CSRS Annuity
Is A $1M Annuity Affordable for You? by Michael Wood
Michael Wood has been a licensed professional for almost 20 years, and he has focused exclusively on those consumers who are close to or already retired.
Could your golden years stay bright with a government-backed inflation-indexed CD of up to $1.5 million?
Most people have the kind of money it takes to buy a worthwhile guaranteed-for-life annuity. However, federal workers contributing to their Civil Service Retirement System or Federal Employees Retirement System plans are guaranteed both a lifetime income and survivor annuity.
The National Association of Retired Federal Employees says that current retirees have a median annuity of $3,171 a month for CSRS. The amount for those under the FERS program is $1,121 a month. However, for those living in the Washington, D.C. area, the retirement benefits are much higher. They usually see annuities of $40,000.
Most retirees who are enrolled in CSRS see full cost-of-living adjustments, while those FERS retiring employees see a not-so-great inflation rate adjustment of two percent a year.
If a person wanted a $40,000 annuity for life they would need to pay $1.3 million. Lower-income federal workers and those retiring at 55 through CSRS would need to pay $1.6 million to have the $3,000+ a month.
When a person is choosing a survivor annuity, usually the startup annuity cost is more.
If a FERS worker wanted to purchase the self-only annuity (starting at 62) for the guaranteed $1,121 a month, they would have to pay $430,000 to do so. This does not include the survivor annuity; that benefit is an added cost.
So, what can you do to get the most money from your retirement? The best thing you can do is contribute the maximum amount to your TSP plan ($18,500 or $24,500). Make sure these contributions are tax-deferred for as long as you are legally allowed and slowly withdraw the money from your TSP.
Contact Michael Wood
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The Results Are In! Government Has Failed To Properly Train Federal Employees
The results are in! Less than 20% of Federal Employees are satisfied with the retirement training they have received. -75% report receiving no training at all.
Nearly 1 Million Federal Employees were asked to participate in the 2015 Year-End Retirement Survey conducted by PSRetirement.com. After tabulating the responses, and apart from the surprising number of Federal Employees that were left unsatisfied with their training, there were also a few other interesting insights into the retirement training that the Federal Employees are currently receiving.
¾ of Federal Employees Surveyed Report Receiving ZERO Retirement Training
According to PSRetirement.com’s 2015 Retirement survey over 75% of Federal Employee respondents have not had any retirement training at all. Of the Federal Employees surveyed less than 20% of those stating they have received training also state that they are satisfied with the training they received
Federal Employees Prefer One-On-One Retirement Training
Responding to the type of benefit training these Federal Employees would prefer:
- 42.5% of Federal Employees selected one-on-one training as their preferred method
- 29% of Federal Employees chose group training;
- A surprisingly large number of Federal Employees (28.5%) specifically requested interactive online training, which is something that is predominantly unavailable.
One thing is certain Federal Employees believe that their employer should be doing a better job of training employees on their retirement benefits. We happen to agree.
(Advertisement)Public Sector Pensions in Peril
Most employees look forward to the day they can hang up their hat and start retirement. For decades, many employees have relied on the promise on a steady income following leaving the workforce through pension plans. However, times are changing and the pension system is in a state of dire distress. For young employees, there is still plenty of time to secure retirement through smart investments with Thrift Savings Plans (TSP), 401(k) accounts and other means of saving. However, for employees who can see retirement on the horizon, times are scary. Many employees who have given decades of dedicated work may never see their promised pensions come to fruition.
According to a new report from The Pew Charitable Trusts, there is an epidemic of public sector pensions, with a combined deficit for all states estimated to be close to $1 trillion. Leading the deficit are Connecticut, Kentucky and Illinois.
Among the three states, they all fall well below the standard 80 percent funded standard. Connecticut is ranked at 48 percent, Illinois at 39 percent and Kentucky ranked at an astonishing 23 percent. On the heels of the report, all three states have taken drastic steps to attempt to correct their saving habits and build up a healthy pension fund for their employees – some are succeeding, others are not.
