The most asked question about the Blended Retirement System that the Defense Department normally gets is about when a recipient will I receive their matching contributions in their Thrift Savings Plan.

The value of the Thrift Savings Plan (TSP) to the new Blended Retirement System (BRS) is known by most service members. Their retirement investment will increase much faster by contributing as much of their basic pay as they possibly can as early as they possibly, all the while getting the government to match it up to 5 percent.

On (or after) the day that the service member opts into the Blended Retirement System is the day that matching contributions in that pay period also begin. Department of Defense spokesman Navy Cmdr. Michael Cody says that if contributions to this fund begin the middle of the month, they should be visible in the Leave and Earnings Statement by the end of the month.

The biggest question of them all, of course, is what exactly is the TSP?

Comparable to the 401(k) plan offered to civilian employees, the Thrift Savings Plan is a retirement account. You decide how to invest your funds and what you’d like to contribute.

Blended Retirement System members who are unable to choose a fund for whatever reason will have their money funneled into an age-appropriate Lifecycle Fund (L Fund). TSP.gov is where you can go to talk to a financial adviser and change your allocation, or you can find one on your installation using MilitaryOneSource.mil

Under BRS a1 percent contribution of your base pay to your TSP will match up to an additional 4 percent automatically by the government. This means that if you put in 5 percent, the government will contribute an additional 5 percent.

The 1 percent government contributions commence on the first pay period after 60 days from the pay entry base date, if you’ve been automatically enrolled in the BRS, and you entered the service in 2018 or later. The 25th month of service is when you should expect matching contributions.

There’s no vesting period here. The basic automatic 1% contribution and earnings from the government’s is yours permanently after 24 months of service. Additionally, they’re yours immediately if you’ve already served at least two years before opting into BRS. The TSP are always yours to keep, as are 4 percent matching government contributions.

But hold up: that isn’t to say you can immediately empty your account. There is a withdrawal penalty of 10% on any taxable part of the funds that didn’t get transferred over to a qualified retirement account (in addition to any taxes on the withdrawal you may already owe) if you opt to take that money out before age 59.5.

Less of your funds are withheld from your pay if your contributions are made prior to federal income taxes being calculated. A traditional TSP account would allow you to put off what you owe on taxes on contributions and earnings until retirement when you withdraw.

You can also decide that you’d like to pay taxes on contributions as you make them, and if certain IRS requisites are met, you can withdraw those funds tax-free, if you opt for a Roth IRA.

For 2018 the IRS set the contribution limit at $18,500. This could potentially be a problem if the service member has put in all of their special pay and bonuses, or for Reserve and Guard member currently under civilian employment. However, this limit is not applicable to traditional contributions that one might have made through the tax-exempt pay gathered while in a combat zone.

Cody says that troops who surpass this limit must cease TSP contributions for the remainder of the year, or matching contributions would be lost over the span of that time.

The TSP program has been trending upward for all service members.

A lot of people in the process of retiring have not yet fully considered the discrepancy between their assumed retirement income and their expected expenditures.

There are others who haven’t even begun to plan their retirement at all because they don’t have the money or knowledge to do so.

You can take steps today to reduce your post-retirement expenses, even if you have failed to prepare thus far.

Focusing on high yielding and out-of-favor stocks (hoping for a large payoff on the upswing) is where retirees often attempt to fill in the income gaps. While this strategy can occasionally be rewarding, that is often not the case. A more levelheaded method of creating a sustainable income over the course of many years is to build a diverse portfolio of mutual funds, ETFs, bond, and dividend-paying stocks.

Downsizing

Downsizing is a tool that a lot of newly retired people fail to take advantage of. It can both lower your monthly expenditures and free up more income-generating investments.

Home

The home is the single biggest asset most retirees own. The value of most homes increases over the years, and through mortgage payments and maintenance, the equity in your home typically rises. But you must ask yourself, now that you’re retiring, do you need the same size home that you currently live in.

Increasing your income per month could be as simple as figuring out the cost of a smaller house as opposed to your current one. To add to that, smaller houses cost less to maintain, which could free up some funds tied in with your current home. Other things that can be lowered through downsizing your home would be insurance, utility costs, and property taxes.

Transportation

Vehicles can be costly to own. You can easily save money on maintenance and insurance by selling off unnecessary vehicles. Reinvesting in a newer car could create an income of up to $20,000 which, if put into a CD at 3 percent, could generate another $600 of annual income.

You could also net you an additional $1000 annually or more, depending on where you live, by foregoing the insurance and maintenance costs of that extra vehicle.

Possessions

Selling off unnecessary, accumulated possessions on sites like Craigslist, GunBroker, and eBay is an excellent way to generate quick income. Also, donating your unwanted stuff to stores like GoodWill and the ReStore deducted from your year-end tax returns.

Relocation (to a Low-Tax State)

If you end up downsizing your home, why not cash in even further and relocate yourself to a more tax-friendly state? Relocating outside of America, where the cost of living is lower, may save you even more money.

The discrepancy in the tax burden between different states can be vast. I will provide the example of South Carolina v. North Carolina v. Tennessee.

South Carolina offers pension, 401k, IRA and social security exemptions on the income of retirees. The top rate on income in South Carolina is 7 percent, there is only a sales tax of 6 percent, and property taxes are amongst the lowest in the country. South Carolina also gives a $50,000 exemption on the estimated property value for local taxes and a $30,000 exemption on retiree’s income.

The income tax rate in the state of North Carolina was recently reduced to 5.49 percent. Additionally, the sales tax is only 4.75 percent, and they do not tax the benefits you receive from social security. For those over 65, you may also be eligible for a partial exemption on your property taxes.

In Tennessee earned income is not taxed, but income from unearned sources such as dividends and interest can be taxed at a rate of up to 6 percent, although legislation just passed to abolish this as well, making it one of the lowest taxed states. Property taxes there are also among the lowest in the country.

So from a tax standpoint, which state is the best? The answer is, it varies. Those who get a large portion of their income from non-qualified accounts may choose North Carolina, with it’s lower income tax rate, while those with income-based mostly off of social security, pension, and 401k may want to opt for South Carolina.

