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March 29, 2024

Federal Employee Retirement and Benefits News

Tag: retirement planning

Retirement planning

Retirement planning is the process of being foresighted and thinking about how to make your post-retirement life secure and financially sound.

Find Out the Difference Between Retirement Income and Retirement Savings. Sponsored By: Todd Carmack

What most individuals want to do with their retirement funds is save, grow, make income, and pay as minimal income taxes as possible.

Many people do a good job when saving, even increasing savings in their retirement accounts annually. Growing such funds over time usually becomes difficult. Aside from the market’s ups and downs, there’s also the emotional rollercoaster that follows. When the markets are rising, everything appears to be OK. On the other hand, a downturn might cause many people to reconsider their investments and the level of risk they’re taking. Then, when the funds accumulate and the time comes to consider retirement, there are issues of transforming this accumulated money into income. With that comes the likelihood of having to pay income taxes on the retirement income.

There are ways that can help you in continuing the savings process while considering a re-alignment of your savings to build income-tax-free funds eventually. This might be achieved by simply relocating your savings over time rather than adjusting the amount you save. Market volatility and emotional plays, as well as trying to build your savings over time, can be addressed by considering active money and risk management. It’s possible to increase money by limiting downturns and having non-emotional choice triggers. That might then lead to considering strategies to generate retirement income, converting savings into income while reducing the income tax effect.

The savings and accumulation phase is referred to as “climbing up the mountain.” As an example, consider Mount Everest. You’re doing your best, attempting to save as much as you can while climbing the mountain. Your goal is to achieve a specific rate of return on your investment and see it increase over time. The emphasis is on increasing your money and asset allocation; this is your Accumulation Phase. That is where you might consider repositioning your savings, or a portion of them, to accumulate funds that’ll be tax-free when withdrawn.

You can also explore the use of Roth accounts and cash value in adequately designed life insurance plans. Discussions would revolve around your current income tax situation and where you expect it to be in the future. The distinctions between tax deferral and tax-free can also be explored. For instance, if you’re saving $10,000 each year in your retirement account on a pre-tax basis (your regular 401(k), 403(b), TSP, and so on) and you are in a federal and state tax rate of, let’s say, 25%, you’re ‘deferring’ $2,500 per year in taxes. That is not to say that taxes won’t be due. They’ll be due when you begin taking money from your accumulated savings and its growth. That income tax may easily exceed your deferred tax of $2,500. Of course, a time value of money estimate would be required. However, as you may have heard, the general question is whether you would prefer to pay taxes now on the seed or later on the products grown from that seed?

As you go up the mountain and get closer to the top, the peak, you may begin to wonder, “What will my retirement income be?” You can do a good, if not a great, job of saving money and have a better understanding what your number is or will be. The next stage is to figure out how to transform that number into income.

You want to keep your money coming into the house. But where will it come from? This is your Distribution Phase as you make your way down the mountain. This period of time can last as long as, if not longer than, your climb up. You wish to survive (more people have died on the descent of Mount Everest than the climb up). You’ll prepare for this by exploring your income sources and recognizing the risks involved.

Social Security income (perhaps a pension) and withdrawals from accumulated savings accounts are all sources of retirement income. The risks to consider are the following:

  • Longevity risk – people now live longer and don’t want to outlive their savings and run out of money. This also results in the possibility of health concerns in the long run.
  • Stock and bond market risk – the investments’ volatility and the market’s ups and downs.
  • Sequence of returns risk – how your assets perform over time, not simply as you accumulate, but also when you take income from them.
  • Withdrawal rate risk – how much or what proportion of your savings can you withdraw each year (5%, 4%, 3%) and still have your money last.
  • Inflation risk – the risk that the cost of products and services may rise over time and your capacity to generate enough income to keep up.
  • Tax risk – understanding the income taxes payable on your retirement income, as well as taking into account any potential estate taxes due.

 

Now, you’ll want to think about your legacy. Will income keep coming into your household if something happens to you? What is it going to be for your partner? Do you want to keep your money in the family and see it increase over time?

You can take control of your savings and retirement income, regardless of your age or where you are on the mountain while trying to reduce your taxes.

Let’s Debunk Some Retirement Myths. By: Joe Carreno

If it sounds too good to be true—well, it probably is. 

Myth #1: If I quit federal service before the year in which I turn 55, I can start withdrawals once I reach that age. If I retire with 25 years of law enforcement service before the year I turn 50, I can start taking TSP withdrawals without penalty when I turn 50.

Reality: The TSP does waive the 10% early withdrawal penalty for payments paid after you depart from service during or after the year you turn 55 (or the year you turn 50 if you’re a public safety employee). Employees who separate before the year they turn 55 (doesn’t matter if they retire or resign) (and law enforcement officers who apply for an immediate retirement benefit before the year they reach 50 and have 25 years of service with the completion of 25 years of covered law enforcement service) have to be careful and avoid the early withdrawal penalty. In these cases, you won’t be exempt from the early withdrawal tax penalty till you reach 59 and a half. (There are several exceptions to this rule.)

 

Myth #2: Those who retire in 2021 will get the 2021 COLA in their January 2022 retirement benefit payout.