Connecticut has taken steps in recent years to improve its pension savings habits. “It’s clear that Pew is trying to get the attention of governors who haven’t gotten it yet that they need to deal with their pension liabilities,” said GianCarl Casa, spokesman for Governor Malloy’s budget office. “Here in Connecticut, Governor Malloy gets it and has been acting consistently to take care of the problem over the last four-and-a-half years, under Governor Malloy, Connecticut has been funding 100 percent of its annual required contribution, something that was not always the case before he took office. Taken in combination with changes in benefits that he negotiated, Connecticut is on track to fully fund our pension system in about 15 years. We have made our pension system more affordable and we are keeping our commitments – at a time when other states are not.”
While all eyes have been on Illinois, Kentucky’s Employee Retirement System is at a dismal 23 percent and is $14 billion in the hole. The state has been paying around 50 percent of the actuarially required contributions (ARC) and 75 percent for teachers over the last 10 years – creating the present day situation. While Governor Beshear implemented a reform in March 2013, the deficit was only slowed down its growth. The reforms were recently ridiculed by a bankruptcy judge, stating, “the solvency of the fund to meet future requirement obligations is dependent upon consistent payment of the ARC…will almost certainly result in a fund that insufficient to pay future retiree benefits.” Areas of Kentucky have seen 6 percent property tax increases to help slow down the deficit. While there are very positive signs of financial gains in Kentucky, Governor Beshear says that the economy is gaining momentum, but the $14 billion liability will need to be handled by the next elected governor.
The state of Illinois has struggled to ease their monumental public pension deficit, and seem unable to gain their financial footing. Recently, the state has received a downgraded credit rating and have the worst-funded pension system in the country with $105 billion unfunded liability. Governor Rauner’s sweeping changes have included the option for the state to file for municipal bankruptcy to save billions of dollars for the local and state government – which is not a possibility, only insolvency of the pension payments can occur. However, if the state is able to obtain insolvency there will be massive layoffs in the public sector which is nothing short of catastrophic itself.
Most recently, Illinois, more specifically Chicago received another piece of bad news. Cook County Circuit Court Judge Rita Novak has deemed Mayor Emanuel’s pension reform act, void, unconstitutional and adding that “A public worker’s pension is a contract that cannot be diminished or impaired.” While many public sector employees rejoice over the ruling, one scary truth remains the same, without some type of reform to the current pension systems the funds will run out of money and Chicago cannot borrow any more money or continue to raise taxes. Currently, the city has a hefty $20 billion pension deficit that is only growing.
Compounding the Illinois’ dire financial situation is the recent downgrade of the state’s credit score.
Throughout the country 15 states have an overall funded ratio of 80 percent or higher, according to the Pew report. Many experts say a healthy pension program should have enough funds to cover at least 80 percent of its long-term obligations. South Dakota and Wisconsin ranked among the highest, each with 100 percent funding.
Lisa Grasso Egan, undersecretary for the Office of Policy and Management’s labor relations unit.
This debt “will remain higher as a percentage of U.S. gross domestic product than at any time before the Great Recession,” the Pew report states. “State and local policymakers cannot count on investment returns over the long term to close this gap and instead need to put in place funding policies that put them on track to pay down pension debt.”
Overall, if the state pension programs are unable to implement a stable legislation that has a solid path back to financial health then it could be disastrous. According to the Voya Retire Ready Index, nearly half of all public sector retirees (48 percent) say pension plans are a vital and major source for their retirement income.
Federal Retirement Related Articles
Survey Shows Lack of Retirement Savings Among Federal Employees
OPM Hikes Federal Long Term Care Insurance Program Premiums
FEGLI vs. Private Life Insurance
Survey Shows Lack of Retirement Savings Among Federal Employees
Can I Be Totally Cut Out of My Spouse’s Annuity?