Due diligence is necessary should you chose to relocate to a low-tax state, taking into account how your taxes will be target towards your specific income.

Investing

You can easily strengthen your retirement portfolio by diversifying and simplifying your investments.

No Yields

Gaining as much income as possible from their invested assets is the goal of most retirees. While it is possible to receive yields more than 10 percent from stocks and bonds, yields that high are very rare. At 10 percent yield (or more) is not really tenable in today current climate, even if underlying securities pay out on those yields initially.

The idea is that your principal should be protected, and you’d be lucky to get it back if there was another recession or if the market took a downturn. In retirement, you may not have the income to cover the gap, or you may not have the time, should the economy turn down. The smart move is to look at the companies that have made it through major market recessions and then invest in those. Equities with a history of growth turning waxing and waning markets are what retirees should be searching for when it comes to investments.

No “Turnaround Stocks”

It takes a lot of capital, management, and a bit of economic luck to create a successful “turnaround stock.” All of these conditions being favorable is a rare occurrence.

The kind of due diligence required to make money on a turnaround stock is typically more than most investors are willing to commit to.

Diversification

You will find you receive steadier returns when your portfolio is diversified. Most retirees cannot afford to experience large losses, and diversification will lower your risks of that.

It behooves you to own a large amount of individual stocks, so that you diversify not just across different types of equity, but within each sector too. Diversification across all types of assets is a smart move as well. A retirement portfolio should contain both bonds and stocks.

Conclusion

Just remember, there are many avenues available to you that can help lower your retirement expenses. Downsizing your living situation, reconsidering your transportation, selling your unneeded stuff, and relocating to a lower tax state can very quickly cut your annual expenditures by up to $15,000.

And when it comes to a portfolio, there a few easy rules for investing that will aid along the way:

1.  Say “no” to yields.

2. Say “no” to turnaround stocks.

3. Diversification across business sectors and asset types is key.

All of these things together should help put your mind at ease and to enjoy your retirement for years to come.

We spring clean our homes and cars (sometimes!), so why not our finances too? With the end of April signaling the end of the tax year, it’s the perfect time to improve our finances for the months ahead and generally assess our financial position.

Request a Free Credit Report

In case you didn’t know by now, everybody is entitled to one free copy of their credit report per year. To save yourself some hassle, you can actually request your TransUnion, Equifax, and/or TransUnion credit reports from AnnualCreditReport rather than going through the different stages three times.

For those with no experience in this field, you only need to answer some simple questions before then downloading and printing. Sadly, despite all the advances in technology the world has enjoyed, errors are still common on these reports so study them carefully. Once you’ve cleared them for errors and ensured that no incorrect information is negatively affecting your score, we recommend considering sites like WalletHub and Credit Karma. Suddenly, you’ll be able to watch your credit in the summer and winter too.

Adjust/Create a Budget

We know what you’re thinking, ‘the nasty ‘B’ word.’ However, there are now some fantastic apps and websites that make budgeting easier than ever. For example, Clarity Money and Mint are well worth your attention. Alternatively, there’s nothing wrong with a classic spreadsheet or pen/paper (remember these?).

With any budget, make sure it’s achievable as well as being easy to adjust whenever necessary in the future. As you take this time to reconsider your financial position, remember your savings goals, assess whether all your expenses are still necessary, and have a full review, so you continually meet your investment and savings needs.

If you’ve never created a budget before, there’s no need to feel overwhelmed. In fact, a budget is a tool that can be utilized to ease stress and keep your family on the right path. As long as it’s checked and adjusted when required, your budget will be an overview of how you can reach your goals and avoid financial hardship.

Reconsider Where Your Money Sits

As our third tip, most people unwittingly leave their money sitting in an old savings account where it’s not really contributing anything. With this, we urge you to consider your own savings and other locations where your money resides.

These days, many institutions will offer 2% APY in a free savings account, so this could be a good place to start. Depending on how much extra cash you have available, you can also consider the following savings vehicles;

-Brokerage accounts

-Certificate of deposits (CDs)

-IRAs and other retirement savings accounts

Since this is a spring clean, it’s also a great time to compile a full list of your accounts. Whether as a computer document or a piece of paper, this should prevent you from leaving funds behind. Also, it will open doors for diversification with your portfolio.

Summary

As you can see, these three finance-related spring-cleaning tips are incredibly simple. Even if you spend a couple of hours with a tablet, laptop, all your account information, and your partner, the resulting changes could make a huge difference to your finances. Just from checking your credit report, creating/adjusting your budget, and reconsidering your accounts, you can prevent your finances from going stale and also errors with your credit score.

Of course, if you need assistance with important decisions, you can also request help from finance professionals!

If you’re self-employed, you’ll know just how difficult taxes can be. Not only can income vary from one month to the next, but you also don’t have somebody above you to handle all the tricky paperwork. Fortunately, you do have us, and we have five tax tips today!

Claim ALL Business Deductions

Firstly, there are lots of different tax deductions for business expenses so pay attention to these. For example, you can claim the cost of entertaining clients, interest on business debt, half of all FICA payments, and for your home office.

Just last year, rule changes also meant that pass-through income could lead to a 20% deduction (this includes income from LLCs, partnerships, sole traders, S-corporations, and even rental properties).

Pay as You Earn

If you’ve ever been an employee, you’ll know that money is withheld to account for Social Security, federal and state taxes, and Medicare. While you might not have this intervention as a self-employed individual, this doesn’t mean you can’t pay as you earn and prevent the large tax penalty at the end of the year.

As long as you think your tax bill will be above $1,000 next year, payments for your quarterly estimated tax can be made in April, June, September, and January. If you paid taxes at all last year, estimated taxes would probably need to be paid; you can find out whether or not this is necessary with Form 1040-ES (Estimated Tax for Individuals).

Instead of $1,000, this reduces to $500 for corporations, and you can find the advice you need with Form 1120-W (Estimated Tax for Corporations).

If you create a safe harbor number with last year’s taxes or pay a minimum of 90% of the current year’s amount, you should avoid a penalty. Alternatively, you can pay 100% (or 110% if income increases) of last year’s taxes to be sure.

