Rights for retirees spouses are built into the Thrift Savings Plan. But did you know that depending on if the former employee is under FERS or CSRS coverage, those spousal rights can vary?

Spousal annuity for FERS subscribers will be predefined by a specific amount; for example, a fifty percent survivor benefit on top of a joint life plan. That is unless the spouse decides to waive this right. MetLife, who offers the TSP, currently provides the retiree spouses with several different choices, although those choices are somewhat limiting in their appeal. With the TSP contract in dispute this year, more options may soon be presented. As it stands, annuity withdrawals are among the least popular TSP options, therefore meaning most spouses choose the waive their right to it.

But please make sure you discuss this with your spouse first, before determining what they waive and do not. There are alternatives available, and your spouse may very well choose to go with one of those.

CSRS subscribers have even fewer options in regards to spousal rights. The retiree can make all the changes for their partner in the TSP without their informed knowledge, meaning that once the retiree begins withdrawing from the CSRS, the spouse will have no more rights to determine what is to be done with the TSP account.

Why this discrepancy between these two plans? It has to do with a couple of factors. Firstly, when the rules were first put into action, everyone who worked for the federal government was placed under the CSRS system.  It wasn’t until FERS was set up that spouses could have a say as to what would happen with their partner’s TSP accounts. Secondly, the TSP is a bigger percentage of income for the retiree’s under FERS. That includes total household. While CSRS workers may retire with TSP balances that are not very large, the protection that FERS offers spouses gives the retirees a greater peace of mind.

Recently Senator Maggie Hassan, a Democrat out of New Hampshire, and Senator Jeff Merkley, a Democrat out of Oregon, penned a missive addressed to the comptroller general at the Government Accountability Office asking him what the plans are for the TSP in regards to its impact on climate change, and how that may affect the retirement fund of federal workers.

Hassan and Merkley state in their letter that waning performance of the energy sector of the TSP has lowered capitalization of those shares. “From 2007 to 2014, the energy earnings per share (EPS) contribution to the S&P 500 have dropped approximately 50%, and investors are losing money as a result,” they told the comptroller.

They argue that the TSP should follow the lead of other retirement plans that have address climate risks and have begun to adjust accordingly. They state that thus far, TSP has ignored the issue of climate change, a move not only detrimental to the planet but could place the “assets and retirement security of its participants in jeopardy.”

The plan purposed by the Senators was simple: figure out what is known about the TSP in regards to climate change (including evaluating the TSP’s fossil fuel holdings,) determine if any steps have been taken thus far, and figure out the best way of addressing those risks. This includes looking at other countries retirement plans that are structured similarly to the TSP and see what they have successfully done to address these concerns.

Senator Merkley has been at this for a while now, and this current letter is not the first time he has attempted to address the TSP’s portfolio in regards to climate change. Just last year, he introduced a bill to provide more options within the TSP for federal workers, some that would completely circumvent the fossil fuel industry. Merkley said something along that lines of the bill giving many federal employees the power to ensure that their funds for retirement are invested in a more sustainable, socially responsible investment portfolio.

Even though the bill didn’t pass, Merkley is still fighting for climate change through the TSP.

The C Fund is the part of the Thrift Savings Plan that is engineered to following along with the performance of the Standard & Poor’s 500 Index by investing a portion of the money into stocks United States corporations. Though it netted a negative 4.41 percent in 2018, when tracked over the past ten years, the C Fund has grown its return to be more than 13 percent.

Now there is a new index to reference, the S&P 500 ESG Index, which is an extension of the already established S&P 500 Index. It has been described by the S&P Dow Jones as an index that is aligned with Environmental, Social, and Governance (hence the acronym ESG) and is made to “closely replicate the risk and return profile of its most iconic benchmark.”

With over 130,000 indexes, the S&P Dow Jones, this latest index, the C Fund ESG, comes right on the heels of a widely reported from Senators Maggie Hassan (aDemocrat out of New Hampshire) and Jeff Merkley (a Democrat out of Oregon) to the Government Accountability Office concerning the climate change and the TSP in regards to its investments in fossil fuels. The senators wanted to know what the TSP knew in regards to its portfolio’s risks from climate change, and what steps may be taken to rectify it and invest in alternative energy sources without harming the actual fund itself.

If the Federal Retirement Thrift Investment Board began using the C Fund ESG, it would help address some of these issues.

But what is the ESG?

As stated before, it means employing a clearly defined Environmental, Social, and Governance guidelines to figure out which companies to invest or not invest in. Previously, a myriad of different factors were employed when figuring out which stocks to invest the TSP in, the primary one being how much potential gains would this investment bring. The ESG is another filter which the investors would have to consider, one that brings into question things like the sustainability and ethics that surround an individual business.

In addition to that, it’s been argued by ESG supporters that using the ESG method would yield better investments over the long term. Things like the tobacco industry can be used to bring in high returns, but when it became apparent that lung cancer was linked to cigarette smoking, the immediate profits were merely a shield against the investments long-term sustainability.

Most ESG-friendly investments are usually ones that have addressed concerns about any particular company’s links to diversity, human rights, nuclear energy, and fossil fuels and climate change. This ties in directly with Hassan and Merkley’s letter to the GAO, and the C Fund ESG might be the most elegant solution to satiate everyone’s concerns.

That’s not to say it will perfect right off the bat. New funds mean there are new administrative costs added to the TSP, and should the C Fund ESG not perform up to snuff, but the idea is sustainability, and if Congress and the House of Representatives can come together, the ESG is an eventuality the TSP must face.