Reality: The amount of an annuitant’s first Cost-of-Living Adjustment (COLA) is prorated depending on the number of months between the start date of the annuity and the effective date of the first COLA following that date. Those covered by the Federal Employees Retirement System (FERS) and have been retired for at least a year and reached the age of 62 by December 1, 2021, will be eligible for the full COLA. The 2021 COLA is projected to be greater than 5%, with FERS retirees receiving 1% less than the full adjustment.

FERS COLAs do not typically apply to annuitants under the age of 62 as of December 1, 2020. As for survivor annuitants, the COLA applies to both the basic survivor annuity and the supplementary annuity. COLAs under the Civil Service Retirement System (CSRS) apply to all annuities, regardless of the annuitant’s age.

Retirees get one-twelfth of the applicable COLA for each month they receive an annuity prior to December 1, 2021, up to a maximum of 12 months. An annuitant’s retirement date must be no later than December 31 of the previous year in order to get the full 2022 COLA increase.

COLAs begin on December 1 of the year in which a retiree becomes eligible.

 

Myth #3: For people who retire after the January 2022 annual General Schedule pay adjustment takes effect will have this new rate reflected as one of the three years in their high-three average salary used to determine their CSRS or FERS retirement payout.

Reality: The high-three average pay is the highest yearly rate obtained by averaging an employee’s basic pay rates in force throughout any three consecutive years of creditable civilian service, with each rate weighted by the length of time it was in effect.

The high-three average wage rate is calculated on a daily average and might include more than three pay rates. For example, if you choose January 31, 2022, as your retirement date and your highest average is your last three years of basic pay, then your high-three average will be calculated with the 2022 pay rise accounting for just 29 days of the overall three-year period.

Will COVID-19 Impact Options for TSP Investors? By: Brad Furges

In recent months, the federal government has introduced many changes in its Thrift Savings Plan (TSP). Most of the newly introduced modifications have nothing to do with the novel COVID-19 coronavirus pandemic, but some unexpected events can inevitably impact the investors. In this case, it is advised to expand the I fund and include more companies, and lay emphasis on emerging markets like China.

The CARES Act that came into effect to fight the pandemic may also impact the TSP investors who want to withdraw money from their TSP account but do not want to pay any penalty.

 

What changes can change the impact and inclusions of the I fund?

One change is increasing the investment in international stocks, or we call them I funds in the TSP’s lifecycle funds. The amount in the lifecycle funds for foreign funds was increased from 30% to 35%. (This percentage increase is in terms of the I fund ratio to the C+ S + me ratio.) This new change came into effect on January 4, 2019. 

With this, a higher allocation of equity funds in the lifecycle income fund was also increased from the previous 20% to 30%. The change came into effect in January 2019 and will stay until July 2028. According to January 2020 reports, the L income fund has a target of equity allocation of 21.50%.

 

Changing contents of the I fund

The government is planning to change the I fund (International Stock Fund). The I fund’s current plan is to measure the stock market performance of developed markets working outside the U.S. and Canada. 

As of now, the I fund has stocks from 21 developed markets representing more than 600 companies from large and mid-sized markets. 

 

Things creating controversy over the I Fund Index

A group of senators is requesting the chairman of the Federal Retirement Thrift Investment Board (FRTIB), an agency responsible for the smooth working of the Thrift Savings Plan, to take back its decision to transfer the index tracked by the TSP’s I fund.

According to the new law, the new index will be completely different and represent more than 6,000 companies in the index containing 22 developed markets and 26 emerging markets. It will include large, medium, and small companies. 

Many people who read the new changes commented that the I fund should include emerging markets or separate funds for the emerging market. The new changes will consider these things. 

 

$50 billion in federal employee retirement assets are easily accessible to Chinese companies

This provision to change the I fund index has seen many controversies. Senators Marco Rubio (R-FL) and Jeanne Shaheen (D-NH) commented and said that changing the I fund to set a new benchmark index would expose more than $50 billion in federal retirement assets, including federal employees. Members of the U.S. Armed Forces would give birth to undisclosed material risks associated with many of the Chinese companies already listed on this MSCI index.

This controversy was the result of the ongoing market crisis due to the coronavirus pandemic and China’s pivotal role in the spread of this virus. Nobody knows the impact of this new change and the controversy on the world and the TSP investors.

 

When can we expect to see the changed new I fund index?

Several people reading the news have asked multiple times when they can see the new I fund index coming into effect. To answer this question of the new index’s date, Kim Weaver, the director of the Office of External Affairs for the Federal Retirement Thrift Investment Board (FRTIB), said that the board is working on this and will announce the date soon. 

It seems that the board is still working on the new index and has not come up with any specific date for implementation.

 

The new provision allows withdrawing from retirement accounts without paying any penalty.

The latest provision in the CARES Act will enable participants of any age to withdraw up to $100,000 from a retirement account early without paying the 10% early withdrawal penalty in case he or she is impacted by the coronavirus or was exposed to it. 

That means TSP investors can withdraw up to $100,000 from their account without paying any penalty.

Is this is allowed? What is the process of taking this step? No specific information on this question has been received so far. FedSmith asked the TSP what this rule means for the TSP investors. Ms. Weaver replied and said under the CARES Act, participants have this authority, and they have a project team to determine whether and how to implement the process. 

Though this provision looks attractive, withdrawing up to $100,000 from the TSP without paying a 10% penalty may be difficult for TSP investors to pay the amount. It seems that this option will be open for TSP investors, but we don’t know if this will be available to TSP investors, and when it will happen.