Open a Retirement Account

Just as we saw in the previous tip, you also don’t have anybody to take money for a 401(k) plan, and this can be problematic. Did you know that tax deductions can be claimed for your own retirement savings contributions?

For example, a SIMPLE IRA will allow for $13,000 in contributions from employees. What’s more, those over 50 years will also have an option of $3,000 in catch-up contributions. With a SIMPLE IRA, employers need to contribute, and they have the option of anything up to 3% of the employee’s compensation.

Elsewhere, 25% of net earnings can be contributed to a SEP-IRA while a maximum contribution of $19,000 is valid for a Solo 401(k). As you can see, it’s certainly worth investigating to improve your taxes somewhat.

Consider Your Business Structure

If you started the business as a partnership or sole proprietorship, you’re probably happy with the lack of paperwork. However, what you may not know is that incorporating to an S-corporation will provide flexibility with taxes (and offer liability protection!). For many, they can;

-Take profits as distributions

-Pay themselves a salary

-Reduce the amount of tax required

Seek Assistance

Finally, there’s nothing wrong with seeking advice from a professional. With a tax lawyer or certified public accountant (CPA), they can consider your business and provide tailored advice. Whether it’s adjusting your business entity or helping with deductions, the price you pay can be considered an investment if they help you to save money.

Additionally, knowledge will always pay. The more you learn about the self-employed tax rules and regulations, the better positioned you’ll be to overcome issues!

Question: If someone at the age of 60 owes about $12,000 on a home equity line of credit at a variable interest rate at 7% and has about $130,000 of my qualified savings sitting in cash as a wall against the falling market stock, should some of that money be used to pay off the HELOC?

Answer: in this situation you have enough parts moving plus you’re really close to retirement. Getting a second opinion when you’re at least five years from retirement would be a sensible thing to do seeing as the decision you end up making at this point could be irreversible meaning that the chance of you living comfortably could be affected.

Generally, it is best if you don’t tap into retirement savings to pay off debts rather use your current income. A good number of people who take out some of their retirement savings cannot account for what got them into debt and end up piling up more debt and a few years down the line less savings.

Consider getting a fee-only financial planner to review your situation and give you tailored advice to specific to your unique situation and set you on the right path to make the right choices.

Who is an independent contractor? – many states use a test known as the ABC test to determine whether someone can be identified as an independent contractor. A few states use all three tests such as California, but the majority of the other states use just two A and C. The three are; the worker performs work that is outside the normal cause of the hirer’s business, the worker is engaged customarily in an independent trade occupation (or similar business) as the work performed by the hirer, and lastly the worker is free from the contrast and direction of the hirer in relation to the work performance both in work and under the contract.

Insurance agents and insurance companies often make out life insurance as an alternative to traditional investments. In as much as some policies have characteristics that are investment-like, but are they really good investments?

Basic Concepts of Life Insurance

We need to know the basics of how an insurance policy works to be able to properly evaluate life insurance as an alternative investment.  Every life insurance has two main components: what you receive known as the death benefit and what you pay known as the premium. Insurance companies do not offer free policies.

Term insurance or basic life insurance does not have the component of cash value. Each year you pay a premium to the insurance company each year, and the company writes a cheque to your beneficiaries if you die during the term of the policy. Federal income taxation is not applicable to the payable death benefit. Term policies that were purchased a number of years back still had a premium that gradually increased every year. For the fact that each aging year you are closer to death and hence more costly to insure, the increasing premium compensates the insurance company. The longer the period level of the premium the higher it will be charged.

Permanent life insurance – permanent life insurance comes in various types of policies including; adjustable life, universal life, indexed life, whole life, and variable life, each having its own expenses and risks. The idea of using a permanent policy for investment is the same regardless of the type. Having to pay the internal insurance charges for the life insurance benefit is the main disadvantage of insurance as an investment.

Seeing as there’s a basic understanding of life insurance, we can go ahead and outline some things to help you decide if you should be considering life insurance as an investment.

Rule number one is don’t buy insurance if you don’t need insurance. As you get older, the cost of insuring yourself drastically increases, so why burden yourself with insurance costs if you don’t need it. Invest your retirement money in Roth IRA and Roth 401(k) if you qualify and if you like the taxation of life insurance policy. Qualified withdrawals are generally free of income tax, and contributions are made with after tax dollars. It is similar to the life insurance policy but without the associated costs that come with life insurance.

A cash value policy may be an advantage if you do need insurance, this is because you will be paying for the insurance cost whether you purchased a permanent or term policy. Maximize the contributions to your IRA or 401(k) plans before allocating funds to cash value policy. Nothing I better than 529 college savings plan if you are planning for your children.

Getting a cash value life policy may make sense for you as part of your retirement strategy if you have a lot of money to invest and you need a life insurance. One must be cautious when it comes to the complexity of income taxation and permanent life insurance. Kindly seek the advice of a qualified tax and insurance professionals for assistance with your insurance needs.

In the state of Georgia, a new bill has been proposed, and if it passes, retirement income for military veterans could go untaxed in the state. The House Bill 7 that was sponsored by Bill Hitchens, Shaw Blackman, Jesse Petrea among others, proposed that the veterans’ retirement income that they get as a benefit from their service in the military should no longer be subject to state income tax.

Two veterans said that the bill if passed would give them a sense of relief as every bit of the income counts. Sgt Tracy Burkholder, the current commander of veterans of foreign wars, post 658 and Sgt Bruce Knowles, are both retired from the army.

They are both still working as they cannot depend or live off from their military retirement income. The proposed bill by the Georgia house representatives if passed would scrap off tax from veterans’ retirement income in the state of Georgia.

Both Burkholder and Knowles said they would be really glad to have any money thrown back at them. In addition, they also said that if the bill is to be passed, it will offer them a much needed and most welcomed relief. Burkholder said that having a tax-free income will make such an impactful difference as he will be able to make comfortable monthly pay of his light bill and still have something left for food.

It will be a great gesture for military veterans seeing as they offer such phenomenal service to the nation. And hopefully, Georgia will break ground for other states to follow in the same direction.