Affordable group life insurance is offered by the federal government, just like many businesses in the private sector. The coverage that is well known as FEGLI or Federal Employees Group Life Insurance, has quite a number of limitations that are significant and as well as advantages that are quite distinct. Let’s see why it could be better to privately purchase a supplemental coverage and why basic coverage in FEGLI is a good option.

FEGLI’s basic life insurance coverage amounts to $2000 plus one year of base pay rounded off to the next thousand.  This group life benefit, in particular, is 33% subsidized by the government and has no medical exam. Currently this basic benefit priced at .15 per thousand of coverage in every pay period is not connected to the insured’s health status or age. In addition, at the age of 35 the basic plan the basic plan is supplemented free of charge with a 10% increment in benefit each year until it is removed at the age of 45.

Federal employees have the option of increasing their coverage and as well that of their family members beyond the basic coverage. The first option will add $10,000 to the benefit amount which is then priced in 5-year brackets and goes up at age 55. The second option gives you room to add up to five times base salary to the insurance amount; this option is based on your current age and shifts in intervals every five years. The third option gives some coverage for dependents and spouses in multiples of $2,500 and $5,000 respectively. The costs also adjust in 5-year increments just like in the first and second options.

Seeing as the basic plan cost per thousand dollars of coverage is not expensive, and until retirement, it is not affected by age, the major decisions mainly circle around the second option, and the main reason to use this option is the ease of implementation when enhancing your coverage. The premium is simply deducted from the payroll if you choose additional coverage within the period of 60 days and that there are no health requirements.

If you miss the 60-day window period, you will either have to wait for the very rare open season that is usually declared by OPM, wait for a life event like a child, death of a spouse, or at your own expense provide evidence of good health.

Independent Agents & Health Concerns

You will need to take a para-medical exam where samples of urine and blood are taken if there’s a possibility that you have some health issues seeing as the no exam option is mostly singled out for applicants that are healthier. It is wise to weigh your options with an independent agent. This is because life insurance holders are different and thereby have different needs for specific health risks.

If  your health rating brings you concern, it might be smart to elect FEGLI then look around in the marketplace and once you have a better policy set in place you can always cancel coverage. Your decision about the second option in FEGLI is completely a personal decision and should be largely determined by your health.

New documents from the White House that are related to the budget write in detail the proposals pertaining to retirement and FEHB that was contained in the last week first budget release — for example, specifying that only those under FERS system would have the proposed increase in required employee contributions toward retirement.

The goal that was stated is to make the enrollee and the government shares equal by phasing up the former 1 percentage point per years and bringing down the latter until they match. The document also says that the increase will not be as steep for employees hired after 2012 because they are already paying more than those hired through that year.

The enrollee share would need to increase by about 8 percentage points for most employees, to make them equal. This will be starting in 2020 where the government will start using higher assumptions about the costs of financing retirement.

Retirement-related proposals that need a little more explanation:

–    Rather than the currently used high-3, annuities of future retirees will be based on their high-5 consecutive working years;

–    Removing the COLA on the civil service portion of a FERS benefit while cutting 0.5 percent off of COLAs of CSRS benefits.

–    Eliminating the FERS special retirement supplement for future retirees

–    Reducing the TSP’s G-fund rate of return.

–    No auto-enrollment in FERS for term appointments.

The budget argues that many of those employees have never become eligible for a later FERS benefit because those appointments are generally limited to four years, of which the FERS benefit requires at least five years of service. This proposal is viewed as the first step towards an attempt to do the same with all future hires by employee organizations.

FEHB Premiums

The proposals note that on FEHB the government’s share of premiums is currently lesser of 72 percent of the weighted average of all of the plans, or 75 percent of a plans total cost. The budget would reduce the former factor to 71 percent, but the government share would increase by 5 percentage points for the plans that have the highest rating.

That somehow differs from last year’s proposal which based on plan ratings would have created a three-tier structure. With the third lowest receiving 5 percentage points less of a government contributions.

As much as life insurance is most definitely not the most captivating topic, it is a cornerstone of the financial plans of many people, and there are some details that sometimes get overlooked. Here are the four questions you should be asking to get the most out of the benefits of owning life insurance.

1.  Have circumstances changed your life?

Waiting to review your current life insurance can really cost you money. If it has been a while since you last reviewed it don’t wait any longer, get to it. Life quickly moves on as families change and grow, and so does the need for life insurance. The death benefits that come with life insurance come with a number of uses other than just replacing the income from the breadwinners of the family. Death benefits can be used to cover college costs, fund a business, pay the mortgage off as well as some debts. It can also be an excellent tool for estate planning.

You need to have a solid safety net that will provide the people you love against untimely death. In the case of divorce and remarriages that safety net can extend to them as well. Seeing as caregivers and stay-at-home spouses could bring up a number of costs that were not for-seen while replacing their services for the survivor, it is important to take life insurance on their lives as well.

2.  Are your beneficiaries up-to-date?

Here are a few do’s and don’ts if it has been a while since you last updated your contingent and primary beneficiaries.

– So as to ensure death benefits directly pass to beneficiaries income tax-free, do designate a trust or named individual to avoid probate.

– To avoid allowing creditors placing claims against the estate and proceeds getting tangled in probate, do not designate your estate.

– Depending on the estate, and if the beneficiaries are minors, assets are paid to them, either when they turn 18 or 21. So do not name minors as beneficiaries.

