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April 20, 2021

Federal Employee Retirement and Benefits News

Category: CompareFEGLI

CompareFEGLI

FEGLI or the Federal Employee Group Life insurance is an insurance offered to the federal employees to further aid them in living a sound life post retirement or even during service. CompareFEGLI category deals with the different happenings in the FEGLI world and our writers have made it their aim to keep the readers updated about everything that they think the public should know.

Visit the CompareFEGLI section to read more.

Public Sector Retirement, LLC (‘PSR,’ ‘PSRetirement.com’ or the ‘Site’) is a news channel focusing on federal and postal retirement information.  Although PSR publishes information believed to be accurate and from authors that have proclaimed themselves as experts in their given field of endeavor but PSR cannot guarantee the accuracy of any such information not can PSR independently verify such professional claims for accuracy.  Expressly, PSR disclaims any liability for any inaccuracies written by authors on the Site, makes no claims to the validity of such information.  By reading any information provided by June Kirby or other Authors you acknowledge that you have read and agree to be bound by the Terms of Use.

Benefits: What Exactly is a TSP?

What is TSP?

When it comes to the Blended Retirement System (BRS), one of the most frequently asked questions received by Defense Department officials is “When can I expect to get my matching contributions to the TSP?”

These questions are generated by service members that have a true understanding of the value of the Thrift Savings Plan to the new BRS. They understand that they can grow their retirement much faster by contributing as much of their basic pay as they can as early as possible while receiving a government match of up to 5%.

The quick answer is that matching contributions begin in the pay period that starts on (or after) the date the service member has opted into BRS. According to DoD spokesman Navy Cmdr. Michael Cody, if that date of opt-in is in the middle of a month, then contributions should appear in the Leave and Earnings Statement at the end of the following month.

Now for an even bigger question: What is the TSP?

The best way to put it in perspective is to think of it like the 401K retirement plan for civilian employees; you decide what and how much to contribute as well as how to invest your money.

Members of the BRS that do not choose an investment fund will automatically have their money put into an age-appropriate Lifecycle Fund (or L Fund).  If you need to change your allocation, it is recommended that you talk to a financial advisor.

The government automatically contributes 1 percent of your base pay to your TSP under your BRS, and up to an additional 4% is matched. For example, if you provide 5%, then the government adds in an additional 5%.

For service members joining in 2018 or later, enrollment in BRS is automatic. The first pay period after 60 days from the pay entry base date is when the automatic government contributions begin (the matching contributions beginning in the 25th month of service).

Any of your contributions to the TSP are yours to keep, including the matched contributions of up to 4% as well as the earnings. There is no vesting period! After two years of service (or if you have at least two years of service before your BRS opt-in), the government’s basic automatic 1% contribution is yours to keep as well.

However, don’t jump at the thought of cashing it all in. There are penalties if you withdraw money before age 59 ½. You could be subject to paying a 10 percent withdrawal penalty tax on any taxable part of your money that wasn’t transferred to a qualified retirement account, paired with any additional taxes owed as a result of the withdrawal.

With a traditional Thrift Savings Plan, you are allowed to defer taxes on contributions and earnings until withdrawal at retirement.

Less money is held from your pay because your contribution is made before the calculation of federal income taxes.

Another retirement option is a Roth TSP. With this plan, you pay taxes on contributions as you make them, but you can also withdraw funds tax-free as long as you meet specific IRS requirements.

The IRS sets the contribution limit annually. For 2018 the contribution limit is $18,500.

The limit can potentially pose an issue if a service member contributes all or part of special pays or bonuses. It could also cause problems for Guard and Reserve members with civilian employment.

Traditional contributions made from tax-exempt pay earned in a combat zone is an exception because the limit does not apply in that case.

TSP contributions made by troops who exceed the limit must be ceased for the remainder of the year; otherwise, they could lose out on matching contributions at that time.

Overall, the participation rate in the TSP program by service members has seen an upward trend, which means that more are beginning to see the true value in this retirement program option.

 

Contact Public Sector Retirement Educators

www.PSREducators.com for assistance with your federal retirement questions.

Email:

[email protected]

Phone:

888-919-3252

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ASAs Based on TSP Reintroduced in Senate Bill

ASAs Based on TSP

Any worker that does not currently have access to an employer-sponsored retirement plan could potentially be given the opportunity for coverage under a new retirement savings account, thanks to the legislation introduced in the U.S. Senate.

Initially proposed in January 2016 by Sen. Jeff Merkley, The American Savings Act would give these workers access to a retirement plan with something called the “American Savings Account” (ASA). According to Merkley this plan would be “universal, portable, simple and personal.”

