprecedented low, and bonds may also have their value reduced up to a huge extent. According to Katharine Earhart, partner at Fairlight Advisors in the San Francisco Bay area, “For some portfolios, that can mean a 15% to 20% drop in value over the past two weeks”, moreover, she added, “For those closer to retirement and in more conservative portfolios, the stock market drop may have less of an impact as the portfolios are allocated more towards fixed income.”

 

To make your 401(k) plan save, keep on following given instruction by Todd Carmack;

 

  • Steer away from panic like situation.
  • Properly check your existing setup.
  • Have the benefits of long-term potential.
  • Build a reserve that possesses cash.
  • Consider delaying retirement.

 

Steer Away from Panic like Situation

 

While dealing with the 401(k) plan, you must keep in mind that this plan was made for the long term. So you don’t need to panic after viewing the situation of your plan daily. If it has come down, it will recover soon as the markets will open. Moreover, in this situation, Earhart says, “The market is volatile right now, and if you stay the course, you don’t need to look at it every day. So, reviewing your 401(k) plan account every day doesn’t help keep you calm and may create more panic.”

 

So, in this situation, don’t make any instant decisions, as they may take you to more loss. Avoid early withdrawals, as these early withdrawals will cause a penalization for you to pay 10% of your first transaction if you are less than that of the age of 59 1/2.

 

Check your Current Setup

 

Look at your financial picture in your 401 (k) plan, if you are not satisfied with this, arrange a meeting with your financial advisor and discuss your concerns. According to Earhart, “Look at the balance of equities and fixed income in your portfolio.”

 

The people who are retiring in the coming few decades, their allocations in the 401(k) plan should include 50% into bonds and 50% into stocks. According to Kevin Neal, president, and CEO of Moenio, a client advocacy financial firm based in Miami, “As you near retirement, the recommended allocations for 401(k) are more conservative with bonds having 70% or higher allocations”. The selections of bonds are recommended because they include lower risks. So, to make any further decision, you should consult your financial adviser.

 

Take Advantage of the Long-Term Potential

 

If you have a 401(k) plan and you are retiring in the 20 to 50 years, you shouldn’t need to move your funds to any other policy. According to Sexton, “The financial upside of the coronavirus is that most of the money in the stock market is made after the market has corrected.” Moreover, you need not change your contributions to your 401(k) plan because of the decline in the markets due to Coronavirus. Once markets are opened, everything will be on the right track within a few days. Further adding to this matter, Sexton said, “You now have the opportunity to buy mutual funds at a discount, meaning for the same 401(k) contribution, you can accumulate more shares than the previous month.”

 

If you bought a share of stock in $50 before the outbreak of Coronavirus, and now the value of the share is $41, you may buy more shares at the same price. There will certainly be an increase in the value of stocks once the markets are reopened. Sexton again put his remarks, “While the market is in a downturn, it makes sense to contribute as much as you can to your 401(k) right now.” Moreover, Sexton also said, “Take into account the benefit of not having to pay taxes on the money you contribute to your 401(k) as per described by Todd Carmack.”

 

Build a Cash Reserve

 

“Build a cash reserve” means that you always have something for the rainy days. You might have some savings in your hands. So, do not go for early withdrawal from your 401(k) plan, as it penalizes you 10% of your transaction. Earhart added his remarks in these words, “It’s always important to have a cash reserve on hand in case of an emergency or job loss.” So, if you do not have savings, start building a reserve right now. On the other hand, you may also put these funds into a market account or savings account.

 

Consider Delaying Retirement

 

If you were ready to retire this year or in the next five years, the market downturn and coming about 401(k) losses could indicate that beginning to make withdrawals presently will bring about less retirement money than expected. “Except if you previously had an arrangement set up to moderate the impacts of a market downturn, the decrease in your 401(k) qualities may necessitate that you work a couple of more years before resigning,” Sexton says. During the following years, your 401(k) qualities could manufacture once more, returning you on target for your regular retirement pay.