The coronavirus is expected to impact our society in ways that we never expected a short time ago. Many TSP investors seeing the rapid drop in the stock market are riding on an emotional ride while they are watching their investment dropping. The number of millionaires in the TSP club has dropped by more than 45% in a short while. 

While the percentage of the lifecycle’s I funds has increased, we have no idea of the date when the new I fund will come into effect. The CARES Act to fight the COVID-19 crisis is expected to open up new withdrawal options for some TSP investors. It might be too early to guess how this situation will help TSP investors. More surprises are expected to come before the pandemic ends. 

Here’s Complete Information on Which States Do and Do Not Tax Income from Social Security Benefits. By: Marvin Dutton

The Tax Foundation recently released a report that mentions the names of the states that do and do not impose a tax on income from Social Security benefits. In this article, we have included all states and cleared which states will tax or not tax your Social Security benefits. 

All of us know that information on taxes is always complicated. Some states are not imposing a tax on Social Security benefits income, and some do not include Social Security income as a part of their calculation for taxable income. Some states follow the same procedure as followed by the federal government, and some states have exempted Social Security income for different reasons. 

The states that do not tax income from the Social Security benefits federal taxable income are Delaware, Arizona, Idaho, Massachusetts, South Carolina, Illinois, New York, Ohio, Oklahoma, Colorado, Georgia, and Virginia.

States that tax income in the same way as taxed by the federal government are Utah and Nebraska. 

States that offer exemption have been discussed in the report given by the Tax Foundation: 

Connecticut offers an exemption for federal adjusted gross income (AGI) taxpayers with income below $75,000 (single tax filers) or $100,000 (joint filing).

Kansas offers an exemption for federal AGI of $75,000 (single and joint tax filers both) 

Minnesota has its graduated system of exemptions in case the provisional income of a person is under $81,180 (single tax filer) or $103,930 (joint filing).

Missouri offers 100% tax income exemption on Social Security benefits provided the taxpayer is 62 years or older and annual income below $85,000 (single tax filer) or $100,000 (joint filing). 

North Dakota offers subtractions when the AGI is below $50,000 (single tax filer) or $100,000 (joint tax filing).                                                  

Rhode Island offers a tax exemption for taxpayers who have attained full retirement age and have a federal Annual Gross Income of below $81,900 (single tax filer) or $102,400 (joint filing). 

Vermont State has its graduated system to offer an exemption of Social Security income if the income of an individual paying taxes is under $34,000 (single tax filer) or $44,000 (joint filing).

West Virginia is a state which currently imposes a tax on Social Security income, but under a new law, that is being phased out, and will utterly exempt income from state taxes starting in 2022.

Congressional Watchdog Finds That Almost 40% of Participants Don’t Understand 401(k) Fees. By: Joe Carreno

On Thursday, August 26, 2021, the Government Accountability Office (GAO), a congressional watchdog, released a report stating that almost 40% of 401(k) participants do not fully understand the scheme’s fees. For the past ten years, the US Department of Labor has requested sponsors to educate participants about the fees associated with their accounts. Yet, a significant number of participants do not completely understand the fees. 

Democrat lawmakers, Sen. Patty Murray of Washington and Rep. Bobby Scott of Virginia had requested the report. Sen. Murray chairs the US Senate Health, Education, Labor, and Pensions Committee, while Rep. Scott chairs the House Committee on Education and Labor. 

Scott said the findings of GAO should serve as a wake-up call for the Labor Department and 401(k) participants. He added that the report indicates that the Labor Department must make it compulsory for plan sponsors to give participants full fee disclosures. He added that the disclosures should be easy to understand and that participants should know how the fees affect their contributions. 

The report stated that about 87 million employees have 401(k) plans, making the accounts one of the most popular ways people save for retirement. Around 71% of workers in the private sector, and local and state governments received their retirement benefits in March 2020. Of this percentage, 55% had 401(k) accounts. 

401(k) participants must understand the effects of administrative and investing fees on their contributions as participants who do not understand them may be adversely affected. 

Murray described retirement savings as long-term investments. As such, the Democrat said participants need “clear, complete information.” He added that the report shows that 401(k) participants do not have the needed information to make informed choices about their long-term retirement investments. 

What Participants Do Not Understand about 401(k) Fees

For its findings, GAO surveyed 1,000 401(k) participants. The survey included questions that were meant to test participants’ knowledge of the fees. The government watchdog found that many respondents know about the existence of the fees, but they do not completely understand how the fees affect them. Other respondents do not know about the existence of the fees at all. The members of the latter category made up about 64% of respondents. These respondents didn’t know if they were paying any fees or even if the fees even existed. 

65% of the participants didn’t know how much additional fees they paid on the 401(k) accounts. The government watchdog found that females and savers with less than $1,000 made up a majority of this group. It also discovered that education was a factor. More people with high school diplomas or less also said they do not understand the fees.

“Americans are already struggling to stretch their paychecks and save for retirement,” Chairman Scott stated. “Making fee disclosures more accessible is a common-sense change that will help more people retire with dignity.” 

