Tag: FERS

FERS

FERS or the Federal Employee Retirement System is the retirement system applicable to the employees that fall under the US civil service. Its inception can be dated back to January 1, 1987 when it replaced the CSRS.

Planning for Retirement in Five Years by Ron Raffino

Tips from Ron Raffino for Those Planning on Retiring in Five Years

retirement benefits

You must have heard that it’s never too late to start planning, but have you heard it’s never too early to start planning? In fact, the earlier you start your retirement planning, the better it will be for you. Retirement planning is no joke as a lot of factors need to be considered carefully. We will advise you take some assistance from your local personnel service center. Since they have your employment records, they are in a position to provide you with personalized assistance.
We all know and understand that health and life insurance are of top most priorities but still, we see a lot of retired personnel without proper coverage. This usually happens because of lack of awareness and lack of knowledge. It must be noted here that in order to carry the coverage forward, one must be covered continuously for five years before retirement.

Help from your employer
You can get all the information you need on the retirement process from your agency. It should be noted here that the agency only provides you with the information. In order to interpret it and get advice on what to do, you should contact your local personnel service center. As they have your employment records, they are in a better position to advise you on such matters.

When to start planning
This is an important question. We hear a lot of employees asking this question – when should I start planning. Well, to be honest, it’s better to start as early as possible. But just in case if you haven’t done it then make sure you start planning at least five years before retirement. We advise you to start planning five years prior to your retirement as you must have insurance coverage for five years immediately before retirement to keep it after retirement.

Keeping your health insurance benefits after you retire
Pay close attention to this part. Following are points that specify the conditions for being eligible to continue your health insurance coverage.

  • You must be covered at the time of retirement.
  • Your coverage must not fall under the category of converted individual policies.
  • The date of issuance of the first annuity check must not be later than 30 days after the retirement.
  • Prior to 5 years of the date of retirement, you must have continuous coverage.

You can also avail the benefits of optional life insurance if at the time of retirement you are eligible to continue your basic coverage, and again if you were continuously covered for a period of 5 years before your retirement date.

Waiver of the requirement for continuing life insurance coverage into retirement

Currently, there is no such provision that allows a retirement employee to bypass the stipulated conditions for continuing life insurance coverage. However, if you do find yourself in such a situation then you always have the chance to migrate to an individual policy.

Review your service history

As someone who is about to retire, it’s always a good idea to review your service history. You can find all the information in the Official Personnel Folder (OPF). The purpose of such a review is to make sure that all your service records are valid and verified. If you encounter a situation where some of the records are missing then you must report it to your employer. Your employer can help you to find the missing records and document them properly. Some employees are required to make retirement contributions. You can enquire about the consequences of payment or nonpayment of such contributions from your employer.

A complication can arise if you haven’t made payment for receiving the military credits (only if you have served in military). Such payments are to be made before you retire. You can also get advice from the Personnel Officer on waving the military retired pay.

Check your eligibility for Social Security benefits

In order to check for your eligibility to receive social security benefits, you need to visit your local Social Security Office. After you fill and submit the form SSA-7004-PC, you will be provided with a benefit estimate statement. This statement will contain all the information your future eligibility for Social Security benefits and estimates of these benefits at specified dates.

Government Pension Offset

In some cases, it has happened that the social security benefits of a retiring employee’s spouse saw some kind of offset. This mostly happens when the pension of the retired employees is not covered by social security. In such cases, there is no offset on the social security benefits of the retired employee; it happens only to the social security benefits of the retired employee’s spouse. This offset amounts to two third of the federal pension.

Such an offset does not apply universally. There are some exceptions. For example, those employees who are covered by the Federal Employees Retirement System (FERS), Civil Service Retirement System (CSRS) Offset, and those who voluntarily took transfers to the FERS before January 1988, are exempted from the Government Pension Offset.

Windfall Elimination Provision

Windfall Elimination Provision reduces the Primary Insurance Amount (PIA) of a person’s Retirement Insurance Benefits (RIB) or Disability Insurance Benefits (DIB) when that person is eligible or entitled to a pension based on a job which did not contribute to the Social Security Trust Fund. While in effect, it also affects the benefits of others claiming on the same social security record.

The Windfall Elimination Provision does not apply if:

The WEP is applied to certain beneficiaries who are receiving RIB or DIB and who also:

  • The beneficiary becomes entitled to the benefits after 1985
  • The beneficiary also first becomes eligible, after 1985, for a pension based in any way upon earnings from employment that was not covered by social security
  • The beneficiary’s entitlement to this pension has not yet ended (even if not yet claimed)
  • The beneficiary is still alive
  • The beneficiary has not obtained 30 Years of Coverage (YOCs) at the age of 62 years.

Estimating the amount of the Windfall Elimination Provision reduction

At your request, using the form SSA-7004, the Social Security Administration will send you a Personal Earnings and Benefits Statement (PEBES) that will list your earnings from employment covered by Social Security and provide a Social Security benefit estimate assuming retirement at alternative ages, 62, 65, and 70. You should contact your local Social Security office (external link) to determine the effect of the Government Pension Offset and the Windfall Elimination Provision on your Social Security benefits.

Effects on benefits

When the WEP applies, it is used in determining all benefits on the record, both for the primary beneficiary and any auxiliaries. This includes an effect upon the maximum total benefits paid on the record as well. Since the WEP does not apply after the death of the primary beneficiary, it is never used for survivors.

 

More from Ron Raffino:

Ron Raffino Author Page

http://benefitseducationgroup.com – Ron Raffino

Ron Raffino

Getting the FERS Flu before Retirement? by David Fielder

David Fielder

David Fielder discusses retirement maximization strategies such as the FERS Flu.

I get asked about getting the FERS Flu be soon-to-be retirees at most retirement seminars. It’s a good question and if you call Shared Services and ask their opinion. However, if you aren’t retiring in the next three months, they will tell you to send a letter with your request. If you ask your manager whether you should use your sick leave before retirement, the chances are that you won’t get an with your best interests in mind. Here is the nitty-gritty on whether or not you should use your accumulated sick leave. You can make the choice for yourself.