 

SSA Looks To Increase Continuing Disability Reviews To Save Money, But At What Cost? sponsored by Todd Carmack

SSA Looks To Increase Continuing Disability Reviews To Save Money, But At What Cost? sponsored by Todd Carmack 

 

As per Todd Carmack In the fall of last year, the Social Security Administration (SSA) publicly made propositions on making some changes to the Supplemental Security Income (SSI) and Social Security Disability Insurance programs.

Both of these social programs are based on the idea that citizens that are not able to have a job because of a disability, injury, or illness have the right to live their lives, which they need money to do for basic living such as food and shelter.

One change that has been suggested by the SSA is that some people participating in SSI and SSDI would have to go through a periodic evaluation to show that their situation has not improved. Others will also need to partake in a continuing disability review for those that have been diagnosed as medically disabled.

The forum for public feedback and comment was closed on the 31st of this past January. This may signify that these new changes may be found in the federal register this year.

The SSA states that they would like to ensure that the program stops the distribution of these benefits when the participants show improvement in their condition.

They believe that increasing the amount of continuing disability reviews (CDRs) to 18% will save $2.6 billion from 2020 to 2029.

However, those that know the processes of these continuing disability reviews counter that increasing these reviews will push more people with disabilities out of the program due to a lack of aid in the process rather than discovering many that have improved in health. They also state that more frequent reviews will be an unneeded hassle for the disabled as CDRs are already done with opinions based on medical evidence.

At this moment, according to the SSA, $1 towards continuing disability reviews saves $19.90 for the program. However, the SSA states that in the estimation, these increases in reviews would only save $1.40 for each $1 expended. This means that efficiency would be decreased.

Todd Carmack said because most of the disabled have to go through CDRs without any legal assistance, some end up losing their benefits to the burdensome process. When legal aid is provided, it can take anywhere from 20 to 80 hours of assistance.

The commencing paperwork that is necessary to be filled out in a review can be up to 15 questions and must be sent back via the postal service within a set timeframe.

This deadline to complete and send out in the mail can often be a difficulty for those participants that have a disability, which involves issues with cognition, memory, and other limitations with behavior.

There are also situations where participants are in the hospital and being treated for severe health conditions that prevent them from answering the CDR in time. Also, there are times where the recipient does not even receive the CDR paperwork even though they have not changed their address.

In the scenario where the SSA cannot come to an answer due to not enough proof, the participant being reviewed must ask that their benefits be maintained within ten days as the CDR goes into further investigation.

A CDR has the participant provide new medical information that shows that their health condition has improved, gotten worse, or has not changed. If the participant’s doctor or doctors do not send their medical records in time, the patient’s benefits can be canceled. They can also lose their benefits even if the doctor does not provide enough information.

Another way the benefits can be canceled is due to little flubs. The SSA can also request for the participant’s medical history at their request, and if they send the request to the doctor’s personal address rather than where they work, the paperwork may not be handled. This can lead up to the termination of these benefits if the second request isn’t answered.

For many, this may be their only income stream, which can lead to unfortunate financial circumstances for them.

So how does it affect you if you’re healthy without any debilitating issues?

Though there are citizens that have had their disabilities pretty much their entire lives, a good number of people end up with disabilities in their 50s and 60s due to many years worked or to a specific incident that happened in the workplace.

Over one out of four workers that are considered young will be eligible for SSDI before they are of the minimum retirement age. Individuals that are age 30 to 34 and 60 to 66 are more likely to be recipients of disability benefits 14 folds than the average American.

Being qualified for Social Security Disability Insurance is limited according to the statistics: 77% of applicants will be denied, and 12% of that group will be accepted to be recipients due to an appeal or a rereview.

Aside from monetary benefits, another reason it is critical for many of the older generations to be able to qualify and keep their SSDI is because they are also able to receive Medicare, no matter their age, after two years of receiving their disability benefits. Not having Medicare can be dire for those that are too ill to work and do not have a workplace medical plan as the medical expenses may be unaffordable.