Merkley goes on to note that the American Savings Act would offer a “high-quality option for small businesses without added paperwork or hassle,” since employers won’t need to engage in new administrative processes. They would just need to send their employees’ ASA savings, alongside the already processed tax withholdings, to the federal government.

If a retirement plan is not already offered by an employer then the workers would receive their own ASAs automatically, according to a press release. By default, there is a 3% contribution. However, there are options for adjustment, which can be as low as 2% or as high as $18,000 per year. If workers do not wish to participate in their ASA then they have the option to opt out completely.

The ASA is modeled after the Thrift Savings Plan (TSP) and would offer the same investment options. Merkley states that ASA participants would experience “similar rock-bottom costs” as the TSP, and they would also have the ability to fully control their accounts online through a website.

Participants would be permitted to roll over previous IRAs into their ASA, or they could even roll their ASAs into a 401(k) or 403(b) employee-sponsored plan. Contributions to their ASA would also be tax-deductible, and the investment of the funds would be managed by an independent board of directors.

Last but not least, full-time workers, part-time workers, and contracted workers would all have access to the ASA plan.

Your FERS could change in retirement

A Closer Look At The Insurable Interest Annuity Option

For those retiring there may be more than just the standard annuity options available. There exists another rarely used option: the insurable interest annuity.

If you are not married but have a child or someone who would financially benefit from your being alive, this option may spark your interest. When a court order has already appointed a survivor benefit from a former spouse, it may also be used. The decrease from your annuity can, unfortunately, be substantial. Far above the cost of a standard survivor annuity.

A current spouse is also assumed to have a financial interest in you, as well as a former spouse, an adoptive or blood relative closer than a first cousin, a same-sex domestic partner (meeting certain standards), the person to whom you may be engaged to be married, or someone you are living in a relationship that could fall under common law marriage in a jurisdiction that recognizes common law marriage.

Should there be a person other than one of those above to whom you wish to provide an insurable interest annuity, you would need to submit an affidavit from one or more persons who have personal knowledge of that financial dependence. Computing the amount and cost of an insurable interest annuity has rules that differ from those governing standard survivor annuities. The designer will receive an amount totaling fifty-five percent of your reduced annuity under either FERS or CSRS. The reduction of your annuity computes as seen below:

10 % if the person is the same age, older than, or less than five years younger than you;

 

15 % if 5 but less than 10 years younger;

20 % if 10 but less than 15 years younger;

25 % if 15 but less than 20 years younger;

30 % if 20 but less than 25 years younger;

35 % if 25 but less than 30 years younger; and

40 % if 30 or more years younger than you

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Strong Gains for the TSP

Stong Gains for TSP

projections for stocks

With most funds in the green, July has proven to be a positive month for the TSP.

By just a tiny fraction of a percent, the G Fund is up while the F Fund is down, but the good news is that the three equity funds have increased:

C Fund: up roughly 3.8%

S Fund: up nearly 1.5%

I Fund:  up a reliable 2.7% despite the recent struggles in the past months

 

Earnings Season

With many companies reporting results for the previous fiscal quarter, earnings season is in full swing.

The average revenue increase in comparison to last year’s quarter was a reliable 8.6%, based on the hundreds of S&P 500 (C Fund) stocks that have reported quarterly results thus far, according to CNBC. Increased earnings are 22.4% on average (7-8% of that because of corporate tax cuts passed last year).

While most companies are exceeding analyst expectations, there is an outstanding exception to the positive trend; Facebook and some other high-flying tech stocks. Facebook’s reported number of average daily users (1.47 billion), as well as their reported revenue, was beneath analyst expectations. Their guidance for the rest of 2018 also slightly missed the mark.

Facebook’s stock fell hard, dropping over 20% in just a single day (their most significant single-day stock drop in history).

As a result, about $120 billion was cut from Facebook’s market capitalization. Despite the company’s continued growth regarding users, revenue, and profits, any reduction in growth is typically met with selling and sharply reduced valuations since investors place such a high valuation on the company overall.

Facebook shares represent nearly 1.8% of the 500-company C Fund and are the fifth largest holding.

Luckily, the diversity of the fund, stable earnings, and the results of other companies absorb Facebook’s stock price drop.

Two other tech high-fliers in the C Fund, Twitter, and Netflix saw similar declines (15-20%) late in July. While both companies reported decent results, they were still not adequate to meet the satisfaction of the investors with their high valuations.