Let’s look at what you get for your sick leave. Before January 2014, FERS employees were receiving credit for 50% of their sick leave. After January 2014, FERS employees started receiving full credit for sick leave. For example, if a postal employee had one year of accumulated sick leave then that would be added to the calculation of his pension. Please be aware, however, that sick leave cannot be used to meet service requirements. For example, if you have 29 years of service, one year of accumulated sick leave, and your minimum retirement age (MRA) is 30 years of service, you must work an additional year to reach your MRA. Once you fulfill your 30-year requirement, however, you will be paid for 31 years because your year of accumulated sick leave is factored into your pension.

FERS Flu

The government standard for a full year of work is 2,087 hours. Let’s look at an example of what sick leave is worth. If you have an average salary of $56,000, then a full year of sick leave would add 1% more to your pension. To take it a step further, having the full year of sick leave would add $560/year to the employee’s pension. Now, what if you took two months of sick leave just before retirement, how would that affect your pension? If you take 160 hours of sick leave, then that may reduce your pension by as much as $42.88 a year. Keep in mind, as an employee in this example, you will get paid his full salary of $4,666 while on sick leave.

If the employee is retired for 30 years then he will have sacrificed $1,286.00 in pension payments during retirement ($42.88 x 30 years), however, he would receive $4,666 in income during his month of sick leave. Kind of a no-brainer huh?

David Fielder President

Postal Benefits Group

Office: 636-875-5306

Cell: 315-540-2802

[email protected]

Postponed/Deferred Retirement –DAVID FIELDER of Postal Benefits Group

The Good The Bad and The Ugly of the TSP by DAVID FIELDER

Withdrawing From Your TSP Roth by DAVID FIELDERPOSTAL BENEFITS GROUP

About David Fielder of Postal Benefits Group

David Fielder is President of Postal Benefits group the largest and most well-known company in the Country specializing in retirement planning and seminars for postal employees. David Fielder has personally counseled over 5,000 postal employees on their postal retirement benefits and holds numerous certifications, and with thousands of hours spent helping postal employees gives him experience and practical knowledge about postal benefits like no other. Experience is everything when it comes to counseling postal employees on their postal benefits.
David has conducted over 75 retirement seminars over the last 8 years and is the author of THE POSTAL BOOK, a great resource for postal employees seeking to maximize their Postal Retirement benefits
Numerous postal unions have contracted Postal Benefits Group and David to present retirement seminars. David has been contracted by the APWU for retirement seminars in over 40 states to date.
If you have questions on retirement and want a down to earth expert to give you answers you can actually understand, David Fielder is the quite possibly the best resource you will find anywhere.

The figures mentioned in the article are hypothetical and for illustrative purposes only. The formula and calculations have not been verified or reviewed for accuracy by PSRetirement.com or any of its affiliates. Please contact your financial professional with any questions. The opinions in this article do not necessarily represent those of PSRetirement.com.

Does the Federal Employees’ Retirement System Have a Downside? by Nelson Secretario

Nelson Secretario investigates the potential downsides of the Federal Employees Retirement System (FERS)

fers - nelson secretario

If you’re a federal employee who is enrolled in FERS (the Federal Employees’ Retirement System), then you are probably well aware of the many benefits that this program has to offer as far as saving for the future.

For example, as soon as you have reached your minimum retirement age – which ranges between 55 and 57, this program allows you to retire using an immediate, unreduced annuity if you have put in 30 years of service. In some cases, an employee may even be able to retire at a younger age, provided that they have had either 20 or 25 years of service.

However, while working for the government may allow you to leave the world of employment at a younger age than many other professions can, there can also be some drawbacks to relying solely on the FERS program as your only source of retirement income. Some of these can include:

  • Cost-of-Living Adjustments – If you do happen to retire prior to age 62, you won’t be able to receive a cost-of-living adjustment on your annuity (unless you are a disabled retiree or a survivor annuitant). Therefore, you could essentially go for several years receiving the same amount of income, while the prices of goods and services that you’re paying for continue to go up. And, if you are receiving a special retirement supplement (SRS), the funds from this source do not ever receive a cost-of-living adjustment.
  • Possible Benefit Reduction – You may also be subject to having your benefit amount reduced, based upon when you actually retire. For instance, the MRA+10 (Minimum Retirement Age) program that is a part of FERS, can allow you to retire at any age, as long as you have at least ten years of service. However, if you do end up retiring early, the amount of your annuity will be reduced by 5% for each year that you are under age 62. So, depending on just how early you leave the workforce, you could see a significant reduction in your retirement income amount.

With this in mind, it can be a good idea to have other retirement income sources available to you that can be used to supplement your FERS benefits. That way, you will be able to both fill in the “gaps” that are left between your income from your FERS retirement income and your living expenses, and you can also provide yourself with a way to compensate for the increased income that you will need in the future.

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Calculating the FERS Supplement by Paul Kalra

A Lesson on Calculating the FERS Supplement by Paul Kalra

FERS Paul Kalra

There are many FERS annuitants who are able to retire prior to the age of 62, and who are eligible for the SRS (Special Retirement Supplement). You can meet such requirements if you have retired:

  • Following the MRA (Minimum Retirement Age) after putting in at least 30 years of service;
  • At age 60 with at least 20 years of service; or
  • Upon either an early voluntary or an involuntary retirement at age 50 after having 20 or more years of service, or at any age after at least 25 years of service, when it has been determined that your agency is undergoing a major reorganization, a RIF (reduction in force) or a transfer of function. (In this situation, you will not receive the SRS until you have reached your Minimum Retirement Age).

As Social Security retirement benefits cannot be received until you reach at least the age of 62, the Special Retirement Supplement can help you with bridging your income until the time that these benefits are paid out.

In order to determine roughly how much you will receive from your SRS, you should first obtain an estimate of benefits from the Social Security Administration. Each year, Social Security provides a statement of estimated benefits, so you will be able to easily find the dollar amount of estimated benefits that you are likely to be receiving at age 62.