If CDRs increase, which will also increase the number of disabled individuals being pushed off their benefits, they will also lose their Medicare plan as the eligibility for this program is linked with SSDI. This can be a life or death situation for some.

Under their new proposals, the SSA also intends to focus on increasing CDRs for the elderly that have a “step five” disability. A judge can decide a step five disability once they have looked over the individual’s work history and their physical restrictions. They will determine them as step five if they believe the individual is not able to be employed.

A step five will generally be aged between 50 and 70 and will have worked manual labor in fields such as construction or mechanics. They are no longer able to work in this line of work due to a medical condition. They may be able to work an office job, but due to their inexperience at a desk job along with their age, the judge can decide if the person would not be someone that employers would find hirable.

Judges can only make this determination based on the individual’s age and how much education they achieved academically. As per Todd Carmack age can be a significant factor as age discrimination is quite an issue for the older generations.

According to an attorney at Prairie State Legal Services, Linda Rothnagel, she believes this specific focus on step five participants is of concern and that it may be discrimination due to age being a factor to being eligible for the step five determination. And usually, with old age, medical conditions tend to decline even more so.

As per Todd Carmack it seems that if these new rules do go through, there will be some disabled Americans that will suffer from this change.

 

What Are The Deferred and Postponed Annuity Options? Sponsored by Todd Carmack

What Are The Deferred and Postponed Annuity Options? Sponsored by Todd Carmack

We will be going over deferred and postponed annuities for those federal employees that are looking to retire soon by Todd Carmack.

When it comes to deferred annuities, this option is often the best if you are leaving your federal post before you have reached the age and time of service necessary to retire with an immediate annuity. However, a minimum of 5 years of creditable service must be under your belt, and you cannot receive a refund of the retirement contributions when you retire.

For employees under the Civil Service Retirement System (CSRS), you can apply for a deferred annuity at 62 years of age.

Those under the Federal Employees’ Retirement System have a few more options as to when they can retire. They can be eligible for a deferred annuity at 62 with five years of creditable service or at age 60 with a minimum of 20 years of service or at your minimum retirement age with a minimum of 30 years of service as per described by Todd Carmack. Your minimum retirement age depends on the year you were, and it can be from 55 to 57 years of age.

Under FERS, there is also the option to be eligible for a deferred annuity if you retire at your minimum retirement age with at least ten years of creditable service. This is called the MRA+10. But your annuity payments will be deducted five percent for each year you are under 62. However, if you have a minimum of 20 years worked and your annuity starts at 60 or later, Todd Carmack said you can avoid the penalty.

Deferred annuities are determined by utilizing the CSRS and FERS calculations. This is: your high-3 and how many years and full months of creditable service worked.

Under the MRA+10, both CSRS and FERS participants will be able to start receiving the cost of a living increase when they reach the age of 62.

Those under FERS that defer their annuity Will not be able to get a special retirement supplement. This supplement approximates the SS benefit that is accumulated while under FERS.

If you become a deferred annuity retiree, whether under CSRS or FERS, you will never be able to reapply for FEHB (Federal Employees Health Benefit) or FEGLI (Federal Employees’ Group Life Insurance) benefits.

Another option is postponing your annuity, but this can only be done by workers under FERS.

Those that use the MRA+10 option to retire, you can delay when you begin receiving your annuity to a future date, which can reduce or prevent you from getting a five percent reduction for each year under 62.

As mentioned above, the formula used to calculate this type of annuity will be the standard FERS calculation, which is based on your high-3 and years of creditable service the day you are officially retired. As per Todd Carmack that amount will be what you get when you begin your annuity, but remember, there may be reductions if you are liable for the five percent penalty due to your age.