– Government benefits named to a special needs adult or child will likely be disqualified for the reason of them not being eligible to receive them so don’t name them directly.

3.  Should you consider a trust?

A trust will allow you to have more terms that are specified with intent that is more controlled if the designated beneficiaries are special need individuals, minor children or a loved one who lacks financial sensibility. It is advisable to work with an estate attorney when establishing a proper trust for the purpose you intend seeing as trusts can be revocable or irrevocable.

4.  Do you know policy exclusions?

Like in any other contract it is important to read the fine print, and life insurance is an important contract.

The Contestability Period

This is a time when an insurance company has the right to cancel coverage, deny a claim if there were misstatements or ommisions made in the life insurance application and as well have the right to contest any information given. This period is usually two years after the date the life insurance was issued. Your claim can be denied if you die within the contestability period and an investigation finds that you had facts that were misrepresented even if the actual misrepresentation had nothing to do with your death.

Suicide clause: nearly every life insurance policy has a suicide clause, where if the insured dies by suicide during the first two years of the policy the return premium and death benefits will not be paid. Other exclusions include; illegal activity, dangerous activity for example sky diving, aviation exclusion for travel by private plane, drugs and alcohol.

Wondering how to get the well-deserved peace of mind that comes with lifetime guaranteed income? Is it even possible? Yes! It very much is, and here’s how. Imagine taking that vacation without the fear of it affecting your retirement or better yet having all your essential living expenses covered for the rest of your life. All this is very much within reach.

Almost all retirees can build an income foundation that can anchor them until their last breath by adding in a reverse mortgage, maximizing any available income and social security income, combining deferred or immediate income annuities.

Guaranteed income interest is growing rapidly due to rising healthcare costs and longer lifespans. 55 to 65 year-olds who have more than $100,000 in household assets, in a survey conducted in 2018 stated that the guaranteed income was an extremely valuable addition to social security. According to research firms Cannex and Greenwald & Associates, this number has increased from 61% in the previous year.

Retirees are mostly left to fend for themselves when it comes to matters concerning retirement income paychecks. Only half of the people in the survey had a conversation about retirement income strategies and were working with an adviser.

Almost all employees have done little to nothing to fill the gap in guaranteed income left by the disappearance of benefit pension plans that are defined. There’s no single retirement plan that will work for everyone. Every retiree has to carefully scout for a plan that best accommodates her or his goals. For example, if you delay social security, this may mean that you might add on a few more years in that office you’re so eager to get out of.

Build your portfolio

Ensure that your income is bigger than your expenses rather than setting a goal for an income replacement rate. Add up important/vital expenses such as housing, utilities, and food then go ahead and add the luxuries like entertainment and travel. As you have spent your working years constructing a bond and stock portfolio now you just need to expand that will help you accommodate everything that will help you generate income in retirement.

One is less likely to panic and opt for selling when stocks stumble when there is an assurance that guaranteed income sources cover all their vital expenses.

Maximizing income

Maximizing your retirement income will kickstart with social security. You can reap outstanding rewards if you delay claiming while working part of full time.

Get More Guarantees

Even as annuities come in various varieties and are complex as well, it would be good to consider if your guaranteed income source and social security do not cover your important expenses. Advisers recommend that retirees focus mainly on two products:

Deferred income stream – offers a guaranteed income stream

 Single premium immediate annuities – offers a monthly income that is guaranteed and starts immediately.

Reverse mortgage 

For the retirees at high risk of outliving their savings because they cannot afford annuity or the numbers just didn’t add up, a reverse mortgage could just be the solution

There are a lot of considerations and questions to think about for federal employees approaching retirement. One of the most consistent questions is if one should move their retirement savings to an IRA or leave them in the TSP.

It is a question that often causes confusion seeing as there are a lot of different opinions and information out there. Seeing as a majority of the people are interested in the cost. We will differentiate the two with just putting all the focus on cost.

When deciding on what to do with your TSP in retirement, it all boils down to three major areas that will need prioritizing which are: options in investment, access to your money or rather liquidity and underlying investments and any associated expenses. When it comes to TSP to IRA comparison on expenses, the major problem is the inaccuracy in most of the information found on the internet.

There’s an assumption that IRA will have investment expenses that are on the higher side or that a professional will need to be hired to manage it. Considering for TSP all this additional professional advice and options on investment are not being offered it wouldn’t be a fair comparison. But also hiring a professional to advise on investment and investments that are high in expense are not mandatory in the IRA setting — making it almost fair ground.

Many exchange-traded funds and low-cost mutual funds, in a similar manner, that TSP funds do, track performance of broad indexes. SPDR portfolio large-cap ETF and SPDR Portfolio Total Market (SPTM) stock market ETF is one example. They both have a .03% expense ratio as TSP has .033% expense ratio as of 2017. There are no additional costs, annual maintenance fees, or trading costs in TSP; everything is inclusive in the .033%. Interfund transfers are unfortunately limited in the TSP.

Trading costs and maintenance fees are different in every financial institution when it comes to IRAs. To help better manage financial goals and investments many people rely on a financial adviser or investment professional for guidance.

If you are a do-it-yourself kind of person when it comes to matters investment, close your ears on all the hype surrounding high IRA fees.

This week the Trump administration provided details about its proposal in regards to integrating functions of OPM into the general services administration, defense department and the executive office of the president.