 

Keeping an Eye on Tariff Impacts

Due to the country’s new aluminum and steel tariffs and rising material costs, many companies requiring considerable steel and aluminum in their operations announced softer results. Harley-Davidson, Coca-Cola, Honeywell, Whirlpool, General Electric, W.W. Grainger, Stanley Black and Decker, Genuine Parts, and a handful of other companies (all C Fund components) reported that they are exposed to higher material costs. In response, a majority of them are raising prices, which passes the price increase down the ladder, straight to their customers.

Many other companies, like Harley-Davidson, don’t foresee the ability to raise prices very much and expect to see themselves consuming most of the extra costs, which could result in an overall reduction of their profit margins.

Because of the combination of declining sales and rising material costs, companies like Whirlpool seem to have taken the hardest hit.

However, Nucor and other steel producers seem to be reporting positive results. The profit margins of domestic steel producers are increasing with the help of higher steel prices due to tariffs on imported metal since their selling price is higher and their expenses remain mostly the same.

TSP: What You Can and Can’t Rollover

TSP Rollover; What are you allowed to do?

During employment as well as after separation, Thrift Savings Plan (TSP) participants are permitted to roll the money into their TSPs. However, the money that is rolled over must come from qualified plans and/or qualifying IRAs. On the other hand, money can also be rolled out of the TSP, but also must go to a qualified plan or qualifying IRA and can only be done once while working and again after retirement.

If a separated worker stayed in the TSP and rolled more money into it from other qualified plans or qualifying accounts that would be ideal for the Thrift Investment Board.

Into the Traditional balance of your TSP, you can roll money from the following:

1) Traditional 401(k) – a Traditional employer-sponsored plan that was acquired either before or after your federal career.

2) Traditional deductible IRA – a Traditional IRA where contributions have been able to be deducted from your federal income tax.

3) Conventional non-deductible IRA – The earnings component from a Traditional IRA where you have not been able to deduct your IRA contributions.

Additionally, you are permitted to roll money from a Roth employer-sponsored plan, like a Roth 401(k), that was acquired before or after your federal career, into your TSP’s Roth balance.

You cannot roll money from any of the following into either the Roth or Traditional balance of a TSP:

1) Money that is not coming from a qualified plan.

2) Any money at all in a Roth IRA

3) The contributions component from a Traditional non-deductible IRA

4) Money that does not belong to you, regardless of whether it’s in a qualified plan or not. An example of this includes money in the qualified plan of a spouse.

Contact Public Sector Retirement Educators

www.PSREducators.com for assistance with your federal retirement questions.

Email:

[email protected]

Phone:

888-919-3252

Money that is moved into a Thrift Savings Plan via a rollover doesn’t count against the annual elective deferral limit. Currently, the limit for 2018 is $18,500.

Form TSP 60 would be used for a rollover into a traditional balance while form TSP 60-R would be used for any rollover for your Roth TSP balance.

But what about rolling money from the TSP and into another qualified plan or account? TSP rollovers have been permitted since the very beginning.

Almost all rollovers, whether it’s in or out of the TSP are completed as “direct rollovers.” This means a direct move between tax-advantaged accounts.

Currently, there are strict limitations on the number of rollovers that can be conducted when it comes to rolling money away from the TSP. As of right now, there are only two opportunities for TSP withdrawal and withdrawal is the modern-day method used to roll any money out of your TSP. This will continue to be the case until the TSP Modernization Act is implemented, which is expected to occur in September of 2019.

There are options when it comes to withdrawal forms such as age-based, partial, or full. You would select the form appropriate for your needs and then elect to make your withdrawal. At that point, the custodian of the receiving account would need to complete all transfer information on your selected form. Then the money should transition seamlessly from the TSP to your new account.

There is a publication available for the TSP in the “Forms and Publications” section of the TSP website called Transfers from the Thrift Savings Plan to Eligible Retirement Plans, which is made available for plan administrators of IRAs or other qualified plans. You may wish to provide this to the new plan’s custodian at the time of initiating a rollover.

Notebook Finance and Retirement Savings

Federal Employees to Get 12 Weeks of Paid Parental Leave

According to proposed legislation, federal employees will get 12 weeks of paid parental leave. This law applies to federal employees who adopt or welcome the birth of a new child. A Republican Congresswoman introduced the Federal Employees Paid Parental Leave Act of 2018 (H.R 6275) bill.

H.R. 6275 seeks to align federal employee retention policy with that of the private sector. In this way, the federal government can attract and retain top talent in federal service. What’s more, paid parental leave encourages more women to remain in the workforce, reduces infant mortality, depression, improves infant health, and helps women deal with postpartum challenges. Similarly, paid leave allows men to bond better with the child they are adopting. These benefits are long lasting even after both principals resume federal service.