Under this option as well, if you were covered by FEHB and/or FEGLI for at least five years when you retire, you are able to reapply for these programs when your annuity starts

What You Can Do About Taxes on Social Security Benefits sponsored by Todd Carmack

What You Can Do About Taxes on Social Security Benefits sponsored by Todd Carmack 

Once you are the legal age to pay income taxes, this will continue until the day you pass. There is no avoiding it. Todd Carmack said you will have to pay taxes on withdrawals from any tax-deferred retirement savings plans. You may also be liable for taxes on your Social Security payments.

According to a survey done by American Advisors Group, about 50 percent of baby boomers expect their Social Security benefits to be their primary or only source of income. This is why taxes could be detrimental to retirees.

Well, the good news is that you may be able to lessen or even avoid the impact of these taxes on your Social Security benefits by Todd Carmack.

The first way to do this is by having your annual retirement income fall under federal income limitations. You SS payments can be liable for taxes at the state and federal level. What you pay at the federal level, if you must pay taxes, depends on how much income you have coming in.

How much you need to pay in taxes is based on your combined income, which is half of your yearly SS benefit, nontaxable interest, and gross income. For instance, if you are getting $18,500 from Social Security and have withdrawn $25,000 from your IRA, you would combine $9,250 plus the $25,000, which adds up to $34,250 as your total combined income.

To start, the maximum portion of your benefits that the IRS can tax is 85 percent if you earn more than their limit.

Single filers do not have to pay any taxes if they have a combined income of less than $25,000 a year. Those that are married and filing jointly do not have to pay taxes if they have a combined income of less than $32,000 a year.

Single filers that have a combined income of $25,000 to $34,000 may have up to 50 percent of their Social Security benefits taxed. Those that are married and filing jointly will be liable for up to 50 percent of their benefits if they have a combined income of $32,000 to $44,000 a year.

Single filers that have a combined income of over $34,000 will face up to 85 percent of their benefits being taxed. Those that are married and filing jointly will have up to 85 percent of their benefits taxed if they have over $44,000 in combined annual income.

You may have noticed that to pay zero dollars on taxes for your Social Security payments, you must have a combined income of less than $25,000 if you are a single filer and $32,000 if you are married and filing together. For many, it is not worth having an intentionally low income to skip paying taxes on your Social Security benefits.

But if you have your savings in a Roth IRA, the withdrawals you make in retirement will not be considered in your combined income calculations as you have already paid taxes on the money you put into the Roth account. So, if you do it right, you can have a retirement income that is more than the income limit without having to pay taxes if you have your savings in a Roth IRA. This will also have you exempted from income taxes on your annual retirement income and Social Security payments.

Now, when it comes to state taxes on Social Security benefits, this depends on what state you plan to retire in as not every state taxes SS payments.

The states that do not tax SS benefits include Alabama, Alaska, Arizona, Arkansas, California, Colorado, 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, Wisconsin, and Wyoming.

Soon, West Virginia will also not tax Social Security benefits by the year 2022.

There might be bad news for retired residents in Illinois as their tax laws may be changed to start taxing Social Security payments. This is something to keep an eye out for updates.

Though reducing or being able to avoid taxes altogether is a great way to keep a good amount of money to yourself for retirement, other things can be done to maximize your retirement income. Todd Carmack said you also don’t want to overlook other items to save yourself money on taxes. For instance, if you are considering a move to another state that does not tax Social Security benefits, be sure to do your research on what other taxes the state does tax and at what rates compared to the current one you live in. Also, be sure to know what the cost of living is compared to where you are living right now. Overall, be sure to do the math to make sure that the move will benefit you in saving money.

As mentioned, you may also want to see what other things you can do to lessen the tax impact you might be facing when you become a retiree. Investing or rolling your savings into a Roth IRA may save you money in taxes, but you can also investigate contributing some of your savings into a health savings account (HSA). This type of account lets you invest pre-tax money and let it grow tax-free. You can also make withdrawals from it tax-free if used for qualified medical expenses.

If your Social Security benefits will be your primary source of money during your retirement years, it is important to maximize these benefits as much as you can. Though saving cash by reducing taxes is one method, it is very crucial to be pragmatic and strategic with your plans for retirement overall.