According to a GSA published fiscal 2020 budget justification, GSA will receive a majority of OPM’s functions, thereby making OPM a human capital service alongside GSA’s public buildings service and federal acquisition service. There would be three employees that work on policy issues sent to the executive office of the president as an office modeled after OPM and budget Office of Federal Procurement Policy, while the majority of OPM employees would be transferred to the Pentagon.

Margaret Weichert acting OPM director on Wednesday said that the changes would take place in two broad phases. Those who work on retirement and administration of the federal employees’ health benefits program will have to wait for Congress to pass legislation.

As requested in the GSA budget the cost of transition would be $50 million in fiscal 2020. Although there are still a number of questions, the document offers some new details as to whether other OPM functions would wind up in the reorganization. An employee service would administer laws and regulations related to recruitment, pay and leave, performance management, workforce planning and programs promoting work-life balance and diversity as well.

Even though where OPM’s work to uphold merit systems principals would wind up was unclear in the initial reorganization plan, the budget justification makes it clear that it would be part of GSA as the merit system accountability and compliance office.

Weichert didn’t mention whether the OPM director would remain a Senate-confirmed presidential appointment. Whether the legislation would be part of a broader proposal to reshape collective bargaining at federal agencies is also unclear, which would most likely blunt the reorganization’s chances in Congress.

The financial services industry has been involved in a steamy debate in concerns to the appropriate market conduct standard for investment advice in the past ten years. The debate goes up a notch in the arena of retirement where a number of different agencies with overlapping authority joins forces with the department of labor.

Gene Dodaro, comptroller general of the Government accountability office, in a testimony before the Senate committee on aging recently reinforced that point in a much broader context where he repeated the GAO’s call for the national retirement system comprehensive reform. A panel of 15 retirement experts was brought together by GAO in 2016, and they all agreed that a comprehensive review was really needed.

Several panelists during the discussion said that the current system was unnecessarily complicated. Also discussed was how the private sector retirement system posses litigation and financial risk for employers especially with respect to fees, investment decisions, and fiduciary duty. A number of examples could be offered by advisers. Like a clients’ retirement portfolio that has a single investment recommendation which was provided by a financial adviser will be subject to oversight by at least three regulators. These three being: The Internal Revenue Service, the Securities and the Exchange Commission. If the product just so happens to be a variable annuity, then there are two more regulators which include the Financial Industry Regulatory authority and state insurance regulators.

Three independent federal commissions have since been established since the enactment of the employee retirement income security act in 1974 by either the president or the Congress. Their primary duty being to make policy recommendations and study retirement-related issues. It is quite unfortunate that many of them have been ignored by policymakers.

The GAO suggested as a starting point for a new commission, a limited number of policy goals in a 2017 report. Some of the issues addressed nearly four decades ago were included in the report. The current debate over the policy inconsistency of the fiduciary standard to those who advise participants and retirement plans was touched on in the last point.

Although the important role played by SEC in the retirement regulation realm in the report by GAO, the agency along with representatives of other agencies, academics, financial services industry, employers and labor unions should participate in any new commission. The commission would need to address large ideas if they are to advance in the discussion. The Bush administration’s treasury department proposed a new blueprint that was radical for modernizing the regulatory structure by consolidating financial regulators into three primary agencies. This was done in 2008, and the three agencies include a business conduct regulator that oversees all types of firms providing financial product and advise.

The Congress lost its appetite for the project seeing as the blueprint was unfortunately released just before the financial crisis of 2009 and the Congress didn’t feel like starting from a blank sheet. Federal agencies were instead called upon to adopt some 400 new rules under the Dodd-frank reform law. The initiative’s concept of comprehensive reform is what is needed to drive us away from the current morass, whether the content of the 2008 treasury blueprint was on the mark or not.

There are some very important questions to ask when you are trying to figure out what your annuity will look like when you retire. For example:

What is high-3?

What is basic pay?

Why is your high-3 important?

Sometimes there are questions that often come up that, more often than not, don’t always get answers that are clear. Some of these questions will be tackled here.

While computing the high-3 do the three years have to be continuous?

No, they do not have to be consistent, if you have a break in service two or more separate but consecutive-periods of serves may be joined together. The critical thing is that the three years of service have to be the ones with the highest average pay.

Can unused sick leave be used to meet the length of service requirement to retire?

Unfortunately, this can’t be done. Unused sick leave can only be used and added in the annuity computation after one has reached the service and age requirements for retirement.

Is it possible for periods of unpaid leave affect one’s annuity or eligibility to retire?

No, it’s not if you have not taken more than six months in a calendar year. The amount of time that you were absent from work will be treated as though you had been at work and receiving your regular salary. This, however, changes if you had beyond six months of leave without pay in a calendar year, it will go on to be treated as though you have had a break in service. That said it wouldn’t be included when your full months and years of service are being determined.

What happens to any days that don’t add up to a full month when one retires?

The days that don’t add up are dropped like a hot coal and are not included in your annuity computation.

When one retires, will this year’s pay increment show up in their annuity?

It all depends on when one retires. For the increment to have the best effect on your annuity, one has to have received it at the very least one year before retirement. Your annuity would receive a lesser effect if you received that increase for fewer months.

Will my annuity be increased when employees get a pay increase by the same amount?

No, it won’t be increased. Any increase your annuity gets will be based on annual changes in the consumer price index (CPI-W). For FERS and CSRS employees, the rules governing the amount of that adjustment are different.