Next, take this dollar amount and multiply it by your years of FERS service (rounded off to the nearest whole number). Once you have done so, divide this figure by 40. This will provide you with the approximate amount of FERS supplement that you should receive.

As an example, if the amount of Social Security benefit that you are estimated to receive at age 62 is $5,000 and you have put in 30 years of FERS service, then the calculation will be as follows:

$5,000 X 30 / 40 = $4,500

In running this calculation, your estimated FERS Supplement benefit would be approximately $4,500 per month. It is important to note, however, that certain situations such as obtaining outside employment following retirement could have an impact on the amount of benefit that you ultimately receive.

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Getting Started Early for a Successful Retirement by Kevin Wirth

Kevin Wirth Explains How to Get Started Early for a Successful Retirement

Nearly everyone dreams about the day they can retire. Regardless of whether you plan to hike in the mountains, relax on the beach, or volunteer in a faraway place, one thing is for certain, and that is in order to have a successful retirement, a good plan should ideally be in place.

Unfortunately, though, not everyone has the opportunity to do an ample amount of long-term planning. That may be due to an unexpected health situation, an offer of early retirement, or some other event that has moved up the clock on your leaving the world of employment.

In any case, the good news is that you still have some options on your side for making the most of your finances, as well as your insurance benefits, for your retirement years. The best way that you can ensure success beforehand, then, is to start by taking a good inventory of what you’ve got.

Getting All of Your Retirement Ducks in a Row

As you plan for this next phase of your life, the most important aspects from a planning standpoint will include the following:

  • Insurance – Because health care can be a retiree’s biggest expense, you will want to make sure that you have good coverage here. If you won’t be eligible for Medicare yet, and if being added to a spouse or partner’s employer-sponsored health plan also isn’t an option, then there are ways that you can take your FEHB (Federal Employees’ Health Benefits) with you – provided that you meet certain criteria. You will also want to ensure that you don’t leave your loved ones vulnerable to financial hardship when it comes to life insurance. So, be sure that you check into either an individual plan of coverage, or consider taking your FEGLI (Federal Employees’ Group Life Insurance) coverage with you in retirement.
  • Financial – A good, solid financial plan is also an essential aspect of a successful retirement. This is because in order to live the lifestyle that you desire, you will need a way to replace your current income. Therefore, you should start by obtaining an approximation of how much you will be receiving from your retirement annuity when that time comes. If you’re covered by FERS, inquire as to how much income you’ll get from Social Security benefits, too. Because this income won’t likely be enough to completely replace your employer’s salary, you will also want to give yourself a boost by maxing your contributions while you still can to the TSP (Thrift Savings Plan). This will help you to obtain a larger amount of payout when the time comes to convert your savings into income down the road.

Once you have actually decided when the big day will be, you will want to get your retirement paperwork filled out in plenty of time. Typically, you should do so approximately two months prior to your actual date of retiring. This will help to ensure that all goes well – and just in case there are any glitches, you will have some time to get things straightened out and back on track.

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Federal Employees May Get a Social Security Boost

A WEP provision of the old Civil Service Retirement System has been reducing the benefits of many federal employees. A new bill was introduced by Republican leader Kevin Brady to change the WEP provision. If the change is successful, it would benefit many federal workers. National Active and Retired Federal employees is playing a pivotal role in pushing for the change.

csrs civil service retirement system social security

Why Federal Employees get Fewer Benefits?

The WEP provision of the old Civil Service Retirement System or CSRS reduces the benefits of the federal employees, state employees, county employees and even municipal employees who have worked in the private sector. Whether the employees worked in the private sector before, during or after the federal service time does not matter. It also includes the employees who receive an annuity from government employment that is not covered by social security.

All the federal and postal employees have contributed to the civil service retirement fund and the Social Security since last 30 years when the Federal Employees Retirement System was introduced. The people who retired under the old CSRS plan get significantly reduced Social Security benefits because of the WEP provision.

The Hope

Though feds have hoped to get rid of WEP since the day it was created, they have been unsuccessful so far. They have now got a glimmer of hope as the Republican leader Kevin Brady has introduced a bill against WEP. It’s known as the ETPSA bill (H.R. 711).

Brady has got a better chance at getting the bill cleared because he is a republican who would have no problem in rounding up the supporters of GOP. He is also the Chairman of the influential House Ways and Means Committee. The committee has jurisdiction over Social Security.

Age Matters

If the efforts of Brady prove to be successful, the federal employees who are turning 62 this year would have the maximum benefit. Many of the people in this age group would be eligible to get a monthly benefit of $77. This bill may decrease the monthly benefit of about 17 percent feds by $13 per month.

The Fact Sheet

The National Active and Retired Federal Employees have played a key role in ensuring that all the current and retired federal workers get rid of the WEP provision. They are currently leading the charge to change the law. They even have a detailed fact sheet that explains how WEP works and what would be the impact of the changes.

Are you a TSP user? Here is everything you need to know

The Thrift Savings Plan, more commonly known as TSP is one of the most used and probably the greatest investment programs available to the federal employees and retirees. In this article, we intend to cover all the details regarding it that employees should ideally be aware of.

ALL YOU NEED TO KNOW ABOUT TSP:

The Thrift Savings Plan (TSP) is available to all of the FERS members along with the members of the Military Retirement system (MRS) and CSRS or the Civil Service Retirement system.

Just like any other private sector 401(k) or an IRA, you can make the choice between a Roth or a traditional tax treatment regarding your TSP account. If you choose the traditional option you will have to pay your taxes on the contributions and earnings only when you withdraw at retirement.
Most of the federal officers can become recipients of automatic contributions of around 1 percent and 5 percent of base pay of agency-matching contributions. Once we reach 2018, military personnel will also have this luxury.
If you are a member of the FERS, then after three years you will be able to vest in automatic contributions.

The cost of doing TSP business is really low. During 2015, per every grand invested, the cost would come out to be a meager .029 percent. Yes, a mere 29 cents. It’s safe to say that there isn’t a cheaper investment program out there.