As per Todd Carmack it is recommended to do as much research as possible to understand what challenges you may face in retirement so that you best prepare for it.

Learning about L Funds by Todd Carmack

Todd Carmack discusses L funds and retirement 

The L Funds (Lifecycle funds) became part of the TSP allocation options in August 2005.   The objective of L funds is to provide a balance between risk and return combined with an employee’s future retirement year. The L Funds are designed to make life a little easier for federal employees by taking the guesswork out of trying to diversify and rebalance TSP allocations for retirement planning.

The L-funds are comprised of the six basic allocations of the Thrift Savings Plan:

G fund – government securities

F fund – government, corporate and mortgage-backed bonds

C fund – S&P 500 index fund (large cap companies of the US)

S fund – small to medium cap US companies

I fund – international stocks of more than 20 developed countries

These lifecycle funds offer both risk (exposure to stock market losses) and reward (exposure to stock market gains). The funds are designed to have greater risk in the portfolio the farther out your expected retirement date will be and a more conservative stance the closer you are to retirement. The idea is to pick the fund closest to your goal retirement date. Utilizing L funds and retirement planning can be helpful in preparing you for retirement. The funds will be rebalanced over time, going from containing higher percentages of risk (C, S, and I funds) to greater percentages of G fund as time gets closer to retirement.

Here is the current breakdown composition of the L funds:

L income – designed for those retiring in the next year or two.

G fund – 74%

F fund – 6%

C fund – 11.2%

S fund – 2.8%

I fund – 6%

L-2020 fund – retiring between 2017-2024

G fund – 50.28%

F fund – 5.72%

C fund – 24.32%

S fund – 6.48%

I fund – 13.2%

L-2030 fund – retiring between 2025-2034

G fund – 30.78%

F fund – 5.72%

C fund – 34.53%

S fund – 9.92%

I fund – 19.05%

L-2040 fund – retiring between 2035-2044

G fund – 20.43%

F fund – 5.57%

C fund – 39.8%

S fund – 12.35%

I fund – 22.20%

L-2050 fund – retiring between 2045-2054

G fund – 12.13%

F fund – 3.87%

C fund – 44.14%

S fund – 14.66%

I fund – 25.20%

These funds are rebalanced each quarter moving to a less risky mix of investment allocations with a greater percentage going into the G fund.

Source: www.opm.gov

Other Todd Carmack Articles

Social Security for FERS Employees by Todd Carmack

Understanding The Thrift Savings Plan, By Todd Carmack

Is The Pension ‘Survivor Benefit’ Best For You? by Todd Carmack

Understanding Your FEGLI Coverage, by Todd Carmack

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The Roth TSP by Todd Carmack

Todd Carmack talks about the Roth TSP

banner_3 Todd Carmack discusses TSP options.

Having the privilege of helping so many federal employees, it amazes me just how few people are taking advantage of the Roth Thrift Savings Plan, a simply fantastic opportunity.

The Roth Thrift Savings Plan was made available to federal employees in 2012. It differs from the Traditional TSP in that contributions to the Roth TSP are made with after-tax dollars instead of pre-tax dollars. The money grows tax-deferred, similar to a Traditional TSP; however, withdrawals from the Roth TSP come out tax-free. Distributions from a Traditional TSP are taxed as income.

We are currently in a low tax rate era based on tax rates over the last one hundred years. In my opinion, the low-tax era is unlikely to last. In the 1970’s, the highest marginal tax bracket was 70%. In 2013, the highest marginal tax bracket was 39.6%.

As a result of the staggering U.S. debt and increases to the budget for Medicare, Social Security taxes may have to increase to keep pace. In the United States, someone is turning 65 years old every seven minutes, the expenses that Medicare and Social Security must absorb will increase dramatically.

Some Tax experts like Ed Slott (CPA and author) and David Walker (former Comptroller General of the United States) predict that the tax rates will have to double or our country will go bankrupt.