Additionally, by matching paid parental leave to what the private sector offers, the federal government will remain competitive. Even though similar attempts have been made before, most failed to pass. Last year, another congresswoman proposed a bill that would have given federal employees six weeks of paid parental leave. Unfortunately, this bill never passed as of this post.

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Importance of Sick Leave

Today, we address the importance of sick leave. Initially, sick leave allows employees to miss work due to sickness or to seek for medical attention. Nowadays, the reasons why sick leave is granted have evolved to include bereavement, funerals, adoption, and family care. What’s more, sick leave hours can be used to increase an employee’s annuity.

Subsequently, any unused sick leave hours are aggregated into retirement months. For CSRS retirees, every month of unused sick leave increments their annuity by 0.6%. This means that for six months of unused sick leave, your annuity increases by 1%. Likewise, 12 months of sick leave increase an employee’s annuity by 2%. For FERS retirees, a year of unused sick leave increases annuities by 1% or 0.833% for every month. However, if one retires at age 62 with 20 years of service the multiplier changes from 1% to 1.1%.

Annuities depend on the number of full years and months in service. So, unused sick leaves that don’t make up an entire month determine the amount of credit you get. In case you do, remaining sick leave days are added to your retirement hours. In computing retirement periods, a day is reckoned as being 5.797+ hours. To arrive at this figure, the OPM divides the number of hours in a work year (2,087/360=5.797). Why is that so? It is because twelve 30 day months are used to ascertain annuities. However, any days that don’t make up a full month are not used in reckoning annuities.

Even so, FERS employees with a CSRS clause in their annuity, have their FERS sick leave transfer maximum days credited to CSRS annuities.  Any other hours above the transfer maximum are credited to the FERS annuity.

Unfortunately, sick leave can’t be used to claim retirement eligibility. Typically, it only applies where you’ve met the requirements of age and service years. Unused sick leave days are not credited where one leaves federal service before eligibility and applies for a deferred annuity.

In case you re-join federal service, sick leave hours are typically re-credited. Even so, if you receive a full salary and annuity, upon retiring you won’t receive any credit for unused sick leaves as well as any other while in service. This is because there is no recomputation of your annuity to cater for the new service period.

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Withdrawing from the TSP

You have several withdrawal options that you can choose from. Partial withdrawals are allowed in a single payment. You can also make a full withdrawal with any one or any combination of the following methods:

  • A single (lump sum) payment
  • A series of monthly payments
  • A life annuity (Thrift Savings Plan Lifetime payment options).

A combination of any of these three full withdrawal options is called a “mixed withdrawal.” You can have the Thrift Savings Plan transfer all or part of any single payment or, in some cases, a series of monthly payments, to a traditional IRA or an eligible employer plan by completing the TSP-70 form. Payments to you can be deposited directly into your checking or savings account using electronic funds transfer (EFT).

Spouse’s Rights

If you are a married Thrift Savings Plan participant (even if you are separated from your spouse), spouses’ rights apply to annuity purchases. If you are a married FERS or uniformed services participant with a total account balance of more than $3,500 and you are making a full withdrawal of your account, your spouse is entitled by law to an annuity with a 50% survivor benefit, level payments, and no cash refund. If you choose any other withdrawal option or combination of options by which your entire account balance is not used to purchase this particular type of annuity, your spouse must sign the statement on your withdrawal form that waives his or her right to that annuity.

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Federal Employees and Estate Planning | Linda Jensen

When it comes to financial planning, federal employees often neglect estate planning. Regrettably, you’ll hear the quip that estate planning “is for the rich!” Most feds believe that only the affluent and millionaires need financial planning. Some assume that estate planning entails complex legal processes and specialist estate attorneys.

Though this might be true depending on the size of your estate or family, adequate preparation can simplify the estate planning process. For a fact, a grasp of estate planning is necessary for determining what documentation you require.  Certainly, you don’t want to burden your family with estate planning after you are gone. What’s more, we all desire to have our wishes respected when we pass away.

So, read on to find what estate planning documents you need.

The Last Will

Typically, a will details how you want your estate distributed after you die. Ideally, all of us need to have a will. Even if you aren’t wealthy, the importance of a will cannot be overstated. This is especially true if you have a large estate and multiple beneficiaries. Often, where one dies intestate, the courts decide how your estate is divided. Of course, there are specific guidelines to which the courts adhere. Usually, your spouse is the first to inherit your estate, then your children, finally your parents, and siblings. Leaving a written will prevents the courts from arbitrating on your estate. If you don’t move a will, the judges create one for you.