The Thrift Savings Plan has enticed many federal officers to start investing over the years and it’s expected to constantly draw attention from employees who intend to make their retirement lives a lot easier and financially securer. We tried really hard to find any substantial downsides but failed. If you can think of any, let’s know in the comments!

TSP Board May Need More Funding

The Thrift Savings Plan, or TSP Board may need more funding for the fiscal year 2016. The main reasons behind it are the cyber security upgrades and the external audits. Another reason is due to the increasing membership. The board is not sure about the extra money needed for the budget, but plans to lay it out soon.

Thrift Savings Plan TSP TSP

TSP Board Budget Data

The Federal Retirement Thrift Investment Board (FRTIB) was assigned $220 million in 2016. The board is predicting that it could spend $151 million even before the beginning of third quarter. The main reason behind such spending is the need to have resources that help in cyber security upgrades and external audits.

The Announcement

The announcement regarding the need for more funding was made by the FRTIB executive director, Greg Long. He made this announcement during the monthly meeting of the board that was held on April 25. He said that though the agency needs to do a bit of work regarding the budget allocation, it seems almost certain that they will need more money from the board. The estimate regarding the amount of extra money required would be clarified next month.

The Cost of Cyber Security

The main reason behind the agency running ahead of schedule on the budget is that it is putting a lot of money in to boost its cyber security. The agency is working with external auditors to finish a study of best practices with regard to cyber security in the private sector firms.

More Data and Better Service

The agency is also focused on using more data to take better decisions and offering better communication and services to the TSP participants. The TSP enrollment is higher than it has been before, and it is expected to continue to grow until 2018.

About 89% of people who have opted for Federal Employment Retirement System (FERS) have enrolled in TSP. The number of active duty military members who are enrolled in the TSP is about 44%.

Call Centre Service

In order to provide better service to the growing TSP members, the agency is aiming to create a better consolidated call service center as a part of the Expanding Participant Retirement Engagement Services and Solutions (ExPRESS) contract. The draft related to the RFP of ExPRESS participant call center services is scheduled to be released during the first week of May according to the board.

Know the actual value of a FERS and TSP annuity

When we say that the majority of the federal officers will not have a million dollars (or more) in their TSP Accounts when they retire, we back our statement with facts. Researchers have revealed that only .5 percent of all the officers have over a million dollars in their TSP accounts.

TSP thrift savings plan
Image Credits

KNOW MORE ABOUT YOUR TSP AND FERS ANNUITY:

When we talk about retirement income though, there is a huge possibility for the federal officers to generate the income that would absolutely have a requirement of possessing an investment portfolio of at-least, if not more than a million dollars. Let’s take an example. An employee that is a member of the FERS has around 30 years of service under his belt. His high three salary is 90 grand on average. If this person undergoes retirement at 62, then he would be receiving an annuity of around 29,700 dollars every year.
Now, the question here is this: How much will this person have to invest if he intends to generate 29 thousand and 700 in investment income? If we assume that the withdrawal of the account has a value of 4 percent, then the investment portfolio would have a value of around 742, 500 dollars.
Now if we consider that the person has collected around $400 thousand dollars in their TSP after spending 30 years in service. If he takes a 4 percent withdrawal every year during retirement, this would present him with a surplus 16 thousand dollars.
Now, between the FERS and the TSP annuity, the person would receive 45,700 every year, and if you are wondering, it would take around $1,142,500 dollars to generate that type of investment income.
All of this needs to be kept in mind along with the realization that the following deductions will no longer be there once you retire:
1. Medicare Tax
2. FERS Retirement
3. TSP
4. Social security taxes

Figuring Out Your Federal Retirement Annuity by Jeff Boettcher

Figuring Out Your Federal Retirement Annuity by Jeff Boettcher, AIF

Jeff BoettcherJeff Boettcher

Having a plan for retirement is a must. This is because simply saving for the future, without any knowledge of what you will have available in terms of income, can be a recipe for disaster. It is essential to have at least an approximation of how much money you will have coming in for you to meet your living expenses.

This is especially important because, if there is a “gap” between what you will need for expenses and what you will have coming in, you will need time to plan for some type of additional incoming cash flow that can help you make up for that difference.

For those who are federal employees, there are ways that you can determine approximately how much retirement income you will be able to generate from your FERS or CSRS plan, depending on when you are eligible to separate from service and the type of plan that you have.

FERS Employees

For FERS (Federal Employees’ Retirement System) employees, benefit amounts can be calculated as follows:

  • Immediate Unreduced Annuity – For those who will retire with an immediate, unreduced annuity, simply multiply 0.01 X your high-3 X all years and full months of service. However, if you have a minimum of 20 years of service and you will be retiring at the age of 62 or over, then you should substitute 0.011 for the 0.01 in the calculation.
  • MRA + 10 Annuity – If you will be retiring at your minimum retirement age (MRA) and you have between 10 and 30 years of service, then you will have a reduction of 5% for each year that you retired before the age of 62.
  • VERA (Voluntary Early Retirement Authority) – If an employee accepts a VERA, then he or she is able to retire at age 50 if they have at least 20 years of service, or at any age if they have at least 25 years of service. In this case, the annuity amount will be calculated by using the same FERS standard formula, yet without the 5% penalty for retiring at below age 62.
  • Special Category Employees – Certain individuals such as firefighters, law enforcement officers, and air traffic controllers are considered to be Special Category Employees. Provided that they have put in at least 20 years of service, then they are eligible to retire. In this case, the annuity amount would be calculated by taking 0.017 X the high-3 X 20 years of service plus 0.01 X the high-3 X all additional years and full months of service.

Some individuals may also be eligible for the SRS, or Special Retirement Supplement. This is because Social Security benefits do not begin until at least the age of 62. Therefore, this SRS income will be provided until that time. In order to calculate one’s SRS benefit amount, take the estimated amount of Social Security benefit at age 62 and divide it by 40, then multiply this figure by the total years of FERS service. (Round the service figure up to the nearest whole number). The total here will be the dollar amount of the SRS monthly benefit.