Long-Term Effects on Participants

Employer-sponsored 401(k) plans and any other investment account come with costs. Participants and their employers pay the fees. Some they pay independently and some together. However, participants have to be aware of these fees, or their savings could be adversely affected. In 2006, GAO submitted a report that shows how an increase of 1% could reduce retirement savings by tens of thousands of dollars. 

For example, a worker who contributes $20,000 to a 401(k) plan with a 7% return rate and 0.5% fee will have $70,500 after 20 years. If the fee is increased to 1.5%, the worker will have $58,000 at retirement. The 1% fee increase caused a 17% reduction in the worker’s earnings.

GAO Recommendations

GAO made five recommendations to the Labor Department. These recommendations will enhance contributors’ knowledge of the long-term effects of the fees. The recommendations are: 

  •  – The department should enforce the use of a consistent term for asset-based investment fees. 
  •  – It should stipulate the fees in quarterly disclosures. 
  •  – It should educate participants on the long-term effects of the fees. 
  •  – It should add fee benchmarks for in-plan investment options. 
  •  – It should add ticker information for investment options in disclosures.  

The department has responded to the committee’s recommendations. It stated that it is unable to enforce the recommendations at the moment but would consider adopting them in the future. The committee, in turn, urged the department to do whatever it can to help the Americans who are saving money.

Inflation and the Timeframe of Your Retirement. By: Brad Furges

With the growing inflation, an increasing number of federal employees are doing the figures to determine the financial benefits of working for another year or two. For many, the answer is startling: much more money in retirement for working a few years longer.

Example:

According to benefits expert, a Federal Employees Retirement System (FERS) employee earning $80,000 per year may increase their starting annuity by over $30,000 by staying on for another two years. That is a lot of money by any standard. Both now and later.

The FERS plan covers the great majority of still-working public workers. While it doesn’t have as generous civil service benefit as the Civil Service Retirement System (CSRS) scheme it replaced, FERS employees are eligible for Social Security benefits as well as a 5% government match to their Thrift Savings Plan (TSP) accounts. Retiring under the FERS program might be more complicated since it has more moving pieces and various requirements. But it’s well worth it if done right. Working longer for a greater pension allows many FERS retirees to put off accessing their TSP savings for years.

FERS employees must maximize their retirement benefits since FERS retirees are subject to the Cost-of-Living Adjustment (COLA) scheme opposite of their CSRS colleagues. In short, when inflation goes beyond 2% (as it’ll this year), retirees receive inflation catchup that is 1% less than the actual increase in inflation. The January 2022 COLA for CSRS, Social Security, and military retirees, for example, is 6%. Those on the FERS program will receive only 5%. Compounding-in-reverse indicates substantially reduced purchasing power over time.

So, aside from the obvious, what are the disadvantages of working longer than planned? 

According to a benefits expert, the $80,000 per year employee may increase their starting annuity by about $30,000 by working two more years, from age 60 to age 62. At the same time, they can also draw a full salary, qualify for pay increases and within-grade increments, and increase their high-3 year average salary.

Interested?

A benefits expert came up with this example of how postponing retirement may benefit you a great deal. Of course, there are several more factors to consider. However, money, as in having enough in your golden years, is a major one. You may use this example of an $80K employee working longer to receive more in retirement. Here’s the example:

Length of Service at 60: 19 years

    • 19 x $80,000 x 1% = $15,200 x .90 = $13,680 (10% reduction under the MRA + 10 retirement as employee didn’t have 20 years of service at age 60 to be eligible for an unreduced retirement)

Length of Service at 61: 20 years

    • 20 x $80,000 x 1% = $16,000 + $12,000 = $28,000 (The additional $12,000 is a FERS supplement of $1,000 a month payable to age 62 when retiree can file for SSA and receive an even greater SSA benefit depending on their lifetime of FICA taxed wages)

Length of Service at 62: 21 years

    • 21 x $80,000 x 1.1% = $18,400 + $24,000 = $42,480 (The $24,000 is the SSA benefit payable at age 62 of $2,000 a month from their lifetime of FICA taxed wages)

 

Of course, the individual who left at 60 may claim their SSA benefit, but the shortfall in their FERS basic retirement income would still be close to $5,000 per year or $600 per month – for life! They would have benefited from adding two more years at their presumably best earning years to their SSA record, as well as two additional years of contributions and growth to their TSP account.

They may withdraw $24,000 per year from their TSP account to get $43,000 per year by deferring SSA claims until age 70 and then taking considerably lower payments from the TSP to fulfill the required minimum distributions at 72.

Definitely one to have in your retirement planning toolbox. Also, don’t forget to forward it to a FERS friend.

How to Approach Retirement as a Small Business Owner. By: Flavio J. “Joe” Carreno

Running your own business has numerous advantages, including the ability to determine your work schedule and the possibility of raising your income. However, without the benefits usually provided by large employers, saving for retirement is often left up to you.

When you operate a small business, nearly every aspect of it becomes entangled with your personal life. You are your company, and your company is you, says David Burton, a Harness Wealth’s tax consultant.

Having a retirement plan in place and putting money aside early helps guarantees you will have a stable financial cushion when retirement comes.

Let’s look at four tips that’ll help you prepare for your retirement as a small business owner.

  1. Determine your retirement needs

It’s critical to calculate how much money you’ll need to live a comfortable retirement.

Consider your desired retirement age, estimated living costs, and other relevant considerations such as taxes, inflation, and Social Security benefits.