Also, you can use a will to make your wishes regarding how to take care of your children known after you pass away. Through a will, you can appoint a guardian to manage your assets on behalf of any underage children. You can designate a caretaker, a family member, or a trustworthy friend.

However, you should keep it in mind that your beneficiaries enjoy precedence over other declarations in your will. And lastly, a written will won’t prevent an estate from going probate. But what is probate? It is a process in which the judge reads, interprets a will, and decides how to divide your estate. Typically, this information is accessible publicly. Depending on the size of your estate, the process can be expensive, lengthy, and complex.

The TSP, or Thrift Savings Plan, is a tax-advantaged retirement account offered exclusively to federal, postal, and military employees that operates similarly to private market 401(k)s, mostly in offering the option to save for retirement with TSP matching contributions you make. There are many ways that your Thrift Savings Plan can be unique to you: you can choose to put your money in your account pre-tax or pay the full income tax up front, you can choose which markets your money gets invested in, and more.

Living Trust

Unlike a will, a living trust isn’t public. But why is it “living”? It is because a living trust is created while you are still alive. In it, you transfer ownership of your assets to a trust. But while you’re living, you have control over assets in the trust. Even so, you don’t own these assets. Instead, the trust is the owner. Upon your demise, the trust transfers these assets to your beneficiaries.

A trust protects your assets from creditors. However, this is dependent on the type of trust you select. Preferably, most of your assets should be transferred into a trust while you’re alive. A trust has various tax exemptions and liabilities. For this reason, you should learn more about its implications as well as seek the guidance of an estate planning attorney.

Healthcare Power of Attorney

In case you become incapacitated, you can confer a power of attorney on an appointee. In essence, you appointee has the ability to make health care decisions on your behalf. Nonetheless, you should ensure that this individual shares your vision and thinking.

Note that a living will don’t include a testament or last will. Simply, it’s a legal document that outlines how others make deathbed decisions on your behalf. For instance, where there is no hope of recovery, it may detail how to affect any life-prolonging procedures. Perhaps, you could use this document to detail how you want deathbed decisions handled rather than creating a living will.

Financial Power of Attorney

Through this document, you can appoint an attorney to act on your behalf in case you’re incapacitated. For instance, military members in active duty, busy executives, or celebrities can vest the financial power of attorney on someone else to take care of their financial obligations while they’re unavailable. Also, you can use this document to handle the financial responsibilities in the event you’re incapacitated or mentally incapable of making decisions.

With this document, your appointee can enter into transactions such as real estate and other financial decisions. Every state has different estate planning laws. Therefore, you should consider the implications of these laws on property in multiple states.

Possibly you could collect these documents online where your situation is simple. But if you have multiple assets, a professional estate planning attorney is preferable.

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Linda Jensen is the principal and owner of Asset Care & Preservation Services with offices in Olympia, WA.  Linda began her career with Prudential Preferred in 1994 where she was an agency leader.  She earned the credentials of a financial planner and has been in practice as an investment and insurance professional since that time.  Linda started her own company in 1997.

Articles from Linda Jensen:

Linda Jensen | How to make the most out of your TSP Plan

Linda Jensen | Top Four Tips for IUL Shopping

Linda Jensen

TSP-Like Personal Savings Accounts Would be Created by Bill

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The American Savings Act has been reintroduced by Sen. Jeff Merkley (D-Oregon).

Currently, federal workers and Congress members use the Thrift Savings Plan (TSP). This reintroduced plan would be modeled after the TSP, giving every worker (not just federal employees) without access to a savings plan for retirement the opportunity of having their savings account specifically for just that. A large benefit to this is that these retirement savings accounts can be taken anywhere, even though job transitions.

Merkley says, “It shouldn’t matter whether you work part-time or full-time, as an employee or a contractor, or for a huge corporation or a tiny business, every American worker deserves access to a financially secure retirement. With private-sector pensions becoming rarer and rarer, Social Security and retirement savings are more important to retirement security than ever. That makes our mission clear. We need to strengthen Social Security, and we also must expand high-quality retirement savings options to all workers.”

Merkley has also noted that around 55 million Americans are without access to a retirement savings plan. If passed, this legislation could potentially allow employers to send their employees’ savings in an American Savings Account (ASA) to the federal government right along with the already processed employee tax withholdings. The great thing about this is that employers wouldn’t be forced into a new administrative process, therefore providing a seamless transition. In the beginning, it would defer 3% of salaries of workers. However, that can be changed by participants to 2% if preferred, and the contribution maximum would be capped off at $18,000 a year.