CSRS Employees

CSRS (Civil Service Retirement System) employees will calculate their retirement benefits in a somewhat different manner than those of the FERS retirement system. In this case, the way to determine the amount of the CSRS annuity for regular employees entails multiplying (0.015 X the high-3 X five years of service) + (0.0175 X the high-3 X five years of service) + (0.02 X the high-3 X all remaining years and full months of service).

All other CSRS retirement benefit amounts would be determined as follows:

  • VERA – If a CSRS employee accepts a Voluntary Early Retirement Authority, he or she may retire at age 50 if they have put in at least 20 years of service, or at any age if they have put in at least 25 years of service. If this is the case, then their annuity will be determined by using the standard formula for the CSRS annuity. If, however, the individual is under the age of 55 when they retire, then the amount of their benefit will be reduced by 2% for each year that they are under age 55. This equates to a reduction in benefits of approximately 1/6% per month.
  • Special Category Employees – Certain individuals such as firefighters, law enforcement officers, and air traffic controllers are considered to be Special Category Employees. Provided that they have put in at least 20 years of covered service, then their annuity would be determined by calculating (0.025 X the high-3 X 20 years of service) + (0.02 X the high-2 X all additional years and full months of service).

No matter which area of service a federal employee retires from, if the individual still has any remaining hours of service that are leftover, these will be combined with their unused sick leave in order to create more months. These will then be used in computing their annuity benefits – which can make a difference in the total amount that is received.

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Sources:  http://www.psretirement.com/annuities/fers-annuity/

Understanding the Federal Employees Retirement System by Jeff Boettcher

Federal Employees Retirement System information by Jeff Boettcher

Jeff BoettcherJeff Boettcher

FERS, or the Federal Employees Retirement System, is the retirement program that is set up specifically for those who work within the United States civil service. This system has been in place since 1987, when it replaced CSRS, or Civil Service Retirement System.

The FERS retirement system actually provides benefits from three primary sources. These include the:

  • Basic Benefit Plan – The Basic Benefit Plan is typically referred to as the FERS (Federal Employee Retirement System) plan, or simply as a FERS annuity. This pension, or “defined benefit” plan, will provide a set amount of retirement income to the employee upon his or her retirement, no matter how much the employee contributes into the plan. The employee will receive this income benefit for the remainder of their life. A Minimum Retirement Age, or MRA, must often be met in order to start receiving this income.
  • Social Security – Just as with civilian employees, federal employees contribute a percentage of their pay to the Social Security program, and may begin receiving retirement benefits as early as age 62. The amount that is received in retirement benefits from Social Security will ultimately be dependent upon how much the employee has earned throughout the years, as well as how long he or she was employed in a job that made contributions into the Social Security system.
  • Thrift Savings Plan (TSP) – TSP accounts are automatically set up for federal civilian employees by their particular agencies. Every pay period, the agency deposits an amount that is equal to 1% of the employee’s basic pay. Employees may also make additional contributions on their own. In addition, the employee’s agency may make a matching contribution amount. The TSP plan provides six different investment funds in which participants may choose to place their contributions. These include the following:
  • G Fund – The G Fund is managed by the Federal Retirement Thrift Investment Board. This fund provides a conservative option as it purchases U.S. Treasury securities that are guaranteed by the U.S. government.
  • F, C, S, and I Funds – The F, C, S, and I Funds are different types of index funds. Each of these are invested with the intent of taking on the various risk and return characteristics of the specific underlying indexes that they are benchmarking.
  • L Funds – The L funds, also referred to as lifecycle funds, will automatically shift investors’ money from a mix of more risk options to a mix of more conservative options as they become older and closer to retirement.

Employee contributions are withheld for both the Basic Benefit Plan and for Social Security. These amounts are automatically taken from the individual’s paycheck via the agency that he or she works through as payroll deductions. If an employee leaves their federal employment, they are eligible to take with them their Social Security and TSP to their next employer, if they choose to do so.

About the Jeff Boettcher, AIF®: Helping clients grow and protect their wealth has been Jeff Boettcher’s passion since the 1990’s.   Mr. Boettcher is also the owner and Co-Chief Investment Officer for BWM Advisory, LLC / Bedrock Investment Advisors, as well as owns and manages the Insurance Brokerage firm (IMO) of Bedrock Financial Services, LLC.

Specializing in Federal Retirees and small business owner retirement planning strategies along with being an expert in retirement income generation, Jeff Boettcher’s knowledge has been incredibly important to both his clients and the hundred-plus independent financial professionals who rely upon Mr. Boettcher’s various companies for the services and advice they need to help their own clients.

To Contact Jeff Boettcher you can visit www.BedrockIA.com or call 800-779-4183.

Who is Eligible for the TSP Retirement Plan?

Most people who are employees of the U.S. Government are eligible to participate in the TSP. For example, you would be considered an eligible participant if you are a:

  • Federal Employees’ Retirement System (FERS) employee – typically if you were hired either on or after January 1st, 1984, or
  • Civil Service Retirement System (CSRS) employee – generally if you were hired before January 1st, 1984, and you did not convert over to FERS, or
  • Member of the uniformed services (regardless of whether you are an active duty or a ready reserve), or
  • Civilian who works in various other qualified categories of the government service.1

In addition, you must also be actively working either on a full- or a part-time basis, as well as be able to contribute to the plan.2

In some cases, an employee may have left their employment at a government agency or in the armed services and then returned to a position within government employment at a later date in the future.

If you have had a break in your federal service, then your participation in the Thrift Savings Plan will be based on two key factors. These will include the length of your break in service, as well as whether or not you were a participant in the TSP prior to your break.

How Retirement Benefits are Determined

When the time comes to retire, the amount of benefit that you will receive will depend upon a number of different factors. These will include your age, as well as the amount of salary that you were earning throughout your time of employment. It will also include how many years of service that you put in.

As a FERS retiree, the amount of your benefit, based on the type of annuity that you receive, can be determined as follows:

Immediate Unreduced Annuity

If you are retiring with an immediate, unreduced annuity, then you can multiply 0.01 X your high-3 X all years and full months of your service. If, however, you have put in a minimum of 20 years of service and you will be retiring at age 62 or older, then you should substitute a 0.011 for the 0.01 in your equation.