Make sure to account for various possible scenarios, such as selling the firm or ceasing to generate business-related income.

Financial tools, like a retirement calculator, can help you assess your needs. You might also seek the advice of a financial professional who specializes in retirement planning.

In any case, knowing how much money you’ll need early on will help you decide on the best retirement approach to fulfill your financial goals.

  1. Develop an exit plan

You’ll have to decide what to do with your business once you retire. That means having an exit strategy.

The exit plan might be transferring ownership control to someone else, selling the business, or conducting an initial public offering. When deciding about an exit strategy, consider how long you want to remain a part of the business. Also, consider the best way to protect your business assets, and your financial situation and ambitions.

Many business owners don’t always consider their exit strategy or retirement plan regarding their business. According to Kristen Carlisle, Betterment 401(k)’s general manager, it’s never too early to start thinking about it.

In many situations, your business company plan and pitch should include an exit strategy.

  1. Figure out the best retirement savings plan for you

Once you’ve determined your retirement needs and an exit strategy for your business, it’s time to figure out which retirement savings plan is best for you.

Consider the contribution restrictions of the plans, the number of employees you have, and the tax benefits associated with the kind of account you choose.

No matter at what point in your business planning path you’re currently, it’s essential to consider building a retirement plan for yourself. If you have employees, it’s also a good idea to provide them with a retirement benefit to feel financially secure and prepared, Carlisle stated.

The following are the five types of the most popular self-employed retirement plans:

Traditional or Roth IRA

  • An IRA, either traditional or Roth, is a tax-advantaged retirement savings account. With a traditional IRA, you only pay taxes on your money when you withdraw it in retirement. Because taxes are deferred, your investment profits may rise faster. Traditional IRAs can be either deductible or not. A non-deductible IRA doesn’t allow you to deduct your contributions on your tax return, whereas a deductible IRA allows that. A Roth IRA requires you to pay taxes on the money you contribute upfront, enabling your money to grow tax-free, and you pay no taxes when you retire. You or your employees can create and fund their own IRAs. 401(k)s from a former job could also be rolled over into an IRA. 

SEP (Simplified Employee Pension)

  • A SEP IRA is a tax-deductible account for self-employed persons or small business owners, including freelancers. SEPs work similarly to traditional IRAs in that contributions aren’t taxed until withdrawn. This sort of account, which an employer or a self-employed individual may set up, allows the employer to contribute to their employees’ accounts. They provide a more significant contribution maximum, on top of traditional or Roth IRA contributions.

SIMPLE IRA (Savings Investment Match Plan for Employees)

  • Another form of tax-deductible account for self-employed persons or small business owners is a SIMPLE IRA. As opposed to SEP IRAs, employees and not only employers, can contribute to it. SIMPLE IRAs additionally require the employer to make a dollar-for-dollar match of up to 3% of an employee’s salary or a flat 2% of pay, regardless of whether the employee contributes or not.

Solo or Individual 401(k)

  • A solo 401(k) is an individual 401(k) for a self-employed individual or small business owner who doesn’t have any employees. Solo 401(k)s operate similarly to traditional 401(k) plans offered by larger corporations and organizations. They, like IRAs, are available in both traditional and Roth forms. Contributions can be divided equally between the two.

Defined benefit

  • A defined benefit plan, like a pension, is a form of retirement account that the employer sponsors. When you retire, your employer determines a fixed compensation depending on criteria such as your income and time spent at the firm. When retiring, you can choose between a lump-sum payout or a monthly “annuity” payment.
  1. Prioritize retirement planning

It’s all so easy to get caught up in the day-to-day activities of running a small business. But no matter what, Carlisle said, don’t make the mistake of ignoring retirement benefits for yourself or your employees.

Make sure that you’re thinking for your future and the future of your staff, regardless of the size of your business, she said. It doesn’t have to be a big start; you may start small and grow from there, as long as you don’t overlook the benefit.

How to Submit Your ‘Healthy’ and Complete Federal Retirement Application. Sponsored By: Jeff Boettcher

How to Submit Your ‘Healthy’ and Complete Federal Retirement Application, by Jeff Boettcher

If you are currently going through the process of planning your retirement, you will need to submit a complete federal retirement application, but the Office of Personnel Management (OPM) suggests making it ‘healthy’. For example, this describes a form that is complete from the very top while containing the right signatures and dates. With all the questions asked on the form, you should provide full answers as well as check the appropriate boxes.

Avoiding Common Problems with Retirement Applications

According to OPM, there are some common issues that arise when completing a federal retirement application.  For many, this includes issues with the survivor election chapter, which needs to be filled regardless of your relationship status. For example, consent must be given by the spouse if a married applicant were to elect less than a full survivor annuity. Furthermore, the section regarding court orders must still be addressed even if there is no order.

Elsewhere, you’ll also need to list all periods of creditable civilian and military service; for the latter, you’ll need a Form DD-214. If you happen to be taking early retirement or perhaps even discontinued service retirement, there will be additional documentation to complete. Finally, the forms require you to provide information regarding your FEHB status and whether any of your policies will continue into retirement. For example, individuals need to have worked in federal employment for five years before their retirement date. If you also want to remain eligible for FEGLI, you need to prove your coverage for the previous five years here too.