If you have additional questions or need further clarification, please reach out to your financial advisor

Right across America, it seems traditional pensions are hard to come by. Now, the Treasury Department has allowed employers to pay a one-time lump sum to buy out retirees from their pensions. As a result of this reverse from President Obama’s own stance, there’s a concern for millions of people relying on the monthly check.

According to David Certner, AARP Legislative Counsel, this plan would threaten the retirement security of not only ex-workers but their spouses too. For many, this is part of a worrying shift that started in the 1980s. While defined-benefit pensions once allowed retirees money until death, the switch to finite 401(k) accounts has already removed a layer of security.

For many years, the Pension Benefit Guaranty Corporation has provided protection for around 26 million people in case employers go bankrupt. However, they’ve seen these numbers fall dramatically as more employers continue to close plans to new employees.

Why the Change?

Ultimately, pensions cause businesses problems. Investments in stocks and bonds are essential for pension funds to remain solvent, but our recent experiences in this market have provided us all with a warning. With pensions increasing in cost too, many businesses are seriously reconsidering whether they can maintain a pension plan for employees.

Lump Sum Buyouts

Recently, buying out employee pension plans has become more and more common. Essentially, they purchase an annuity with the money and hand the annuity to the retiree; the retiree is, all of a sudden, a customer with a private company. Alternatively, some employers have an option to predict how much an ex-employee would receive if they lived an average life before then paying this in a lump sum.

Known as ‘de-risking,’ it has quickly become common practice for huge names like Sears, Ford and General Motors, and JCPenney. Although retirees have the right to reject this offer, not many are equipped with the knowledge required to make the right decision for their future. Let’s face it; being offered a huge sum of money can also seem appealing.

Sadly, a MetLife study from 2017 had some shocking results for those who accepted the offer. Not only did nearly 33% of people regret using the money for short-term purchases, around 20% spent the lot within six years. When offered hundreds of thousands, it can seem too alluring, and retirees can forget this money really isn’t like winning the lottery when spread out over, potentially, 20 years and more.

Important Time for Retirees

Back in 2015, a report was issued by the Government Accountability Office showing that employers were getting away with paying less than the pension’s actual value. Considering interest rates and mortality data, even those who reinvested the money would still lose out. Yet, companies weren’t required to provide such information. Meanwhile, the eyes of many financial advisors lit up seeing the opportunities they had with the lump sum (which exacerbated the issue further!).

According to the policy director of the Pension Rights Center, no matter how tempting it may be, replicating the rates of a pension plan is almost impossible. After the report, those already in retirement could no longer be offered the option…until the Trump administration.

For many retiree protection agencies, they believe allowing companies to offer this to retirees is a bad idea. Once you consider that they’re even being incentivized to do so with the increased PBGC premiums, this is a bad concoction that could ruin lives.

In the time ahead, many experts worry that the draw of a lump sum will be too much to resist for those living on pension payments. With these retirees not being informed of the risks, there will be many voices speaking out against this reversal. For retirees, it’s important they seek impartial advice and understand what they’re actually being offered before making a decision.

Do you worry about outliving your money? If so, you aren’t alone because this has become a common concern in a world where interest rates are low, and life expectancy keeps rising. Well, we could now have a solution from the federal budget, and it’s called an ALDA (Advanced Life Deferred Annuity).

If all goes to plan, this could be more important to retirees in Canada than the deferred OAS and CPP payments (and even the Tax-Free Savings Accounts introduction!).

What’s ALDA?

Scheduled for 2020, an ALDA would allow individuals with registered investment accounts to use 25% of these accounts to purchase an annuity. Although actual payment dates would vary, they would start in the year the individual turns 85 (at the very latest). With a lifetime maximum of $150,000, this amount would be rounded to the nearest $10,000 after being indexed to inflation.

The plan will be available to all those with an RRIF (Registered Retirement Income Fund), Registered Retirement Savings Plan (RRSP), Defined Contribution (DC) pension plan, and other registered plans.

Currently, RRIF is the most popular registered plan decumulation solution where investments include stocks, bonds, cash, ETFs, GICs, and mutual funds. Unless left to a common-law partner, surviving spouse, or a dependent child/grandchild, the account is taxable after the owner dies (withdrawals are also subjected to tax).

For many retirees, annuities are a good option for RRSP holders where they pay a lump sum to an insurance company before then receiving it in retirement every month or year. Often, payments will continue until death, and some have guaranteed periods just in case the individual passes away earlier than expected.

However, the lower interest rates have made annuities less attractive to Canadians in recent years. With this in mind, ALDAs may just come at the right time. For an estate, and even tax and investment purposes, they will certainly help some.

Will an ALDA Help in Your Position?

These days, stocks are too risky for some while conservative mutual funds come with too many fees; there seems to be no middle ground. For those who don’t want to take huge risks in retirement, annuities might just be the answer. Elsewhere, those who can’t rely on income from a defined benefit (DB) pension plan may also benefit from an ALDA. Suddenly, living too long isn’t an issue and individuals can join those with a DB plan to receive payments as long as they’re alive.

Interestingly, the ALDA actually comes with tax deferral opportunities after moving money from a registered account. Up to the age of 85, an ALDA could reduce minimum required RRIF withdrawals.

For anybody still working in their 70s, the mandatory RRIF withdrawals can also be less taxing thanks to ALDA’s income deferral. Of course, we would never recommend choosing a product for tax deferral purposes alone, but it could still be a valuable feature.

For DIY investors who don’t want to manage lots of money, an ALDA could also work here.