MRA + 10 Annuity

If you are retiring at MRA (Minimum Retirement Age), and you have more than 10 years of service, but less than 30, then you will have a reduction of 5% per year for each year that you are retiring before you turn age 62.

Voluntary Early Retirement Authority (VERA)

If you have accepted a Voluntary Early Retirement Authority, or VERA, then you will be able to retire at age 50, provided that you have a minimum of 20 years of service. Or, you can retire at any age if you have a minimum of 25 years of service. In this situation, the amount of your retirement benefit would be determined by using the same FERS standard formula. However, in this case, you would not be penalized by the 5% reduction per year for each year under age 62.

Special Category Employees

There are some employees such as law enforcement officers, firefighters, and air traffic controllers, who are considered as Special Category Employees. If you fall into this particular category and you have a minimum of 20 years of service, then you would be eligible to retire. In this case, then your benefit amount would be determined by taking (0.017 X the high-3 X 20 years of service) + (0.01 X the high-3) X all additional years and full months of service.

When a FERS Employee Can Retire

Retirement eligibility for FERS employees is determined by an employee’s age, as well as the number of years of creditable service that they have put in with their agency. In certain instances, an employee may need to have reached a Minimum Requirement Age, or MRA, in order to receive their annuity benefits.

For the FERS Basic Benefit Plan, there are four different categories of benefits that an employee may qualify for. These include the following:

  • Immediate Retirement Benefits – If an employee retires at his or her MRA (Minimum Retirement Age) and he or she has between 10 and 30 years of service, then their benefit will be reduced by 5% for each year that they are younger than age 62. The employee can also qualify for immediate benefits if they are age 60 or over and they have at least 20 years of service.
  • Early Retirement Benefits – A FERS employee may qualify for early retirement benefits in certain situations of involuntary separation, as well as in cases of voluntary separation from service such as during a RIF (reduction in force) or a major reorganization.

 

  • Deferred Retirement Benefits – If an employee is age 60 or over and they have at least 20 years of service, they will be eligible for deferred retirement benefits. An employee may also be eligible for deferred benefits if they reach their MRA and they have between 10 and 30 years of service. However, the amount of the benefit will be reduced by 5% per year for every year that they are under the age of 62.
  • Disability Benefits – If an individual has not yet reached retirement age, but they have become disabled, then they may be eligible for disability income benefits. In this case, the employee must have become disabled while they were actively employed in a FERS position. In addition, the disability that they sustained must be anticipated to last for at least a period of one year or longer. The employee must also be unable to perform the work that is required in his or her present position – as certified by their agency – and their agency must also have considered the employee for any other vacant position within that same agency (at the same grade / pay level) in which the individual is qualified to perform.

How is MRA Determined?

Meeting an employee’s Minimum Retirement Age, or MRA, can be based upon the year that an employee was born. The following chart outlines what your MRA would be, based upon your year of birth:

If you were born: Your MRA is:
Before 1948 55
In 1948 55 and 2 months
In 1949 55 and 4 months
In 1950 55 and 6 months
In 1951 55 and 8 months
In 1952 55 and 10 months
In 1953 – 1964 56
In 1965 56 and 2 months
In 1966 56 and 4 months
In 1967 56 and 6 months
In 1968 56 and 8 months
In 1969 56 and 10 months
In 1970 and after 57

Source: OPM.gov

FERS Survivor Benefits

In addition to retirement benefits for the individual FERS employee / retiree, there are other benefits of participating in this program. For example, should a former federal employee pass away prior to collecting his or her deferred annuity income, then their surviving spouse will be eligible to receive 50% of the annuity payout, beginning on the date that the employee attained the age and service requirements for that annuity.3

If, however, the surviving spouse chooses to collect their benefits from the annuity at an even earlier time, then they will be allowed to do so. The amount of the income benefit will simply be less.

The Bottom Line on the FERS Retirement System

The FERS retirement system can provide federal employees with an income that they can count on in the future. Yet, this particular source may or may not be ample enough to provide what is necessary for covering all of their living expenses in the future.

With that in mind, it will still be important to get an accurate assessment of just how much it may take to live in retirement, and then to plan for any potential income “gaps” that you may have. These may be filled in with personal savings and other investment options.

About the Jeff Boettcher, AIF®: Helping clients grow and protect their wealth has been Jeff Boettcher’s passion since the 1990’s.   Mr. Boettcher is also the owner of Bedrock Financial Services, LLC an Insurance Brokerage and Marketing company and also the Owner and Co-Chief Investment Officer for BWM Advisory, LLC / Bedrock Investment Advisors.

Specializing in Federal Retirees and being an expert in retirement income generation, Mr. Boettcher has helped hundreds of Federal employees grow and protect their wealth through a consistent commitment to educating the Federal Employee about their benefits. Jeff Boettcher has also demonstrated a phenomenal expertise in the retirement planning strategies necessary to maximize federal retirement benefits and has served as a trainer to some of the most successful Federal Employee Retirement Experts in the Country. Jeff Boettcher is also a consistent contributor to GovLoop.com, PSRetirement.com and RetirementPlanningNews.com.

To Contact Jeff Boettcher you can visit www.BedrockIA.com or call 800-779-4183.

Sources

  1. TSP.gov (https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/index.html)
  2. TSP.gov (https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/index.html)
  3. Federal Retirement Planning (http://www.psretirement.com/fers-retirement/fers-eligibility/)

Disclosure: This article is for informational purposes only and cannot be used as investment advice. Always contact your personal financial advisor for information regarding your retirement benefits. Jeff Boettcher, AIF® offers Investment Advisory Services through BWM Advisory, LLC (BWM). Due to various State and Federal Regulations BWM can only provide investment advice in the States and jurisdictions where we are registered. Please review the most recent copy BWM’s ADV for up to date information.