Like the TSP, the ASA would include the same investment options, even at the same low cost. Workers would control accounts through a website for quick and easy manageability. Additionally, workers would have the opportunity to roll any other individual retirement accounts they already have, such as an IRA for example, into the ASA. The ASA could also be rolled into an employer-sponsored 401(k) or 403(b) plans.

There are undeniable benefits. ASAs would be:

  • Universal
  • Portable
  • Simple
  • Personal

All workers would be able to determine just how much they want to save as well as how much they want to invest!

Why Military Pensions are Insufficient to Retire On

In most companies and industries, employee sponsored 401 (k) plans phased out traditional retirement plans. Still, the military offers its uniformed members a pension scheme. Typically, military members receive a pension equal to 50% of the highest three-year base pay. Each year, pension amounts increase by 2.5% for members with twenty and above years of service.

Though this amount is significant, it might not be enough for you and your family’s needs. Typically, military members serve for less than 20 years, meaning that after discharge, you’ll most likely have no pension.

A New Blended Retirement System

In January 2018, the Blended Retirement System (BRS) was introduced for service members who leave before the 20-year mark. It has three retirement options: pension only, a Thrift Savings Plan (TSP), or a reduced hybrid (pension and TSP) option.

After January 2018, enrollments into the BRS are automatic. If you have less than 12 years of service, you can elect to enroll into the BRS. Members with fewer than eight years can leverage the BRS’ provisions to save more for their retirement.  But why is that so? It is because your matching contributions can exceed your pension’s total value. But this requires that you remain in service for twenty years or more to qualify for a military TSP.

Depending on your status, it is challenging enrolling in the BRS if you have between 8 and 12 years of service. Additionally, your TSP contributions and base pay may affect your eligibility. Often military members with 20 or more years prefer a pension based retirement scheme.

Benefits of TSP

But What is TSP?

It is a retirement saving scheme for service members and federal employees. This plan remits 1% of an employee’s base pay into a TSP with a further 4% to 5% matching contribution. With a TSP, you can choose to invest your contributions in any of the five index funds or a lifecycle fund. An advantage of TSP indexed fund options is their relatively low expense ratios. Typically, expense ratios are 40 cents per $1,000 that you invest. Plus, you can opt between a traditional TSP, a Roth-based TSP, or a hybrid TSP. All matching contributions are deposited in a conventional TSP no matter what option you are enrolled in. For 2018, the maximum contribution value for a TSP is capped at $18,500.

What Are Other Saving Options Available?

Option# 1: Traditional and Roth IRAs

With this approach, members can contribute to Roth and non-deductible IRAs as well as TSPs. You can open either of these investment accounts at your local brokerage firm. What’s more, both function independently and contributions are capped at $5,500 per year. However, they are limits on incomes for eligibility.

Married service members can have their spouse make IRA contributions where applicable. Spousal IRAs have a contribution limit of $5,500 each year.

Option #2: Taxable Brokerage Accounts

Another alternative is to invest additional funds in a taxable brokerage account. Unlike IRAs and other retirement schemes, brokerage accounts charge no penalties for early withdrawals. Also, brokerage accounts impose no contribution caps.

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Estimating How Much You’ll Need for Retirement

  • Know Your Needs

Estimating how much money you’ll need requires understanding what retirement means as well as its implications. So evaluate your lifestyle to determine the finances you require. Below are the factors that can affect your financial status during retirement:

  • Maintaining a large house or living in a low-cost maintenance home
  • Whether you’re traveling internationally or living closer to home
  • Spending on hobbies such as golf or engaging in volunteer work
  • Taking up a part-time job

Although you are retired, you might secure a part-time job, earning you some much-needed income. If so, you are better off with fewer retirement savings.

  • Craft A Retirement Budget

After knowing what type of retirement you’re looking at, it’s time to create a budget. Start with public expenses to gain an idea of your retirement expenses. Let’s say you spend $5,000 each month; you need $60,000 each year to meet your living expenses. So if you retire at age 63 and live for another 27 years, your retirement estimate equates to $1,620,000. Of course, other costs and inflation might push this figure upwards. Nonetheless, it is a reasonable ballpark estimate.

Increased life expectancies and kids who need support beyond college might stretch your military pension.  This means you’ll have insufficient finances to cover all your needs. Typically, retirees withdraw 4% of their retirement benefits each year.  With the above example in mind, you require about $1,620,000 to cover $60,000 in monthly expenses.

Besides that, how much you need depends on the factors below:

  • Your place of residence as tax rates differ across states
  • Lifestyle choices you make during retirement
  • Any debts you might be paying while retired
  • Whether you have family members depending on you for support
  • Your revenue streams either from part-time work, real estate, or other investments

No matter your retirement status, a retirement calculator is a great way of simulating different saving scenarios. Alternatively, you can consult with a financial planner for help in creating a retirement plan.