In Illinois, the huge budget crisis is no secret and experts have been working hard to resolve it in recent months. Now, as was inevitable, the topic of conversation has moved towards retirement income and whether Illinois should follow the guidance of other states and tax this area. So far, they have resisted the temptation, and it costs the state an estimated $2 billion per year.

If we look at the problem purely from a fiscal sense, all revenues are taxed, and therefore it makes sense that retirement income is no different. However, this tax-free area has a deep history and goes back to a time where elderly poverty rates were high. Towards the end of the 1960s, it’s thought that one in four Americans over 65 were living in poverty.

When it comes to federal returns, all resources that haven’t previously been taxed are subjected to income tax and this includes 401(k) and traditional individual retirement accounts (some higher-income seniors will also pay tax on Social Security benefits). Yet, the rules and regulations in this area still differ significantly between states. Of all states, 33 tax pension income while only 11 tax Social Security benefits (to some degree).

Why the Debate?

For some, there’s a concern that wealthy seniors will simply leave the state for a different low-tax state and this could be detrimental to the local economy. This being said, the evidence that people move solely for tax purposes is limited to anecdotal evidence only.

The problem arises when comparing two 65-year-olds; one of whom is working, and the other retired. Let’s say the worker can’t afford to retire, yet they’re subjected to full income tax while the retired individual, at the same age, is not. Considering average retirement income for Americans is actually growing, this is a debate that’s set to rumble on. Thanks to Don Boyd at the State University of New York, aggregate retirement income increased by over 50% between 2009 and 2016. In the same period, income only grew 26%.

Should the Retirement Income Tax Structure be Adjusted?

Not only would this be opposed by seniors, but there’s also an argument that there are more urgent requirements for the flawed tax structure of Illinois. For example, two areas of concern are sales tax (and its struggle with services) and graduated income tax.

If changes were to be introduced, they would also need to protect low-income retirees who are already struggling to live off the little they could save. Since these individuals are already sensitive to health care cost increases and the rising cost of rent, adding a retirement income tax has the potential to cause a new poverty problem in seniors.

Recently, the Civic Federation has suggested some plans that have caused concern since they propose a tax for all retirement income. Meanwhile, the Civic Committee of the Commercial Club of Chicago proposed protection for retirement income but only for the first $15,000.

What’s the Solution?

For the Center for Tax & Budget, the solution is a $50,000 exemption of adjusted gross income; the exemption for higher income levels could gradually phase out. If this CTBA plan was successful, it’s thought it would lead to revenue of $1 billion. Alternatively, the plan from the Civic Federation and Civic Committee would only earn around half of this amount.

While those earning a retirement income of over $50,000 won’t necessarily be happy, they have the money to chip into the system.

When it comes to legal sufficiency within the application for FERS Disability Retirement, this is something that confuses many. Although it’s extremely important, it’s something that doesn’t get the attention it deserves.

Let’s say a postal worker struggles with a medical condition and can no longer perform one of the essential tasks of their role. In this situation, they might be able to note their condition, attach their medical records, and receive approval. However, there has been a growing frustration for many as the US Office of Personnel Management pays more attention to these applications.

What Does ‘Sufficiency’ Mean?

If you get removed from your role due to your ability to perform key tasks, this suggests the medical condition is preventing you from working effectively, and the agency agrees. This is known as the ‘Bruner Presumption’ and suggests that the burden of proof falls to the OPM to find a reason why the individual isn’t entitled to disability retirement benefits.

When filing, this ‘prima facie’ evidence is a powerful tool…but is it ‘sufficient’ under law? Even with the US Department of Veterans Affairs, is an individual eligible for Disability Retirement after somebody has been rated as 90% disabled with an ‘unemployability’ tag? Surely if the Department of Veterans Affairs has suggested somebody is ‘unemployable’ there’s no other answer but to grant Disability Retirement? You can’t have one without the other, right?

While this argument seems to follow all lines of reason, it isn’t determinative – and this is important. Likewise, a similar argument can be found for those who are approved for Social Security Disability before applying for FERS Disability Retirement. For Social Security Disability, one must show ‘total disability.’ For FERS Disability Retirement, the only proof required is that the individual can no longer perform at least one of the essential elements of their job (or can only perform it to a ‘lower standard’). Therefore, proving ‘total disability’ should be more than enough?

Again, it seems to follow logic, and the OPM certainly needs to consider the awarding of Social Security disability benefits following the case of Trevan vs. OPM. Yet, the important word in that previous sentence is ‘consider.’ Sure, the OPM needs to consider the Bruner Presumption and Social Security disability qualification, but this doesn’t mean they need to automatically accept all applications with this evidence.

Qualitative Application vs. Quantitative Inclusion

When it comes to determining ‘necessary and sufficient,’ this is the challenging concept. With medical evidence, we have something that’s ‘necessary’ but at what point does it also become ‘sufficient’? This is the big question, and it’s an argument of exactly how much evidence is enough to meet the qualifying criteria and succeed in a legal filing.

If you’re applying for FERS Disability Retirement benefits, your first inclination is probably to compile 12 years’ worth of medication documentation in the hope that this ‘quantitative’ evidence would convince the OPM. Sadly, this can be a trap because, despite the many pieces of paper suggesting a medical condition, you still continued to work for this same 12-year period.

Determining Legal Sufficiency

Ultimately, the problem that has caused many individuals headaches is the element of subjectivity that seems to be present with these applications. With this in mind, we highly recommend contacting an experienced attorney who will know what should and shouldn’t be filed and to put you in the right position for acceptance. Rather than including evidence you think is important, you can switch the attention to what the OPM will find important.

To get past the heavy gatekeeping of the OPM, submitting one wrong file could be the difference between success and failure. Don’t get us wrong, the Bruner Presumption and other arguments we’ve presented will certainly help your case, but they should never be relied upon to pass the sufficiency test.

In President Trump’s proposed budget, we were able to get a better idea of the direction in which the administration wants to go. For example, we saw that the stance towards paid family leave hasn’t changed. For all new parents, including adoptive parents, the President has suggested six weeks of paid leave.

Though this isn’t the first time this has been mentioned, the concerns for implementation are growing. As part of the proposal, workers and employers would also have access to a $1 billion fund in order to aid the creation of child-care programs.