What does all this mean? It means that saving now, in a Roth IRA or Roth TSP, along with using other instruments like Indexed Universal Life Insurance, which could provide for tax-free loans and withdrawals in the future, is probably a financially intelligent way to produce a tax-free income for the future. You will need to wait five years from the start date of your Roth TSP to qualify for the tax-free status for distributions but considering these are your retirement dollars it would be inappropriate to use these types of accounts for short-term liquidity needs.

There are always risks (taxes are a risk, as well as the risk of putting money away in an account that has a long-term objective) but if you are interested in having a more comfortable retirement you may want to do what you can to lower your future tax bill. You may want to consider a Roth TSP as part of that equation.

*Source: Kitchen, B. & Kap, E. (2015), Wealth Beyond Wall Street.

Other Todd Carmack Articles

Social Security for FERS Employees by Todd Carmack

Understanding The Thrift Savings Plan, By Todd Carmack

Is The Pension ‘Survivor Benefit’ Best For You? by Todd Carmack

Understanding Your FEGLI Coverage, by Todd Carmack

 

Disclosure: BWM Advisory, LLC reserves the right to edit blog entries and delete those that contain offensive or inappropriate language. Content will also be deleted that potentially violates securities laws and regulations. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours. BWM Advisory, LLC is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

Getting the most out of the Thrift Savings Plan by Todd Carmack

For employees under the FERS system, the TSP is one of the best benefits to take advantage of. The TSP plan allows FERS employees matching contributions:

TSP Matching Contributions

1% is automatic from their agency

100% matching on the first 3% of contributions

50% on the next 2% of contributions

This gives you a total of 5%. Let’s face it, free money is too hard to come by, so make sure that you are contributing at least 5% to your TSP plan.

Contributing to your TSP:

Traditional TSP – where the amount is deducted from your check prior to taxes. You will pay taxes on any distributions.

Roth TSP – where the amount is deducted from your check after taxes have been taken out. As long as you keep the money in the account for 5 years and withdraw it after age 59.5, your distributions are TAX FREE !!!! If you are only contributing to the Roth TSP, your matching 5% will be deposited into the Traditional TSP.

If you withdraw money from either the Traditional or Roth TSP prior to age 59.5, you will pay a 10% penalty. There are a couple of exceptions to this rule.

TSP Contribution Limits

For the year 2015, if you are under the age of 50, both CSRS and FERS employees may contribute up to $18,000 a year (spread that out over the 26 pay periods).  If you are age SO or above, you may contribute the Catch-Up amount of $6000 a year.  These amounts can be contributed to either the Traditional or the Roth. The Roth TSP does not have the same income restrictions as a private Roth account!!! This will allow high-income earners (married or single) to take advantage of accumulating wealth for a tax free retirement income.

Employees can take money out of their TSP account in a few different ways:

TSP Loan – employees may that a loan from their TSP in the amount of their contributions, but not the matching contributions. Loan interest is based on the G-fund. Growth of this loan money is stopped until it is repaid bi-weekly. You can continue making your regular TSP contributions while repaying the loan.

TSP Hardship Withdrawal – this would be withdrawing money and NOT paying it back. This will result in a 6-month freeze of making any contributions and receiving the matching contributions. To add insult to injury, you will also pay income taxes and penalties (if under age 59.5) on the withdrawal. Try and avoid this option.

TSP Age Based Withdrawal – this gives the employee the opportunity to withdraw money after the age of 59.5 without penalty. The gives you the opportunity to take advantage of investment options outside of the Thrift Savings Plan that may help you achieve your retirement goals.

When money is simply withdrawn, 20% is withheld for taxes.  If you are transferring TSP funds to a self-directed IRA, financial advisor (still classified as IRA account) or a tax deferred annuity (still classified as IRA account), then you pay no taxes or penalties.