Potential Issues

The problem? Financial advisors may just have a conflict of interest considering 25% of their managed investment assets may be lost to an ALDA. Furthermore, investors need to be willing to give up money for their later life (just as they do with defined benefit pension plans).

Will you be tempted to hand over 25% of your RRSP to an insurance company for your future? We appreciate that even an ALDA won’t entice some away from other options. However, there are no financial products that are a perfect fit for absolutely everybody. As long as you realize that an ALDA is now an option and that Canadian retirees having options will always be a good thing, you’ll be in the right place to make correct financial decisions for your future!

Did you know that unassigned life insurance benefits follow a specific order to determine who receives them? Whether Basic, Option A, or Option B, FEGLI insurance follows the order below.

Beneficiary – somebody you designate before death.

Widow/widower – a partner under law.

Children – They will share the amount equally. If a child has passed away, their own children will split the amount.

Parents – If one has died, the remaining parent will receive the full amount.

Administrator or Executor of State – If one has been appointed, this will be the fifth option.

Next of Kin – If none of the first five exist, the money will be given to the next of kin at the time of your death.

Depending on your needs, it’s possible to name several beneficiaries. If one dies before yourself, their share will be split equally between the remaining beneficiaries. If only one survives, they will receive the full amount.

What if no beneficiaries survive? This does happen, and the receipt of the money will follow the order above.

Considered an ‘order of precedence,’ it will apply to most cases. However, a court may issue a decree of annulment, legal separation, or divorce and this will supersede the order. In these cases, it may be decided that the benefits are paid to another party. For this to apply, the government must have the decree on file before the insured individual passes away.

When a decree affects retirees, remember to send these to the Office of Personnel Management (OPM). Furthermore, the assignment needs to be made official, and this can be done by completing the Assignment of Life Insurance form (RI76-10).

As a side note, you will be the beneficiary if option C-Family insurance has been installed. Under law, you won’t be able to designate a beneficiary, so you’ll receive the money as a lump sum. In rare circumstances, an individual can outlive an insured family member before then dying while the payment is being processed. If this were to occur in your situation, the person who receives your Basic life insurance benefits would receive this payment instead.

Conclusion

If you don’t want any problems after you pass away, remember to designate a beneficiary for your FEGLI insurance. That’s how you can be sure that they receive the benefits before somebody else in the order of precedence.

Like many jobs in life, the government will have a certain percentage of retirees return in some capacity after retiring. Along with many other questions that may be circulating your mind, perhaps you’re considering going back right now, employees aren’t sure of how it affects their annuities.

While the annuity stops in some cases, it may continue in others. Below, we’ve laid out four conditions/groups that may have their annuity stopped. For CSRS retirees who then reenter the world of governmental work, the annuity will stop if one of the four applies. Alternatively, FERS retirees will only see their annuity stop if they belong to one of the first two.

Disability Annuitants – The Office of Personnel Management (OPM) may learn that you have been restored to earning capacity (or have recovered) before then being reemployed.

Disability Annuitants (not for a National Guard Technician position) – If you were no longer allowed membership in the National Guard on medical grounds and therefore were awarded a disability annuity.

Involuntary Annuitants – Perhaps you were separated from your role involuntarily? Sometimes, the law may impose certain requirements depending on the length of service or age. However, you’re now in a permanent role (this includes excepted, career, and career-conditional).

Presidential Appointment Annuitants – Subjected to retirement deductions, you might receive a Presidential appointment as an annuitant.

What Happens When an Annuity Stops?

If you fall into any category as a CSRS retiree or one of the first two as a FERS retiree, you’ll fall in line with others that have service history and position similar to your own after reentering federal work. Eventually, you’ll leave for a second time, and the annuity will be continued (unless the new separation entitles you to a deferred or immediate annuity).

If we look at examples, the majority of those who have their annuity stopped upon retirement are CSRS employees; digging even deeper, common reasons for retirement include transfer of function, a RIF, or reorganization. After retiring under lowered service requirements and age, the individuals are considered to be completing interrupted careers.

For those who met the required age and service criteria and received an immediate annuity, their annuities may have continued after returning to work. When this occurs, their salary will only complement the annuity. For example, the amount of annuity received will be taken from one’s earnings (some rare exceptions exist to this rule).

Returning to Employment

If you’re considering a return to work, keep in mind that annuitants can earn either a redetermined or supplemental annuity.

Supplemental Annuity – With this option, it’s added to your existing annuity. While working on a full-time basis continuously for at least twelve months, you should be eligible for a supplemental annuity. For those only working on a part-time basis, the qualification time will be longer.

Redetermined Annuity – As long as you work for five years (minimum), you may be able to select a redetermined annuity. With this option, your existing annuity will be replaced completely.

Remember when we said there were exceptions to the rule of earning a reduced salary with annuities? This is because some people do receive a full salary and a full annuity after returning to work. Normally, this will only occur when the role is one that requires heavy training and experience and, therefore, where recruitment is difficult. Alternatively, it can occur with emergency employment and where there’s a direct threat to property or life. While in the process of being rehired, there’s no harm in asking whether one of the exceptions applies to your position!

When it comes to retirement, it’s the light at the end of a hard-working tunnel. However, many questions loom. As the days pass and retirement is starting to become a reality and not some distant dream, working out the annuity we can expect in retirement can bring difficulties. With this in mind, we want to answer some of the most common questions we see in this regard.

By the end, you should feel more confident with how to make the appropriate calculations and the minutiae of how it all works!