Potential Plans

Led by Mike Lee (R-Utah) and Joni Ernst (R-Iowa), parents who delay Social Security benefits could enjoy between one and three months off after welcoming a new child to the world. Along with Marco Rubio (R-Fla), the two Senators met up with Ivanka Trump recently to discuss the proposal.

For the Democrats, they’re no strangers to the topic and actually supplied their own proposal which would allow families 12 weeks off work not only for the birth/adoption of a child but to look after a family member with health problems; this has been named ‘the FAMILY Act.’

Across the US, the idea is proving popular, and around 24 states have been working on similar proposals. According to the Heritage Foundation, there aren’t many developed countries that still haven’t introduced national paid family leave, but the US remains on this list for now. With this in mind, it forces new parents to rely on either private or state-based paid leave programs.

Much-Needed Changes

Sadly, only 13% of Americans are able to take paid leave according to the Bureau of Labor Statistics. There are a number of factors that determine whether or not a worker has access to such benefits including location, wages, and their industry.

Although such programs have received support, there’s also concern for private employers who already have a system in place. While some employers may stop the launch of a new program with an incoming federal program, others might suddenly pull back their programs and leave employees unprotected.

Private Sector Paid Leave and Important Considerations

In the US, it’s thought that the private sector pays up to $100 billion in paid family leave benefits. However, upper-income families take a large percentage of this. Therefore, any potential federal program would need to include the lower-income families; if possible, this could even be done without causing disruption to the pre-existing private programs. Of course, the ideal situation would also see the federal program funded without extra cost to the taxpayer.

In fact, the cost of such a system is a concern that many Americans have currently. If cost is disregarded, around three in every four support the idea of providing parents (and those with medical conditions) with 12 weeks of paid leave, once costs are brought into the equation, only every other person would be willing to pay an extra $200 in taxes to make it happen. Depending on the circumstances, 48% would be willing to pay an extra $450 while only 43% would take an annual increase of $1,200.

In the same Cato survey, around 75% are not interested in a program of this type if it means reducing the funding for Medicare, Social Security, or education. Finally, 57% of people don’t want to cause harm to the federal deficit and therefore would reject the program if this was the case.

In the weeks and months ahead, we’re certainly going to hear more about this story. Can we introduce a system that benefits everybody?

Previously credited to the Postal Service Retiree Health Benefits Fund, Steven T. Mnuchin, the Treasury Secretary for the United States, has now suspended investments temporarily. In a letter to Nancy Pelosi, Speaker of the House, the news was released and is a direct impact of the returning statutory debt limit.

In addition to the postal retiree fund, the Civil Service Retirement and Disability Fund has also been affected. With the letter dated to March 4th, Mnuchin has said the investment suspension would continue until June 5th.

Sudden Panic for US Debt

Back on March 2nd, the Congress federal borrowing limit was set, and this meant freezing current debt at the new record-high, $22 trillion. For many, there’s fresh concern since lawmakers don’t have clear plans to extend this limit.

For the next three months, the Treasury Department will keep these payments suspended. According to Mnuchin, no federal employee or retiree will be affected by this change, and the retirement funds in question will resume normal action when the debt limit is either suspended or extended.

Postal Service Financial Difficulties

In a system that’s entirely unique, the Postal Service is required to offer its retiree benefits in advance, and this has proven to be a huge expenditure and one reason why the financial position of the agency is questionable. While the 2006 Postal Accountability and Enhancement Act remains in place, this prefunding of benefits will continue.

In August 2018, it was suggested that the Postal Service had failed to make payments to the fund for around eight years. According to the US Government Accountability Office, the required payments haven’t been met since 2010. With this in mind, the Treasury Department has been forced to step in and take what they consider to be ‘extraordinary measures’ in order to stop defaults for the US.

As was explained by the department itself, there are four extraordinary measures available to them;

For the Postal Service Retiree Health Benefits Fund and Civil Service Retirement and Disability Fund, the first is to suspend new investments and redeem existing investments.

Secondly, all State and Local Government Series Treasury security sales can be stopped.

All reinvestment of the Exchange Stabilization Fund can be suspended.

Finally, the same step can be taken for the Government Securities Investment Fund.

With the Trump administration’s budget proposal for 2020 now released, it seems to be good news for the Pentagon and many other security-related agencies. However, over the next decade, federal civilian spending is set to be reduced by $2.7 trillion. How has the proposal been received? For the Democratic leaders in Congress, it’s fair to say there has been some resistance.

Who Would Benefit?

As one might expect, defense and security are key themes in the proposal, and the risk of another government shutdown increases again as Trump asks for an extra $8.6 billion in this regard. The following departments would see a significant increase in their budgets;

-Department of Homeland Security – 8%

-Veterans Affairs – 7%

-Defense Department – 5%

Who Would Suffer?

On the other hand, one of the biggest losers will be the Environment Protection Agency with their budget reduced by 31%. There are many departments with a proposed cut of larger than 10%;

-State Department and US Agency for International Development (USAID)

-Housing and Urban Development

-Health and Human Services

-Transportation

-Education

-Agriculture

Overall Review

For federal civilian employees, the proposal suggests not only a cut to pay but also retirement and retirement benefits. Sadly, they could also be hit by a number of other changes including higher contributions, the elimination of cost-of-living adjustments for FERS participants, and, of course, no pay rise.

For the Department of Defense, they actually got more than expected (and more than they asked for). Although there’s an effort to maintain the Budget Control Act spending caps, there’s a workaround for the Pentagon as $100 billion will be moved from the base budget of the DoD to their Overseas Contingency Operations account.

Elsewhere, around 30,000 active-duty and reserve troops will be added to the military while all service members enjoy a pay rise of 3.1%. If we consider an O-4 with service of 12 years, this could amount to around $2,800.

Although not quite up to the requests of $228 million and $210 million, the 2020 Technology Modernization Fund (TMF) is set to double what they received in 2018 and 2019 combined. If accepted by Congress, the TMF would receive $150 million. Meanwhile, $25 million has also been requested by the General Services Administration in order to introduce a project management office and upgrade the reporting of IT programs across the government.