Other Todd Carmack Articles

Social Security for FERS Employees by Todd Carmack

Understanding The Thrift Savings Plan, By Todd Carmack

Is The Pension ‘Survivor Benefit’ Best For You? by Todd Carmack

Understanding Your FEGLI Coverage, by Todd Carmack
 

Disclosure: BWM Advisory, LLC reserves the right to edit blog entries and delete those that contain offensive or inappropriate language. Content will also be deleted that potentially violates securities laws and regulations. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours. BWM Advisory, LLC is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

Evaluating Your Life Insurance Policy by Todd Carmack

Evaluating Your Life Insurance Policy

I received a phone call the other day from a client I have worked with for about thirteen years now. We have touched based over the years to make sure any life changes have been addressed. The reason for her phone call last week was to address her term life insurance policy. When the policy was taken out, her main concern was providing enough money for her son to pay off the house and for burial expenses.

With her term policy nearing its end date in two years, she has been re-evaluating her coverage. Her home is very close to being paid off, so this is no longer a big concern and her son has become more successful over the last decade, so leaving a large sum of money for him is no longer necessary in her eyes. Now her biggest concern is just making sure her funeral and burial expense are covered.

Everyone needs to evaluate their life insurance policies on a regular basis with their agent to determine if it still meets the needs that it was set up for. We also need to address life changes like birth, death and divorce. This will usually involve changes in coverage or beneficiaries. A common change we look over is changing beneficiaries after divorce and getting re-married. Very often the ex-spouse ends up receiving the life insurance payout. This would also be the time to change beneficiaries on retirement and investment accounts.

Other Todd Carmack Articles

Social Security for FERS Employees by Todd Carmack

Understanding The Thrift Savings Plan, By Todd Carmack

Is The Pension ‘Survivor Benefit’ Best For You? by Todd Carmack

Understanding Your FEGLI Coverage, by Todd Carmack
 

Disclosure: BWM Advisory, LLC reserves the right to edit blog entries and delete those that contain offensive or inappropriate language. Content will also be deleted that potentially violates securities laws and regulations. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours. BWM Advisory, LLC is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

Social Security for FERS Employees by Todd Carmack

Social Security for FERSI am often asked by clients “When should I start taking my Social Security payments?”.  There is no single right answer to that question because everyone designs their retirement differently.  This added income can make a difference on when you decide to retire and how much of a benefit you are willing to accept.  I can only supply you with the options and facts to allow you to make an informed decision.

To be eligible for Social Security, you must first have worked a specific number of quarters.  You will need 40 quarters to be fully insured for life.  In other words, if you have worked for 10 years in jobs covered by Social Security, you can assume you are fully insured.

Social Security benefits are based on the age when you retire and your earnings history.  Cost of Living Adjustments (COLA) are increases usually adjusted yearly, which reflect the percentage increase of the CPI (Consumer Price Index).

The earliest age you may start receiving Social Security payments is 62.  For those who reach age 62 in the year 2000, the minimum age for full benefits is age 65.  This will increase to age 67 for anyone reaching the age of 67 in the year 2022 or after.  For every year that you start your Social Security payments prior to full retirement age, you will lose 6% a year.  Example, if your full benefit retirement age is 65 and you begin payments at age 62, you will receive 80% of your full benefit.  If your full benefit retirement age is age 67, and you begin payments at age 62, you will only receive 70% of your full benefit amount.

About the Author

Todd Carmack

Arizona

Other Todd Carmack Articles

Understanding The Thrift Savings Plan, by Todd Carmack

Is The Pension Survivor Benefit Best For You?  by Todd Carmack

Understanding Your FEGLI Coverage.  by Todd Carmack

 

Disclosure: BWM Advisory, LLC reserves the right to edit blog entries and delete those that contain offensive or inappropriate language. Content will also be deleted that potentially violates securities laws and regulations. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours. BWM Advisory, LLC is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

Is The Pension ‘Survivor Benefit’ Best For You? by Todd Carmack

Survivor BenefitBoth CSRS and FERS have an option when they retire to choose a Survivor Benefit option which allows their spouse continued partial pension payments in the event of your death.