Can federal employees get phased retirement

We all know that the Moving Ahead for Progress program authorized the phased retirement program but are the federal employees of the US eligible to apply for it and eventually enjoy its benefits? In 2014, the office of personnel management released a comprehensive report that comprised of the final rules related to the program that will guide all the agencies and the employees about the people that should ideally elect phased retirement. It also included all the benefits that are provided by it, how the pension and the annuity is calculated during the whole phase and how the exit from the program can be made without any hassle.

The phased retirement program:

In general, all the agencies working under the umbrella of the federal government can offer phased retirement programs for their employees. However, this can’t be termed as a “right” of the employees. If it were, it would have meant that all the full-time employees who have worked for the preceding three years and meet the age and year of service requirements (for immediate retirement) and are part of the CSRS or the FERS can be considered eligible; however that is not the case. All the employees that are set to get mandatory retirement including firefighters, air traffic controllers or the law enforcement officers should not participate.

OPM indicated that all the participants must have spent around fifth of their service time mentoring coworkers for them to be considered eligible. Also, phased retirees are obviously going to have to deal with deductions in retirement annuity, social security and other funds. However the health benefits get provided in the same manner and are subject to no deduction.

While the phased retirement program has its pros, there are some cons as well and if you are eligible, you need to think long and hard before making a decision.

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Making the Most of TSP Contributions by Paul Kalra

Thrift Savings Plan (TSP) Advice from Paul Kalra

Paul Kalra Paul Kalra, CFP, ChFC, CLU

If you are a FERS (Federal Employees Retirement System) employee who contributes to the TSP (Thrift Savings Plan) each year, there are some important things to know when it comes to making your contributions. This is because maxing out your deposits too early in the year could actually put you at risk of losing some of your matching contributions.

Each year, the government can contribute up to 5% of your salary to the TSP plan in a number of different ways. These include:

  • Agency automatic 1% contributions
  • Dollar-for-dollar contributions (on the first 3% of pay that you contribute)
  • 50 cents on the dollar (on the next 2% of pay that you contribute)

While it is a good strategy to obtain as much of the employer matching as possible, because there is an annual limit on TSP plan contributions, by “maxing out” your annual contributions too early in the year, employer matching contributions can be lost by not making any deposits after the plan has met its annual contribution limit.

Things to Consider

When it comes to making your annual TSP contributions, there are several important factors to consider. For example, you need to be aware of when you actually reach you annual contribution limit for the year. This is because when this limit has been reached, your employee contributions into the plan must be suspended for the rest of the year. In fact, the TSP system won’t even allow any contribution by an employee to be processed if it will cause the total amount of deposits for that year to exceed the annual limitation.

In addition, if you have reached your annual contribution limit prior to year-end – and further deposits have been suspended – this also means that agency matching contributions will also be suspended. This is because these contributions are based on the amount of contribution that an employee makes into the TSP in each pay period. Therefore, if you aren’t making any contributions, then there won’t be anything to match.

It is important to note, however, that if you are a FERS employee, your agency is still required to make an automatic 1% contribution – even if your employee contribution and agency matching contribution has been suspended.

More about Paul Kalra, CFP, ChFC, CLU:

Paul Kalra has been providing financial services for over 25 years to doctors, business owners and others nearing or in retirement. After a successful career with John Hancock Financial Services,in 2002, Mr. Kalra founded his own firm, Signature America Financial Planning Services, Inc. in Lake Forest, CA.

In his practice as a financial planner, Paul Kalra has found that when people are nearing their retirement years, they are faced with confounding decisions about their retirement plans, 401(k)’s, IRA’s, Social Security, Medicare, life insurance, wealth-preservation and estate planning. What motivated him to focus his practice on helping people in their 50’s and 60’s was when Mr. Kalra began facing such decisions himself and realized that the answers would have been very tough if he were not a financial planner.

Things to know about federal retirement and taxes

phased federal retirement [Photo credit: Lending Memo]

If you are a servant of the federal government, then there is nothing you would look forward to more than achieving your federal retirement and enjoy the benefits that follow. The road towards retirement isn’t always an easy one but if you follow the right procedures and fund the right account then when the time comes, you normally have what you would hope for. Here is a list of things that we believe every federal retiree or future retiree should know:

Things to know about federal retirement:

  1. The federal income tax will purpose all of the incomes that you get out of retirement. This is inclusive of TSP, Social security and IRAs etc. So, this entails that the amount you will lose to federal income tax will be dependent upon the marginal tax bracket within which the income lies.
  2. It doesn’t matter if you are getting a CSRS or a FERS pension, it won’t be fully taxable. The reason being that you made the contributions from dollars that were already taxed. This does make sense because otherwise you would be taxed twice.
  3. The deductions because of TSP don’t affect the retirement income either. This is because retirees can’t make TSP contributions.
  4. The payroll taxes will not be deducted from your retirement income but only from your earned income. So, you won’t be parting with any money pertaining to your Social security tax or the Medicare tax.
  5. Around 85 percent of the Social security benefits are taxable. The specific amount is based on the provisional income. This is a very important keyword and to find out the figure, you can add ½ of your social security, some non-taxable income and all of your taxable income. This provisional income will then be compared with certain thresholds meant for joint and single filters.

 

Want to recapture FERS service via redeposits? Here’s how!

fersRe-deposits have been allowed by the contemporary employees of the FERS since late 2009 so we can’t really say that it’s going to be news to many people. These employees include those that left government and withdrew their retirement contributions. Before 2009, only the people that came under CSRS could do so.

Recapture FERS service:

When you make such a redeposit, it makes the service laudable to determine whether the employee is eligible for retirement and also for the calculation of the annuity. There are some details that can’t be overlooked in this regard:

The first one is that this policy is only applicable to those officers that are covered by FERS on or after October 2009. Furthermore, it will only affect the benefits pertaining to a FERS coverage separation that would have occurred on or after the date. So, if you have retired before 28th October 2009, you can’t just recapture the time by making the deposit.

If you want to make redeposit then you need to fill out the FERS application that’s especially designed to allow employees to make deposits. You can find it in the forms section on the OPM website. The completed application would then have to be forwarded to the agency for approval and only then will it be processed.