According to the group of 2020 census stakeholders, the Census Project, the 2020 proposal offers $1 billion less than the amount required. For the whole Census Bureau in fiscal 2020, the President has proposed $7.2 billion; Commerce Secretary Wilbur Ross suggested $7.4 billion for 2020’s decennial count.

For fiscal 2018, the Freedom of Information Act is set to exceed 800,000 requests from the year before. Driving down a backlog, the Justice Department has noted the work of agencies including the proactive disclosing of records.

Two senior appointments were made at the Federal Energy Regulatory Commission (FERC). While Lindsee Gentry becomes the Deputy Director of the Office of External Affairs (OEA), Jignasa Gadani will take the role of the Office of Energy Policy and Innovation (OEPI) Director.

Recently, the DHS has been in the news constantly with regards to the southern border. This being said, problems with counterfeit goods on the northern border seem to be worsening. For example, a so-called Global Trade Task Force was deployed in Detroit and managed to seize fake drugs and cosmetics to the value of $1 million. This special task force is made up of experts from the Commerce Department, Homeland Security Investigation, the Food and Drug Administration, and Customs and Border Protection.

You probably aren’t minimizing your taxes and maximizing your retirement income if you are like most people. Even though every situation is unique for a retiree, it doesn’t hurt to get some advice now and then. Here’s a list of the top 5 things one should consider to make the most of retirement income plans.

Spread out income – It would be wise to spread your retirement income over some years rather than having low income in later/earlier years and higher income in others. This could be made possible by earlier withdrawals from RRSP and filling it up later down the line. You can keep yourself in lower tax brackets by trying to evenly spread out income. In addition, qualify for more benefits, government credits and on death lower the tax bill on your estate.

 Splitting your income – Income splitting rules previously known as the tax cut were cut off by the federal government currently in power. This led many retirees to think that pension income splitting rules were as well on the chopping board. Seeing as this has not been cut off, one should take full advantage.

You can split received income from LIF, RRIF and any other qualifying pensions as well if you are over the age of 65. Retirees under the age of 65 have qualifying income options that are more restricted.

Claim your credits – When your net income is above $37,790, and you are at least 65 years old, though it will be reduced you can claim the non-refundable age tax credit. Another non-refundable credit is available for retirees over the age of 65. On the first $2,000 of eligible income, 15% is available. This includes RRIF, RPP, some GIC sources, and LIF.

To properly enjoy the retirement, you have toiled hard for and that you well deserve to make sure plans for your retirement are as efficient as can be.

It’s very amusing how utterly clueless most employers can be about the challenges and wishes workers have regarding matters of retirement. A good number of employers are out of the loop when it comes to how bad many of their older employees’ financial circumstances are, and that many of their employees who are in their 60s need to keep working either part or full-time, so they really need some sort of guidance on how to transition into retirement.

A retirement consultant at Willis Towers Watson, Lauren Hock said, “A retirement income stream from a 401 (k) or pension is just one of the dozens of decisions you make as you retire and just focusing on that is missing the bigger picture, we know that retirement as it is a financial decision it is also a physical, social and emotional decision.

Retirement Preparedness – One in five employers think that their employees, as soon as they qualify for retirement benefits, will retire. This was according to a survey which also showed that 71% of employers have the notion that older employees have enough funds to retire whenever they decide to.

A global benefits attitudes survey of American workers conducted in 2017/2018, showed that among those surveyed more than a third said that due to financial reasons they expect to retire after they hit 70 and 55% said that as soon as they can afford to, they will retire.

For a lot of them the reality of living paycheck to paycheck, the great recession and lack of savings that won’t be happening any time soon. A quarter of adults who are 62 and older are insecure financially. This is according to the Federal Bureau of Consumer Financial Protection. In 2018, 68% of U.S adults experienced a set-back in their finances that were very unexpected. This was discovered in a new poll by the National Endowment for Financial Education. 48% of Americans aged 56 and above and earning $60,000 a year are concerned that they will be devastated financially if they have one costly trip to the ER.

56% of retirees surveyed by Transamerica said that due to health problems and job losses they were forced to retire sooner than actually planned which is another harsh reality.

Counseling Sessions – bringing in an expert to hold one-on-one counseling sessions on matters retirement is a move that would help not only the older workers but employers as well. It was found that only 6% of retirees said that the employers played a part by offering financial retirement counseling and 5% held education about transitioning to retirement or seminars.

Phased Retirement Programs– another thing employers could offer is the phased retirement option. 47% of workers said that they would be interested in phased retirement in that they can for example slowly reduce working hours to part-time from full-time.

Employer worries about brain drain from retiring and fight labor market may make phased retirement a tad bit more common in coming years. 23% of employers in the Willis Towers survey said that by 2020 they expect to offer phased retirement programs.

An impressive number of tax filers end up with some kind of IRS refund every year. This year’s refund may not be as substantial as in the previous years seeing as how the new withholding tables were introduced last year which allowed workers to pay less in taxes than usual.

Even so, there is a chance that many filers will see some money back this tax season from the IRS. Here are some ways you can put that money to use.

Emergency fund– it was found out by the Federal Reserve Board that 40% of Americans do not have immediate cash that could help them sort out a $400 emergency. Your tax refund should stay in the bank if your savings don’t exist. Always have an aim of having at the very least three months of essential living costs in savings no matter your earnings or how your expenses look like.

This action helps to avoid debt in the event of unemployment or unexpected bills. Your tax refund could help you connect the gap between the money you need and the money you have. That is if you totally lack in savings.

Pay down costly debts on the credit card- whatever the reason is that is having you carrying debt on your credit card; you will end up racking up more interest the longer you hang on to that balance. Your tax refund can help you improve your credit score and save you money by helping to reduce or eliminate that balance. Not only does paying off your debt preserve your score and as well avoid costly interests, but it can also make borrowing more affordable so that you can borrow money for important things like buying a house.

Boost your nest egg– if you are one of the 42% of Americans who have no money set aside for retirement, 401(k) or IRA will be the best place for your tax refund. If you are saving in an IRA, you can pad your long-term savings that way and transfer those funds directly. You can as well sign up to have your payroll department withhold your refund amount from your paychecks and to make up the difference pay your refund to yourself. This is if you have access to a 401(k) through work.