As you can see, a healthy retirement application can be difficult to achieve so take your time, don’t feel the need to rush the process, and don’t be afraid to ask for assistance if you feel your application would benefit.  Oftentimes a qualified financial professional is the best solution to your lack of knowledge.  But make sure you find a highly-trained and knowledgeable federal employee financial planner.

 

Smart TSP Investors Could Have $1M in Plan At Retirement – By Timothy Walker

Smart TSP Investors Could Have $1M At Retirement

By Timothy Walker

Timothy Walker works with federal employees and helps them maximize their retirement benefits.

When it comes to the Thrift Savings Plan (TSP)  there’s no other plan that can match its greatness. After all, it’s got the lowest administrative fees, which allows people to put additional cash into their (TSP).

Timothy Walker
Timothy Walker

The majority of employees who qualify for the FERS retirement system get a 5% match from the government.  This means most employees get tax-deferred free money. Only a limited number of employers offer their employees 401(k) plans, and even less have matching worker contributions at the 5% level. With a steady investment in the TSP – going with S and stock-indexed C funds – most federal and postal workers living within modest means can become wealthy from their TSP. They invested when they first could, stayed with their investing plan even during the Great Recession and have around or more than $1 million now.

Vanguard founder and financial pro, John Bogle said he wishes he could invest in the TSP. People who run it are watched very carefully. There is a multitude of federal regulatory agencies that watch it. Employees, Congress members, along with their staff are in the TSP as well.

There are many resources out there about The Thrift Savings Plan. Be diligent and ask questions. There are professionals out there that do understand many of the factors about the plan, like myself. Whether you have questions about investing in the plan or you’re ready to think about retirement and need guidance, I’m here to help!

Feel free to contact me directly at [email protected]

 

 

Other Tim Walker Articles

Article: Complete Guide to FEGLI for Federal Employees By Timothy Walker

 

About Timothy Walker:

Tim Walker is the founder and president of Fortress Financial as well as an author and financial professional whose sole focus is helping senior Americans solve problems and seize opportunities regarding their retirement finances and estate planning wishes.

You can reach Timothy Walker by email or phone

Office: (208) 233-1685

Cell: (208) 317-4803

[email protected]

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 the 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.

 

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People consider their homes to be a Key Part of their Retirement Plans

A new survey has unveiled the fact that most people consider their homes to be a vital part of their retirement plans. Some people have homes worth more than their retirement savings and some are worried about paying off the mortgages. Some even consider it an investment that would pay off later in life. People also want to avoid downsizing post retirement and some even deny that their home is a part of the retirement wealth.

retirement benefitsHow can a Home be a part of Retirement Plans?

The survey was done by Aviva, a British multinational company offering Insurance plans. It found out that about 46 percent people who are more than 45 years of age think that property is a key part of the retirement plans. In the same survey, about 69 percent admitted that the home they own is worth more than all their savings plus investments plus pension.

About 23 percent of people over 45 were worried about being able to pay the mortgage off. About 16 percent admitted that they may need to borrow money in retirement while 31 percent planned to give money to their children so that the children can become first time buyers. About 56 percent of people also expected the housing wealth to be a tool that can help pay for their care expenses later in life. About 61 percent think that the housing wealth is a vital part of their inheritance planning.

Avoiding the Downsizing

About 80 percent of the respondents were reluctant to let go of their homes post retirement. They want to stay in it as long as possible. In contrast, about 26 percent had already downsized or planned to do it in the future. People who wish to avoid downsizing have many reasons such as not wanting to let go of their friends, the transport links, the communities, etc. They also wish to avoid the stress related to going through the house selling and house buying process. All these factors were shared by Roger Marsden who serves as Equity Release Managing Director at Aviva.

Home as a part of Retirement Wealth

About 39 percent people over the age of 75 said that the home was a vital part of retirement plans because it could help them get some extra wealth. Respondents over 45 years of age wanted to use the wealth for pay for care later in life and they also wanted to use it to pay for house adaptations. About 61 percent of respondents over 45 years of age perceived the property wealth as a crucial part of the inheritance planning process.

Baby Boomers Face Numerous Retirement Challenges

Baby boomers that are yet to retire are facing a lot of challenges. Most of these retirement challenges are due to financial constraints. They are also dealing with the problem of debts. All these facts were discovered in a recent study that surveyed non retired baby boomers with middle income.

The Study on Retirement Challengesretirement

The study was conducted by Bankers Life Center for a Secure Retirement recently and it involved asking a lot of questions from people who are yet to retire and fall into the category of middle income boomers. It did not include the first set of baby boomers who retired about 5 years back. Around 4 of 10 baby boomers who are fully retired were not surveyed.

The Financial Challenges

When the middle income baby boomers were asked about their spending about 60 percent of them replied that they are spending more than their household income. About 38 percent of the middle income baby boomers admitted that they had to make adjustments to ensure that they compensate for financial shortfall during retirement.

Retirement Finances

The income baby boomers are also not sure about their retirement finances. About 69 percent of the middle income baby boomers accept that they won’t have enough money to live comfortably after they cross the age of 85 years. Around 88 percent middle income baby boomers also expressed one or more than one concern with regard to their retirement.

The concerns are varied. About 64 percent of middle income baby boomers are worried about the decisions taken by the government with regard to budget and spending. Around 56 percent of middle income baby boomers are worried about their own declining health. About 54 percent middle income baby boomers are worried that they won’t have money to pursue their interests in retirement while 50 percent are worried about the lack of savings.