When attempting to meet the length of service requirement for retirement, can I add unused sick leave?

Sadly, the answer to this is ‘no.’ If you’ve seen people using it in their annuity computation, this is because they’ve already passed the retirement age and service requirements.

Should the three years for my high-3 be continuous?

Not necessarily, many people have a break in service, so this is considered. If they’re consecutive, two or more separate service periods can be joined together. As long as the three years produce the highest average salary, this isn’t a problem; in total, it should be 78 biweekly pay periods.

What happens to the loose days that don’t quite add up to another month of service?

With these ‘loose change’ days, they will be lost and cannot be included in annuity calculations.

After retirement, will the recent pay increase show?

Ultimately, the answer to this will depend on when you actually retire. To receive the full benefit of the increase, you would need to have this new salary for at least twelve months. If you’re retiring only a few months into the increase, it will play less of a role in your annuity. The longer you work with the pay increase, the more important it will be.

Is my eligibility to an annuity or retirement affected by LWOP?

Assuming you haven’t taken longer than six months off in any given calendar year, leave without pay (LWOP) will not affect eligibility. With these types of breaks, they will be considered as normal time as if you were receiving your normal salary.

If you did exceed six months over a calendar year, this would be seen as a full break in service. Therefore, when calculating your service time, it cannot be included.

Will my annuity increase when employees get a pay rise?

Although this would be a great feature, this isn’t the case. Rather than increases being based on current pay, any changes you experience will be tied to CPI-W (consumer price index) adjustments. In terms of the actual changes, the rules governing this vary depending on whether you were a CSRS or FERS employee.

Thanks for reading our short FAQ guide for annuity computation, hopefully, you found the answer to a question that has perhaps been playing on your mind. If you need further advice, don’t be afraid to ask for help from those who know all about the process!

For those who have been working with the government for many years, you’re probably tired of this headline because the retirement tidal wave is something that has been promised for nearly two decades. With the catastrophic government shutdown at the beginning of this year, will this be a catalyst for such an event?

If you’re considering retiring, you need to be aware of certain qualifications. For example, the FERS system requires either;

– 62 years of age OR 5 years of experience

– 60 years of age OR 20 years of experience

– If one has 30 years of experience, this retirement age may reduce to between 55 and 57 years (depending on birth year).

What about the Civil Service Retirement System? Well, there’s one difference: retirement age is reduced to 55 after 30 years of service regardless of birth year.

If you have five years of creditable service but you don’t yet qualify for retirement benefits, you will be eligible for a deferred pension. These days, most CSRS employees are eligible for retirement but deferred retirement will be available at 62 years (regardless of service time). For deferred retirees, they will not be entitled to FEHB coverage during retirement.

Should You Retire?

This is the all-important question, and your answer depends on timing and money. Firstly, what will you do with all your available time now? Secondly, do you have the funds in place to support your current lifestyle?

With time, for example, many retirees struggle to find satisfaction in life now they no longer work. If you genuinely despise your job, this is slightly different because you probably feel as though you have less to lose. However, we advise you to consider life expectancy and make plans for retirement. Although it can be upsetting to deal with shutdowns and a new generation of politicians, you also need to consider yourself and your loved ones.

When it comes to money, according to financial advisers, a pre-retirement standard of living can be maintained by retiring on 80% of income. If you were to combine Social Security, TSP withdrawals, and your CSRS/FERS pensions, would this add up to 80% of your current income?

Generally speaking, around 60% will be provided by Social Security and a pension (for someone with 30 years of experience). From here, the rest will need to come from other investments and the TSP. Often, the pension isn’t strong enough and people are forced into part-time work. If this happens, you’ll need to pass the Social Security earnings test if you’re under FRA (full retirement age). FRA is normally either 66 or 67 years.

Consider Your Situation Carefully

According to the Federal Career Experts’ president, John Grobe, it’s best to consider how much money you bring home right now and compare this with the money that would enter the home after retirement. While some reading this guide will have these two numbers close together, others will have a large gap. If the latter, this suggests financial problems if you were to retire right now.

Before a knee-jerk reaction to the country’s current affairs, we recommend thinking about both your retirement activities and income. If there’s a gap but you’ve fallen out of love with your job, speak with a finance professional and assess whether there’s another option!

With the release of the 2020 budget from the Trump Administration, there are many cuts proposed. However, even with the ‘Analytical Perspectives’ release, many questions have been left unanswered. The budget has four main proposals;

– Basing the yield of the G Fund on a short-term T-bill rate.

– Adjusting FERS payments, so the employing agency and employee share the equal burden. This could include an elimination of cost of living adjustments.

– Since most term employees never receive the defined benefit annuity, the defined contribution benefit will expand through the TSP.

– For those who retire before the Social Security eligibility age, the FERS Special Retirement Supplement will be removed. Also, a High-5 system will be used rather than High-3 for annuity calculations.

Aside from the expansion of the defined contribution benefit, these proposals can be simplified as ‘cuts.’ With the G Fund change, the FRTIB strongly opposes and suggests this will render the G Fund almost worthless – they’re also confident that it won’t pass.

When it comes to reducing or eliminating the COLA for current and future retirees, we could say this is a breach of trust after employees spend many years working hard for the government. Shouldn’t a deal be a deal? We hear similar stories in the private sector where new business owners take over and raid pension funds. For many on the Hill who support this type of policy, they agree that it should ONLY affect new hires.