For CSRS, the Survivor Benefit option would provide a 55% annuity payout.  For FERS, the Survivor Benefit has two options:  a 25% or 50% continued benefit option.  Both provide for lifetime income for the employee and a reduced payout for the surviving spouse.  However, there are several other options that exist that may provide for a much great lifetime income stream and those alternatives are certainly worth consideration.  

Here is an example for CSRS:

For CSRS the election of Survivor Benefits will reduce the retirement annuity payout by approximately 10% for life.

Alan, a CSRS employee, and his wife Jane decide to take the joint life option (electing the survivorship option) and while both are living, their monthly income is $4000 per month (which includes the 10% reduction of Alan’s Pension described above).  If Alan dies first, then Jane will receive 55% of the $4000, or $2200 a month for the rest of her life.  If Jane dies first, then Alan will still receive his full monthly income of $4000.

For FERS, the Survivor Benefit has two options:  a 25% or 50% continued benefit option.

Here is an example:

For FERS, the election of Survivor Benefits will reduce the retirement annuity payout by either 5% or 10% depending on the Survivor Benefit option selected.  Likewise, these choices are irrevocable, once chosen. 

Carol, a FERS employee, and her husband Mike decide to take this joint life payout (survivor benefit) and while they are both alive, the monthly pension is $4000.  If they choose the 25% option, and Carol passes away, Mike will receive $1000 monthly for her life.   If they choose the 50% option, Mike would receive $2000 monthly for life.

Is there an alternative?  For both FERS and CSRS employees often times a life insurance policy may be a reasonable option to consider.  For FERS, the 5% or 10% employee Pension reduction and for CSRS the 10% reduction should all be considered an expense used to purchase the surviving spouse’s lifetime income.  Therefore the logical question is to consider the amount that is being spent to ensure the future income and ask whether or not that money could be better spent somewhere else – in essence, Is There A Cheaper or Better Option?  

A case for life insurance;  Although this may not be for everyone and you should always discuss your individual circumstances with a knowledgeable financial professional before making any decisions, life insurance could provide a higher benefit for your spouse and give you more control over your pension.

Let’s consider the fact that your spouse could pre-decease you.  In that event, if you had chosen the Survivor benefit, you would have spent 5-10% of yoru potential retirement income and received nothing for it.  Not to mention, once your spouse has passed on, your pension reduction will continue – your elections are permanent, regardless of circumstances and how much longer you have in retirement.

What happens if you and your wife pass much earlier than expected.  Life expectancy is no guarantee.  Car accidents, slip and falls, and just poor health can all lead to pre-mature death.  If you and your spouse pass much earlier than expected your CSRS and FERS annuity stops – there is no cash value or payout to your children or loved-ones.  In this case, the government keeps whatever you haven’t taken and your heirs receive nothing.

Moreover, the cost for the Survivor Benefit Option is rather high when compared to many life private life insurance policies that could provide a guarantee of income either equal to or greater than the FERS or CSRS Survivor Benefit – not to mention numerous other reasons why the Survivor Benefit may not be the only option to consider.  You may be able to use the costs associated with your Survivor Benefit and purchase a life insurance policy that provides your spouse and or your heirs with a much greater benefit.

Life is about knowing the options and choosing what is best for your situation.

About the Author

Todd Carmack

Financial Advisor

Bedrock Investment Advisors, LLC

Arizona

Other Todd Carmack Articles

Understanding The Thrift Savings Plan, by Todd Carmack

Social Security for FERS Employees, by Todd Carmack

Understanding Your FEGLI Coverage.  by Todd Carmack

 

Disclosure: BWM Advisory, LLC reserves the right to edit blog entries and delete those that contain offensive or inappropriate language. Content will also be deleted that potentially violates securities laws and regulations. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. All investment strategies have the potential for profit or loss. Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours. BWM Advisory, LLC is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

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