The Persistent Debt

About 81% of all the boomers who were surveyed stated that they have some form of debt. About 28% admitted that they put more than 40 percent of their income to get rid of the debt. Also, about a quarter of middle income baby boomers have a mortgage that has over 20 years left on it.

About half the middle income baby boomers plan to get rid of the debt before they retire only 23 percent of boomers who are retired are really debt free. So it’s probable that many middle income baby boomers won’t overcome the debt related retirement challenges before retirement.

Philadelphia Residents Contributing Least Towards Retirement Benefits

A new research has proven that Philadelphia residents contribute the least amount of money towards their retirement benefits. They are hence less prepared for the retirement and may struggle financially in their senior years. The major reason behind the fewer contributions is that most employers don’t provide a provision of retirement savings to the employees. Officials agree that this issue needs to be solved as soon as possible.

Retirement Benefits

The Need to contribute more to Retirement Benefits

The research that says that most Philadelphia residents are less prepared for retirement as compared to the Americans living in other states was done for a city council committee. The committee aims to know how to improve retirement savings. The study was conducted and released by the Schwartz Center for Economic Policy Analysis on Wednesday. It was divulged during a hearing conducted by Council’s Committee. The hearing was on Labor and Civil Service.

The Current Situation

During the hearing, several witnesses testified to the fact that there is a retirement crisis in the U.S. The witnesses also stressed that the retirement crisis in Philadelphia is particularly troublesome. The study exposed that about 20 percent of retirees in Philadelphia are poor and about 30 percent have incomes between 100 & 200 percent of the federal poverty level.

The Reason

Anthony Webb who works at the Schwartz Center for Policy Analysis stated that the reason behind the Philadelphia’s people saving less for retirement is that the employers who offer retirement plans are very few. Even those who offer a plan don’t always participate in the plans. He also added that a high proportion of seniors are nearing closer to poverty and the people who are working right now are also at a high risk of retiring in poverty.

Need For Action

Webb also stressed on the need to offering a retirement plan to people who don’t have any yet. He stated that offering a retirement plan may not help them to have a retirement of their dreams but it will definitely help them to get away from the poverty and near poverty situation they are facing right now. He insisted that the sooner an action is taken in this regard, the higher would be the number of households that get help. When a swift action is taken, they will be able to save a bit more money towards retirement benefits.

Over 40 Million Americans Regret not saving earlier for Retirement Benefits

retirement benefitsA recent survey done by Bankrate.com has revealed that most of the Americans live with financial regrets. They primarily regret not saving enough money for retirement benefits. The other thing they regret is not saving for emergencies. The survey also revealed that people had better financial situations, financial security, and net worth when compared to a year ago.

Retirement Benefits and Emergency Savings are Key Regrets

Most of the Americans admitted that they had financial regrets. The percentage of Americans admitting the regrets was 75%. This was revealed in a study done by Bankrate.com. The study also found out that 18% or about 42 million Americans thought they should have started saving earlier towards their retirement funds. The study also found out that about 13% Americans thought they didn’t have enough money to pay emergency expenses.

Age and Retirement Saving Regrets

The survey also uncovered the fact that the Americans who were older had more concerns with regard to not saving up early for retirement. People who were more than 30 years old felt that they should have started saving for retirement early on. About 17% of respondents who were between the ages 30 to 49 regretted it. About 24% of respondents who were within the age range of 50 to 64 had this regret too. The percentage increased to 27% when the respondents were over 64 years of age.

Expert Opinion

The Chief Financial Analyst of Bankrate.com, Greg McBride, CFA stated that most Americans dealt with the financial distress of not having enough savings.

Better Financial Situation

The good news for the Americans is that they got better at other financial factors.  The number of Americans who admitted that their financial situation is better than it was one year ago is almost double the number of people admitting that their financial situation is worse. The Financial Security Index of Bankrate.com is at its 2nd-highest reading ever. It is currently 104.7.

About 31% of Americans have also confessed that their net worth is better than it was a year back and just 13% said that it has worsened. The financial security of men and women has improved considerably in the last one year too. Each posted the best readings in over 1 years’ time.

The Survey Subjects

The survey that found out all about the retirement benefits regret and the financial situation of Americans was done on more than 1,000 adults who were living in the continental United States. It was conducted by Princeton Data Source from May 5, 2016, to May 8, 2016.

The Worst Places to Retire in the USA

A recent study has found a few places that are the worst places to retire in the USA. The study also pointed out that the people who are retired or wish to opt for retirement must remember to look for certain criteria’s when selecting the best place to retire. Some of these criteria are affordability and quality of healthcare.

worst place to retireHow the Worst Places to Retire in the USA were decided?

The researchers at Caring.com examined a lot of healthcare, financial and quality of life categories. They created a list of the best and worst places to grow old if you live in the USA. The major categories they used include the availability of quality healthcare, support for seniors and family caregivers, affordability of senior care and overall quality of life for seniors. They added that these criteria’s are not at the best in the common retirement destinations such as Arizona or Florida.

Topmost among the Worst

West Virginia was named as the worst state to retire because spending a year in an assisted living facility there will cost you $42,000. If you opt for home health care aide, you will have to shell out $36,600 every year. The state was said to be lacking in providing the important healthcare offerings and quality of life to the seniors.