Federal Retirement Survivor Annuity Eligibility
This is a very sad story but true and eye opening. I recently had a woman come to me in tears about having some difficulty receiving her deceased spouse’s survivor annuity. She said that she had contacted OPM after her husband’s sudden death and was told that she was not entitled to her husband’s annuity as a survivor. She said, can you please help me? I looked at her and asked how long she had been married. She replied, “Eleven years.” I asked if the she had been married before and she said that it was the first marriage for both she and her husband. I then asked why she believed OPM had told her that she wasn’t entitled to a survivor annuity.
I knew what had happened but one must be gentle when dealing with a heart that is broken because she had lost her husband and seemingly could not benefit from his labor as a federal employee. I found out gradually that he was under CSRS. I tried to comfort her and encouraged her to think about 5 of the happiest times she had with her husband. She closed her eyes for a few minutes and then started to laugh out loud. I asked her if she wanted to share. She told me a story about when she first met her husband he always wore yellow socks and that she hated it. After he reluctantly told her why he wore the yellow socks, she found him as many socks in different shades of yellow as she could.
He told her that whenever he was having a lousy day and the world seemed positioned against him, he would push away from his desk, cross his legs and look at those ridiculous yellow socks and he would have a belly-washer laugh. I laughed with her at the very thought of a grown-man having on yellow socks. I then eased her into a reality she had to face. I said there are a number of reasons why you might not be eligible for a survivor annuity as the wife of your husband. I said listen very carefully so that you can determine which category fits you.
You may not be eligible for a survivor annuity of a deceased federal employee if:
– there is a court order that required an ex-spouse to receive the total annuity, then there would be no annuity for you to receive..
– there is a court order granting the ex-spouse a partial annuity then you would be eligible for the remainder.
– a former spouse is no longer eligible to receive the survivor annuity because she passes away or before age 55 remarries, then you would be eligible to received the entire survivor annuity.
She looked at me bewildered and before she could go into another realm, I said, “Have you ever met your husband’s ex-spouse?” She said, “I told you he had not been married before.” I told her that she had a right to talk to OPM and they had an obligation to tell her as a surviving spouse why she was not entitled to a survivor annuity.
I guided her path to finding the answer to her question. She called me back about a week later and said that she had found out that her husband had been married before and that there was a court order on file leaving the total annuity to his ex-spouse. She said that her husband never mentioned his ex-wife and had denied ever being married before their marriage. I said I was so sorry and wished I could have done more to help. She said, “You did a lot to help me. You told me that my husband had been married before when you asked if I had ever met his ex-wife. Thank you.”
The fear of telling the truth or the fear of something; or perhaps just not having the -conversation- that takes care of the business of the end of our lives can be very costly.
P. S. Always Remember to Share What You Know.
Recommended Articles
Understanding The Thrift Savings Plan, By Todd Carmack
Social Security for FERS Employees by Todd Carmack
A Little-Know Opportunity Can Increase Your Retirement Income – By Mark Sprague
COLA for Federal Employees
Some updates on COLA:
The Cost of Living Adjustments are based on the changes in the Consumer Price Index (CPI). Many of us don’t pay much attention to the CPI, but as we reach retirement age keeping informed about anything that impacts our financial picture is just smart planning.
Retirees live on a fixed income for the most part and it pays them to know about how their money is being impacted by policy changes, rules and regulations. Retirees must keep their ears open and their eyes peeled because they are no longer in the workforce where information flows consistently whether right or wrong. The Office of Personnel Management will make certain you are kept abreast through information bulletins and other correspondence. However, the real job lies with you to make sure you are keeping up with what is important for your well-being.
Both for the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS), the accumulation for the 2015 COLA was 1.4 percent after the release on May 16th of the CPI for April 2014. The COLA for next year will be predicated on the increase in the average CPI of the third quarter of last year and the third quarter of this year.
Knowledge is critical to creating the kind of retirement future you want and deserve.
P. S. Always Remember to Share What You Know.
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