For term employees, the proposal acknowledges the fact that they can work for four years without seeing the benefit of a defined contribution plan. Instead, the idea is to lose the FERS pension but offer an improved TSP along with significant employer matching contributions.

Perspective Means Everything

How will this changed be viewed? As the start of a negative spiral that ends with a replacement of the FERS pension plan for all current employees? Or a simple means to provide those with a term appointment with more support? This perspective will almost certainly decide its fate.

Compared to the private sector, we know that federal retirement benefits play an important role. The private sector has actually eliminated defined benefit pension plans since they came with a heavy cost. Sadly, we still have a huge retirement savings deficit in the US, and this is something that needs to be addressed to prevent an over-reliance on Social Security.

What about increasing employee contributions for FERS? While it might not affect the recruitment of new employees, it would reduce the pay of existing employees. Therefore, we could see an exodus of experienced, skilled, and qualified individuals. Again, a potential solution could be to leave existing employees and start new workers on an improved TSP instead. In fact, the CBO offered two potential solutions.

With employer matching contribution boosted, this would allow flexibility when leaving the government and significant retirement funds. Rather than paying 4.4% of their salary to the FERS pension, it could go straight into the TSP.

Growing Issue of Retention

No matter what happens with the retirement system, it seems it’s getting harder to hold onto mid-career employees. With smaller wages and pay incentives compared to the private sector, the government needs recruiting tools, and an attractive TSP could be an option.

Of course, the primary concern of this plan is that future administrations will notice the attractive TSP and target it in future budgets, and we’ll be back in the same position. Between the existing TSP and FERS setup and an improved TSP, we believe the latter would be more popular with new recruits. Perhaps there’s an opportunity to offer it as an option to assess the interest?

When it comes to government work, it’s sadly the case that most people are counting the days until retirement. Of course, there are a rare few that enjoy the work, but most fall into the first category. While some are tired of the politics involved, others want to spend more time with their family. We also can’t avoid the most recent government shutdown which caused serious financial and emotional stress for families all around the country.

As the shutdown went on and on, there was no way for federal workers to plan. Now it has come to an end, the risk of a second shutdown still looms, and this leaves many looking for the exit. Whether you’ve been with the public sector for nearly three decades, are in the middle of your career, or are just starting, we have some useful advice for you today.

Should you take the risk of leaving this career? Would the change actually bring benefits? Let’s assess the merits of both leaving and staying!

Reasons to Stay

Retirement Benefits: Firstly, the Federal Employees Retirement System (FERS) is a system that simply cannot be found in the private sector. What’s more, we also receive a generous match in the TSP and leaving this behind can be difficult.
Security: Recently, we’ve learned that security has certainly decreased in the public sector. Yet, you still have more protection with the government. For example, you could be temporarily laid off in the private sector, called back, and not receive any pay for this period.
Annual Leave: Not only is the annual and sick leave significant with the federal government, but you will also start from the bottom of the ladder in the private sector which can cause issues with family and vacations.
Family-Friendly Nature: With many private companies, they let you go after a certain amount of time if you don’t get a promotion. Unfortunately, this causes you to work all sorts of hours and spend more time away from family.

Reasons to Leave

Change of Scenery: Before we head into the heavier reasons, it may be a simple case of needing new scenery; something fresh. For some, it won’t have anything to do with finances whatsoever.
Money: On the other hand, you might recognize the opportunity to earn more money for the same job (in SOME occupations). Before making a decision, do your due diligence and compare salaries.
Security: We understand that we also included security as a reason to stay, but many people have lost faith in the federal government. Maybe you could launch your own business and take charge of your own financial future?Climbing the Career Ladder: For the most ambitious among us, people tend to climb the career ladder faster in the private sector, so this is worth considering. You don’t have to worry about federal regulations, you just know that hard work will bring rewards.
Improved Benefits: Despite some employers offering fewer benefits, a few will improve the benefits you currently receive. For example, you might enjoy fitness facilities, child care, discounts on products, and regular prizes. Just think of Google and the benefits their employees receive (massages, free food, etc.).
Buyout: Finally, federal employees can sometimes be enticed away from their position with Voluntary Separation Incentive Payments. Often, this will be the lesser of your severance pay (you would have received under normal circumstances) and $25,000. This increases to $40,000 for those in the Department of Defense.

Should you stay or should you go? This is a personal decision and worth discussing with your family and friends, but hopefully, we’ve helped by offering the benefits of each!

The last two instances in which retroactive pay was given to federal employees were in 2003 and 2004. If these past instances were to teach us anything, it’s that not only does it affect the recipient’s income, but also their benefits too. Since no laws in these regards have changed since that 2004 date, that means for the future, when receiving retroactive pay, you should expect the following:

1. A holding of contributions to your retirement and your taxes paid from the retroactive amount, at the standard rate.

2. Additional money could be withheld to match the higher premiums that come with Federal Employees Group Life Insurance Basic and Option B if the retroactive pay bumps the employee into the next $1000 tax bracket.

3. No more than the already-standard taken deductions will be taken from for FSA accounts or for FEDVIP, FEHB, and FLTCIP insurance because they had already been withheld from the distribution of prior pay.

4. Employees of FERS and those TSP investors who are receiving a percentage based salary on retroactively held investments will get their matching contributions where it can be applied. But note, it won’t be payable for any earnings that are lost because retroactive pay is not subject to lost earning restoration. For those who contribute a specific dollar amount per pay period, there would be no noticeable difference here.