How the Coming Bear Market Will Cause a Retirement Crisis

Speculation is rife that a coming bear market, as well as a recession, will wipe out large portions of retirement portfolios. Also, local, state, and federal pension funds will be affected as well. But do these governments have the resources to fight back?

To answer this question, let’s consider the following points.

  • In 2018, we are in the middle of the 10th year of economic recovery from the last recession and a bull run in the stock markets. Since March 2009, the S&P 500 index has gained more than four times in value. Each year, it has had a 17.5% growth rate. Although the S&P index has grown by 10% each year, at some point a reversion to the mean is well in order.

This is why investment firms like Charles Schwab and Morgan Stanley are wary of stocks in the next decade.   Even so, this doesn’t mean there will be an economic recession. Instead, you should expect subpar returns and the onset of a bear market.

This means that retirees will be hardest hit. Why is that so? On average, bear markets are 15 months long, and stocks decline by 32%. Early this year, average IRA and 401(k) balances rose upwards to $100,000. Nonetheless, this amount is not enough to support most retirees once they retire.

  • Besides, a bear market will affect both state and local government pension schemes. One report estimates that in 2016, 65% of state and local retirement funds were held in equities. In 2017, state and local authorities had a total of $4 trillion in assets and $1.8 trillion in unfunded liabilities. Today, managers of these funds expect returns of 7% annually. As a result, the arrival of a bear market would have significant impacts on states like Connecticut, Illinois, Kentucky, and New Jersey.

Benefits of TSP

Recent cuts on corporate taxes and tightened spending policies will shore up budgetary deficits in the long term.  In the last week of June, the total federal debt rose to its highest level since the Second World War according to the Congressional Budget Office. What does this portend for retirees? With taxes and interests rate eating a huge chunk of the federal budget, it will be challenging sustaining Medicare and Social Security.

  • In the recent past, the Federal Reserve pushed interest rates upwards on a number of occasions. With a balance sheet that is $3 trillion in the red, it’s uncertain whether the Federal Reserve has sufficient resources to fight the coming recession. Currently, the federal funds rate is at 2% with the Fed projecting that this will increase to 3.5% by 2020. Given that, the Fed will be hard pressed to slash interest rates and reluctant to purchase bonds as it did in the last recession. So, what does this mean for you? It means you shouldn’t expect a Powell put to help you ride out a bear market.

All the same, a majority of retirees have made the necessary preparations in readiness for whatever the future unfolds. But for those who haven’t, their retirement savings are in jeopardy if the economy and markets behave as expected. Although we might ride out these fluctuations, however, it will be challenging to do so.

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TSP CSRS, or the Civil Service Retirement System, offers the Thrift Savings Plan as a supplement to your CSRS Annuity or military pay- as of January 1st, 2018, military employees also participate in a military TSP.

TSP and FERS, or Federal Employees’ Retirement System, makes your TSP one part of a three-part retirement plan. This also includes the FERS Basic Annuity and Social Security.

The difference between the FERS or CSRS Annuity and the TSP is that the annuity is based on your years of service, rather than how much you have contributed, and is also voluntary, as opposed to the annuity.

Regardless of which retirement system you qualify for, contributing to the Thrift Savings Plan is vital to your retirement, especially if you contribute early. TSP compound interest means that the earlier you start to make contributions, the better. However, if you did not start saving at an earlier point, committing to a steady and consistent contribution schedule will almost always produce positive results.

How does TSP work?

If you are a new federal employee, you most likely have an established account and were enrolled in a 3% payroll deduction. If you were hired before July 31st, 2010, you were not automatically enrolled in a TSP account and will need to create it yourself. For CSRS employees and members of the uniformed services, you must elect to contribute to the TSP. You are also not eligible for agency contributions.

You can elect to stop or change your contributions at any time. Check with your payroll office or agency to find out how to sign up for TSP. You may be required to use your agency or service’s electronic system, or you may have to submit Form TSP-1 (Form TSP-U-1 for uniformed services). The Thrift Savings Plan website has the forms available if your agency or service accepts them.

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TSP funds

There are five core funds in the Thrift Savings Plan- four of them are index funds, which mean that they are exactly matched to a broad market index.