The whole process is pretty flaw-proof and there aren’t any catches involved so if you are trying to make your mind on whether you should make a redeposit or not, know that there isn’t much that can go wrong. On the other hand, just to be sure that you are eligible for this program, you need to make sure that you meet all the preliminary conditions necessary for the application. The processing might take some time but the end result will be something that would be worth the wait.

Retiring in 2016; These Tax Traps Are To Be Avoided

tax traps

2016 promises to be a year during which state and federal income taxes are not going to stay constant. If you are planning to retire during this year, then there are some tax traps for you to avoid. If you plan well enough then you can easily avoid them. All the three retirement income sources can cause you troubles in this regard. Let’s take a look at each of the three:

Tax traps to avoid:

  1. CSRS or FERS:

When you are filling the forms for your retirement application, you will get your hands on a W4-P among all the paperwork. You need to stay calm, put in the withholding level that you want to and you are good to go. If you are liable to get the FERS pension and are retiring before 62, your W4-P will also encompass the payments that the Special Retirement supplement guarantees for employees.

  1. Social security:

Once again, things are not that difficult to implement. Your SS will not keep any federal income taxes away from your benefits unless you make the explicit request. IF you miss this request making, then you will end up losing a lot of money. This is pertaining to the fact that most of the federal retired officials have to pay income tax on almost 85 percent of their SS retirement benefits. So whenever you apply, make sure you have a W4-V form with you and fill it to make your benefits impervious to tax.

  1. Thrift Savings plan:

It gets a little tricky here. TSP extracts taxes depending on your withdrawal habits. The TSP will not tax your money unless you withdraw more than 1500 dollars per month though. Otherwise you are going to have to pay serious amount of tax withholding money.

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.

 

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Downsides To FERS

fersFERS employees have some good retirement benefits but apart from that, they have some hidden negative features that only become visible when the retirement process has got initiated and they start making use of the funds. According to FERS, as soon as you have reached your minimum retirement age, you can go ahead and retire immediately after settling for an annuity that is not reduced after serving 30 years of course. Let’s look at some of the pitfalls to FERS that not many people are aware of:

 

Downsides to FERS

  1. The annuity that you are you going to be getting will be based on the formula “0.01 multiplied by your years of service multiplied by your high-3 x”. The initial figure gets changed to 0.011 if you have served the organization for a minimum of 20 years and are not retiring before the age of 60.
  2. As a retired official of FERS you are bound to be presented with a substantial retirement supplement that is going to give you an estimate on the amount of social security benefits that you have piled up under the program. There are a few people that are excluded from the list and they include fire fighters, air traffic monitors and the law enforcement officers, this supplement is only paid after you have reached your MRA. It’s also worth noting that you are not going to get the SRS if you have left the government and then applied for an annuity later. Disability retired officers won’t get it either.
  3. You are not going to receive any annual COLAs either unless you are a retired officer with a disability or are an annuitant survivor.

There are other downsides worth mentioning too but these are the ones that are the most important in this regard.

How a Social Security and a Supplement Differ

social security

There is a certain set of benefits that only the federal employees get; not all of them but the ones that come under the protective umbrella of the Federal Employees Retirement system. People with a history in government and a long career in such occupations that are covered by FERS get a benefit known as FERS supplement once they retire. In order to be considered eligible and receive the supplement, you need to be younger than 62 when you retire. You would thus be able to get a ready and a handsome sum of money through the basic Federal employment retirement system benefit.

There’s another thing known as a social security, which is the assistance provided by the government to people with lesser income or other issues. At 62, normally the payment that you received as a social security is a lot more than what you would receive as a FERS supplement for the same services.

There are many reasons for this to happen but we will not discuss all of them. A point that needs attention is that a supplement does not include the cost of living amount that gets adjusted normally to a social security. The FERS cost of living adjustment is only applicable to the retired officer’s basic annual benefit. This adjustment is made to some of the retired officers before they actually reach the age of 62.

Another reason for this to happen is that not all of the retired officials get their hands on their social security benefits. Because of the fact that you can qualify for a different and probably larger amount of benefit because of your partner’s work for the government, the supplement ends up being a fairly different amount than the social security.

There are many other factors that can be raised to differentiate the two entities but these are enough for the readers to be able to draw a line between the two.

Court Orders OPM to Restore Blind Vet’s FERS Disability Benefits

Court Orders OPM to Restore Blind Vet’s FERS Disability Benefits

benefitsA federal judge in the U.S. District Court for the District of Columbia has ordered the U.S. Office of Personnel Management (OPM) to restore the Federal Employees Retirement System (FERS) disability benefits for blind navy veteran Glenn Minney.

Minney had a distinguished career in the Navy, which spanned decades and included a Purple Heart Medal and other military honors. In April 2005, he was in Iraq when an explosion ended up making him almost completely blind. He was fully blinded in his right eye and mostly blind in the left eye, which qualified him for retirement and disability benefits.

OPM approved his FERS disability benefits in 2011 and started sending him payments. He eventually started working as a legislative liaison for the Blinded Veterans Association, a position that helped him earn $56,000 per year.

 

 Minney vs. OPM FERS Disability Benefits Termination Case 

Since his pay exceeded 80% of the salary at the position from which he retired as a federal employee, OPM sent him a letter saying that his FERS benefits had been terminated. He and his daughters were left without the health benefits that came with FERS, so he filed a lawsuit in the federal district court seeking an injunction on the FERS termination.

Thing is that OPM had sent him written notices about this. Minney was never able to read any of it, and claimed that one of the key notices had been sent to a wrong address. He was never verbally or in any other way notified that earning money in a non-federal position would result in his FERS being terminated.

Technically, you could say that OPM was within its rights in cutting off the FERS benefits for Minney. But it also shows the robotic nature of a vast bureaucracy that can’t be flexible to the needs of a severely disabled and much-decorated war veteran. So it’s refreshing to see a federal judge recognize and rectify this rather unpleasant nature of your typical federal agency.