Reduce your student loans – your tax refund might help you eliminate a good portion of the load of student debt your carrying which shortens the life span of your loan and saves you money on interest. Since private loans are not as regulated as federal loans, you are probably paying a significant amount of interest on your debt. That’s a good enough reason to get rid of that loan as soon as possible.

Invest in your career– this might mean covering the cost of a conference or seminar for networking or paying for courses to sharpen your skills. On a long-term basis going back to school may most likely give a positive kick to your earnings. A tax refund is anything but free money, remember that when it seems like a windfall. Think of the money as what you need to build a more solid financial ground for yourself.

In one of Walton Francis’s more recent articles, he addressed an issue that has confused many and could use some clarity: the strange relationship between Medicare and the FEHB. On their own, both plans offer extensive health care coverage. But, together, as Francis puts it, they don’t “pair well,” and end up being most beneficial to the companies that provide health insurance and less beneficial to you, the person enrolled.

Francis calls this a “badly flawed and confusing system.”

If either one of these plans were so comprehensive, why would the other necessary at all?

The first thing to consider is Medicare Part A, which cannot be declined. 1.45% of your salary has been put towards the Medicare fund, which was matched by your employer, over the course of your working years. Once you reach the age of 65, Medicare kicks in automatically and starts to cover some of your expenses.

Although most people already paid into this fund through work, in 2019, any person who has not earned it this way must pay $422 a month.

Medicare is the primary payer if a retiree has both FEHB and Medicare. This means that Medicare is the one that pays out the benefits in full, regardless of any of the retired person’s other insurance programs. This is what they mean when they are referring to coordination of benefits.

So if that were the case, why do people have FEHB at all?

According to Francis, it is because most current and former federal workers have had FEHB throughout the entirety of their working careers, and to consider changing it or dropping it is alarming to most people. This thought pattern is reinforced by the OPM, who does not really disclose or discuss the actual value of Medicare.

The “Medicare dividend” is the difference in money that Medicare saves by having FEHB funds cover the expenses. This is why the OPM benefits from retired people’s retaining FEHB coverage while Medicare eligible.  It is cost-effective for them. This is the same reason they want people to buy in or keep their Medicare Part B coverage because that covers expenses that would normally fall to the FEHB.

Even though most people believe that this Medicare divided is the profit that is used to lower the premiums for everyone under the FEHB, there is not actually any data available that corroborates this. Even the OPM office replied “no comment” when asked about it.

To top it all off, there is a penalty if you do not enroll in Medicare Part B within the first eight months of eligibility. A 10% penalty for each year you could’ve, but didn’t, opt-in. Medicare’s “Medicare and You” document even states that if the eligible person didn’t sign up for Part B when first available, they can still sign up later and not have to pay a late enrollment fee.

The wording of this document (page 17 for reference) seems to be intentionally unclear, making it seem like there is little to no penalty for signing up late. And while this may seem like a godsend for people who did not enroll in Part B from the get-go, they need to remember that Medicare Part B does not supplement FEHB coverage, instead become the primary payer and replacing it. This is covered in Section 9 of the FEHB insurance booklet.

This then makes the FEHB the supplemental insurance, with the benefits provided therein much smaller than the ending cost. The point being that the premiums you’re paying for Part B are rarely worth it.

Medicare offers many things FEHB does not, and can make having FEHB benefits unnecessary. It is suggested that if you are a retired federal worker past the age of 65, reviewing “Medicare and You” should be a priority.

OPM may also extend to a federal retiree a buyout. OPM will pay for Medicare Parts B and D instead of FEHB. If the person retiring does not want that, then they continue on with their FEHB insurance unchanged. Regardless of that, it will not affect Medicare Part A benefits, and they will continue to be paid as they are now.

So to summarize, if you were to take into account your actual needs and adjust coverage to properly meet it:

People retired with Medicare will pay zero premiums on both FEHB and Medicare. Taxpayers will pay out less. OPM will be able to be run more efficiently, saving money for everyone across the board. And FEHB insurers will stop getting subsidized by Medicare recipients who are already covered elsewhere. As for current Medicare recipients, you should experience no major change, as your FEHB premiums were not increasing your coverage in any significant way.

Special thanks to Walton Francis whose perspective into this matter may one day lead to proper reform.

The technical terms can sometimes be confusing when you’re moving your money to an IRA from your Thrift Savings Plan. Knowing the exact meaning of terms can be very important. And the fact of the matter is, there is a big difference between “transfers” and “rollovers.”

At a glance, the term “transfer” means that the company in charge of your IRA gets the money directly from the TSP. The term “rollover” in effect, means the money is sent directly to you instead.

Generally speaking, when moving money, most people are looking for a transfer and not for a rollover. The IRA should receive all of your TSP retirement fund in order to maximize it.

The problem with the rollover is this: the TSP will automatically send some of your money to the IRS (20 percent) and 80 percent directly to you. The problem comes when you transfer two months later when you have to send the totality of your TSP retirement fund to the new IRA account, or you will be hit with taxes.

Say you have a TSP worth $100,000 dollars. If you transfer it the right way, 100 percent of it would be sent directly to your IRA. Adversely, if you did a rollover, it would breakdown like this: you’d get $80,000 dollars, and the IRS would get $20,000 dollars, and then, after 60 days, you will be expected to deposit all $100,000 dollars into the IRA account, even though the IRS will never give the $20,000 dollar you initially sent them back. If you can’t make the full $100,000 dollar payment after that time, you’ll incur a 10 percent penalty (if under the age of 59.5 years old) or be required to pay income tax on the $20,000 dollar difference.

And the more money you have in your TSP, the higher these numbers will get. In most instances, a transfer is always better than a rollover.

You’ll encounter a lot of people with ideas about what you should do with your retirement. You may be able to get a lot of information from someone in your HR department or customer service people in general, but in the end, you are ultimately in charge of what happens with your money. You should double check the information your given to ensure the people you’re talking to are well informed so that you can weigh all your options. Perhaps even working with some financial planner would help to make sure that the transfer is completed right.