New York has made it to the list also. It is a state that is named as the most expensive state for senior care in the USA. When a retiree opts for assisted living community, approximately $49,000 would be needed per year. On the other hand, the home health care aide would cost about $52,600. The third option, the option of using a semi-private room in a nursing home would cost around $131,700 on average.

Indiana was termed as relatively affordable in offering senior care. Unfortunately, the state was still counted among the worst as the quality of life and healthcare are not too good.

Advice for Retirees

If you are a retiree or you are looking forward to retirement in a few years, you need to make sure that you set your priorities right. Otherwise, you may end up planning your retirement at one of the worst places to retire in the USA. First, you need to have money for all the basics such as healthcare and comfortable living. After that only, should you focus on leisure options such as travelling and doing activities that you enjoy but never had time for.

Getting In Shape For Retirement

Getting In Shape For Retirement

How you spend your retirement years may have as much to do with your physical plan as your financial

plan.  Here are a few ideas that could help you enjoy your golden years just a bit more.

1. Get A Comprehensive Medical Check-Up

To get an idea of what a comprehensive exam can include, visit the Mayo Clinic’s Executive Health Program, the Duke Executive Health program, or the Johns Hopkins Executive Health Program.

2.  Choose a Fitness Regimen

If you can afford it, consider hiring a personal trainer or hire a personal trainer for your group, even if it’s just for five to ten sessions to get you into the swing of things.

3.  Select Your Anti-Aging Strategies to Live Longer and Look Younger from Head-to-Toe

It’s time to pay attention to nutrition and supplements, weight loss, teeth, eyes, skin and, yes even a makeover if you choose.

4.  Get a Comprehensive Financial Assessment

Play around with many of the financial calculators available online to get an estimate.    Each individual’s situation is different, and our advice is to sit down with all of your information and analyze and decide if you need to speak with a financial planner.

5. Maximize Your Savings

You’ll probably need more money than you think to retire, and you never know ….”things happen”.  It’s never too late to increase your savings.

6. Understand Your Insurance and Benefit Options

Many people ignore this area until it is too late.  Even if you are still in your fifties, start with an understanding of what your Medicare and Social Security benefits will be.

7.  Decide Where You Will Live

This is going to be a big decision, however most people actually stay where they are.

8.  Do a Career Evaluation

Now is the time for a career check-up.  A career evaluation could also be useful if you decide you want to work after retirement.

9. Do a Personal and Relationship Evaluation

Is this the time in your life when you will begin to spend more time with your family?  Are you ready to look inward and decide what you want the rest of your life to be about?

10.  Make Sure Your Parents are Taken Care Of

Baby Boomers are the first generation whose parents may live 20 to 30 years beyond their retirement age.  That adds a whole new level of complexity, cost, and worry for 50-plus adults.

11.  Pick and Prioritize Your Dream Trips

Where do you want to go?  Where should you go before everyone else discovers it?  Is there a place that could be quite different ten years from now that you should consider sooner like the Galapagos or Great Barrier Reef?

12.  Plan Your Leisure Time Lifestyle

Consider what you’ll do when you stop working …. or how to have more fun while you are still working.

13.  Give Something Back

Do you plan to give something back to society through volunteering or mentoring within your area of expertise?

14.  Get Your Estate Planning in Order

Departing this world without having your affairs in order might leave your surviving family members and loved ones in a really bad situation..  Now is the time to ensure you have a solid will, estate plan, and a “living-will.”

15.  Start Taking Advantage of Age-Based Deals (like Medicare)

Many of us don’t want to accept that we are “over 50” or “over 60”.  But there is one big advantage:  Many companies and services offer meaningful discounts to people as young as 50.

P. S.  Always Remember to Share What You Know.

Recommended Articles

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Sources of Federal Retirement Income

Where Will Your Federal Retirement Income Come From

Federal Retirement Income

The majority of federal retirees will get income from a number of sources.  However, the only sources they can really depend on are ‘certified sources’ of income.  What are certified sources of income?  Income that you know will be there – Social Security, Federal Employee Annuities and sometimes other Personal Savings and Investments.

Some of us may receive income from an inheritance, equity in our home, life insurance, and Individual Retirement Accounts (IRAs).  Income generally comes from the three primary sources named above and quite often the third one might be missing for many retirees – Savings and Investments.  Even if you are currently missing the Savings portion, like you Thrift Savings Plan (TSP), it is never too late if you put a savings strategy in place and stick to it.

When you are planning for your retirement, your plans should not be based on ‘what ifs,’ like winning the lottery.  We would all like to win the lottery, but the odds are pretty slim.  Therefore, your plans for retirement must be based on certified sources of funds.  As federal and postal employees you know that your Federal Annuity and Social Security where applicable will be there.  Everything else is an add-on to enhance your comfort and security in retirement.

Whatever your financial profile, the greatest way to protect it is by always making sure that your expenses are below your income.  Careful planning can help you reach this position with what you have when you make adjustments to fit your circumstances.

P. S. Always Remember to Share What You Know.

Recommended Articles

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Federal Retirement Benefit Analysis

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A Little-Known Opportunity Can Increase Your Retirement Income.  by Mark Sprague

 

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