There are three major things in life one usually saves for: their home, their education or the education of their children, and their retirement. And whether you’re using an IRA or the Thrift Savings Plan, your financial future should be a primary focus, especially considering that of the three things listed, retirement is the only one that you can’t take a loan out for at the bank.

There is something called the “80 percent rule” which basically states that a retiree can generally continue living at their same pre-retirement levels if they retire on 80 percent of their pre-retirement income. The problem is hitting that 80 percent mark. Unless you happened to have worked for 41 years and 11 months and are able to get covered by the CSRS (Civil Service Retirement System), it is going to take some tricky financial shuffling to reach that 80 percent mark.

For instance, Social Security and pension will only cover about 60 percent of the pre-retirement income for a person who enrolled in the FERS or CSRS for 30 years. That means the additional 20 percent will have to be made up by the TSP or some other retirement savings account.

The problem with tax-advantage plans like an IRA or TSP is the penalties that can occur if certain stipulations are not followed. If you take your money out before a predetermined age of 59 and a half, for IRAs and 55 for other retirement plans through your company, you will be fined. To get the maximum benefit from these plans, you can’t touch your money until it’s time. Even if you need to borrow against it to pay creditors and other bills (like for instance during the recent 35-day government shutdown) then you will be harming yourself for the future. That is why, in addition to a retirement fund, an emergency fund – or someplace to have easy access to money – should be saved towards as well. With many saving’s accounts accruing interest at 2 percent, this is not that far off from the TSP fund. If it remains unused, it will be there, earning money, just like it would’ve in your retirement account.

Three months to a year’s worth of bills and payments is what financial planners suggest you keep in this emergency fund. That would’ve easily covered the government shutdown and more. Even if you’re unable to put as much away in the TSP as you would, it is still important to start an emergency fund as soon as possible. Just make sure that you’re still hitting that 5 percent mark with your TSP funds to get the matching contributions from the government.

There are many ways for enlisted people to maximize the benefits of the military’s new retirement system, the most important of which is to make sure you are eligible to have your contributions to the Thrift Savings Plan matched by contributing enough of your paycheck before you retire. The longer you’re enlisted and the more you put away, the higher that retirement account will grow.

For those who have enlisted in 2018 and beyond, you will be subject to the updated blended retirement system, possibly making you the recipient of a smaller pension over the retirement system in place before it. The pension you will now receive each year is as follows: 20 years on would be 40 percent of your base pay, and for 30 years on, you’d get 60 percent. The trade-off is that now you’ll be getting extra money set aside in your Thrift Savings Plan, which advantageous and only available to government employees and military members.

The Department of Defense is the one who would match your contributions under the new blended retirement system. This is in addition to the money in your TSP. 2 months of service is all it takes before the  department contributes 1 percent of your base pay into the TSP, and after that, you’ll get 4 percent matching contributions for up to 26 more years of service. And as long as you’re enlistment is longer than two years, you can keep all of this money stashed safely away in your TSP.

To maximize your TSP and blended retirement system matching contributions, a few extra steps should be taken. To get the biggest match back from the Department of Defense you should be putting into the TSP 5 percent of your pay. Compounding your savings can happen quickly as long as your contributing the department minimum, but keep in mind, the more you put in, the more you get back.

The new blended retirement system was instituted after the government found out that the number of service members staying enlisted long enough to receive a pension was less than 20 percent. Service people can get up to half of their base pay in their pension if they stayed in the military for 20 years, under the old retirement system, and up the three-fourths of their base pay if they were enlisted for 30 years. Leaving before the 20-year mark negates any retirement pay though. If you joined the military before 2006 or decided not to use the new blended retirement system, you’ll still be covered under the old plan. Keep in mind, the Department of Defense will not have your TSP contributions matched if you stay with the traditional retirement system, BUT, you still get the tax benefits and get to, and the money kept in the TSP no matter when you choose to leave the service. Note though that if you withdraw before the age of 59 and a half, you will incur a 10 percent penalty.

In 2019, you can contribute up to $19,000 dollar to the TSP regardless on if you with the old or new retirement system. Even more, if you’re over 50, for a maximum of $25,000 dollars. And even more than that – up to $56,000 dollars – if you are receiving tax-exempt pay while deployed in a combat zone. Those military members that are deployed can also get back a yearly interest of 10 percent and put up to $10,000 in your Savings Deposit Program.

End-of-year TSP fund returns have already been announced. Not long from now, the accrued and weighted ten-year returns will also be released by the Thrift Board, and this will undoubtedly illustrate that even though its annual returns are at 13.43 percent, the I Fund will soon be greater than the C and F funds.

Last year, on December 31st in 2017, the ten-year period showed us that the I Fund was placed last out of the five basic funds. This year, on December 31st in 2018, that same I Fund will now find itself in third. Logically you’d think that the I Fund had a good year this year. It did not. In fact, out of all five funds, the I Fund performed the worst this year.

Is this some kind of statistical anomaly? Of course not. Poorly performing funds can still look, on the surface, appear to be a good investment, if you are looking at them on a long enough scale. In this case, it had to do with the I Fund’s 2008 performance, which was a bad year for stock funds all around. The I Fund lost 42 percent that year, and as of 2018, it is not counted against the ten-year average returns anymore. This is why it suddenly surpassed the G and F Funds.

Example, let’s look at the information found in the C Fund’s “fund sheet” that was found on the TSP website. From January 1988 when it was activated, until December 2017, the average return of the C Fund is 10.53 percent.

But this statistic, while accurate, doesn’t predict where the fund may go. Just look at 2008 again, when the C Fund dropped by 36.99 percent. Or what about 2013, when it grew 32.45 percent? The problem being any adviser to your finances can focus on either statistic to justify their advice. One who wants you to “buy and hold” would look at the fund’s long-term return, and one who thinks equity-indexed annuity is the best investment would instead look at the percentages from 2008. And to top it all off, either of them could be wrong.

What is the best play here then? Firstly, any predictive value of any percentage statistic should never be assumed. After that, you should seek out a financial adviser and work out a strategy that is catered to you specifically. Lastly, putting in as much as you can to the TSP is a long-term investment, and it should always pay off.