  • G Fund (Government Securities Investment Fund)
    • This fund does not invest in an index. The only fund that it is connected to is a nonmarketable treasury security issued for the TSP by the U.S. Lowest return and risk
  • F Fund (Fixed Income Investment Index Fund)
    • Matches the Barclays Capital U.S. Aggregate Bond Index. Slightly higher return and slightly higher risk.
  • C Fund (Common Stock Index Investment Fund)
    • Out of the three stock funds in the TSP, the C is considered the most conservative. It is connected to the Standard and Poor’s 500 Index, which has greater volatility than either the G or F funds.
  • S Fund (Small Capitalization Stock Index Fund)
    • This fund is connected to the Dow Jones U.S. Completion Total Stock Market Index, which is a total of 4,500 companies that fall outside of the S&P 500’s list. Potential for large growth, but also large losses.
  • I Fund (International Stock Investment Fund)
    • The only internationally invested fund. High risk, but potentially high reward.

There is another option for Thrift Savings Plan investment funds- the L funds. These are funds that actually invest in a variety of all the other funds and target a specific retirement date, initially investing in the more aggressive funds and slowly moving into the more stable bonds funds as retirement approaches.

How to change my TSP contribution

If you have not made a contribution election through your agency to start contributions or change the way your contributions work, there are a few steps:

  1. Ask your personnel or benefits office whether your agency or service handles enrollments
  2. Determine the amount you want to contribute and whether you want a Roth or Traditional TSP
  3. Return your completed TSP-1 or TSP-U-1 to your employer to get your payroll deductions set up. Your election should be effective no later than the first full pay period after your agency or service receives it.
TSP and FERS are important parts of your retirement
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Withdrawing from the TSP

You have several withdrawal options that you can choose from. Partial withdrawals are allowed in a single payment. You can also make a full withdrawal with any one or any combination of the following methods:

  • A single (lump sum) payment
  • A series of monthly payments
  • A life annuity (Thrift Savings Plan Lifetime payment options).

A combination of any of these three full withdrawal options is called a “mixed withdrawal.” You can have the Thrift Savings Plan transfer all or part of any single payment or, in some cases, a series of monthly payments, to a traditional IRA or an eligible employer plan by completing the TSP-70 form. Payments to you can be deposited directly into your checking or savings account using electronic funds transfer (EFT).

Spouse’s Rights

If you are a married Thrift Savings Plan participant (even if you are separated from your spouse), spouses’ rights apply to annuity purchases. If you are a married FERS or uniformed services participant with a total account balance of more than $3,500 and you are making a full withdrawal of your account, your spouse is entitled by law to an annuity with a 50% survivor benefit, level payments, and no cash refund. If you choose any other withdrawal option or combination of options by which your entire account balance is not used to purchase this particular type of annuity, your spouse must sign the statement on your withdrawal form that waives his or her right to that annuity.

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Top Three Reasons Not To Trust a Balance Sheet

Often, most of us think we’ve got our balance sheets in order. For instance, you might know how much you owe on your car, mortgage, and other debts. Others may know how much they have in retirement assets, house equity, and in retirement savings.

However, if you hold any retirement savings in a 401(k) and an IRA, you should consider the effect of taxes on your cash value. Additionally, you need to factor in the impact of fluctuating stock indexes on your income.

In February, the stock market tanked with over 1,000 points, then recovered. Though analysts consider this a 10% correction, it may point to possible volatility. At present, it is impossible knowing what the future holds. But February’s revision prompted concern over IRA and 401(k) statements among Americans. For a majority of Americans, it is difficult telling the difference between paper wealth and actual wealth. What’s worse, this difference can have a significant impact on your net worth.

Ideally, you should maintain an annual balance sheet that tracks your progress towards financial goals. With it, you’ll have a picture of what you own and what you owe. An annual balance sheet can help you better understand your financial position. For instance, if you have debts that are greater than your income, then your net worth is negative. If so, then you could be staring at financial insolvency and possibly bankruptcy.

Luckily, there are many personal financial planning software applications for use in developing your balance sheet. Even so, keep it in mind that a balance sheet doesn’t always reflect your whole picture. A balance sheet can mislead when estimating your net worth.  Given that, let’s consider the factors that can affect your bottom line.

Benefits of TSP

Factor # 1: Hidden Taxes

Assume you have $300,000 in an IRA, a 401(k), or a traditional savings account (not a Roth IRA). Typically, these accounts are considered as $300,000 in assets with considerable tax liabilities. Every dollar withdrawn from a traditional retirement account is taxable. Using the above figure if you are in the 25% tax bracket, your tax equates to $75,000.

Factor # 2: Your Estate’s Value

All funds in a traditional retirement account go to your beneficiaries upon your demise. However, your heirs will have to clear any income taxes you owe. Additionally, they may have to pay estate tax on any retirement money they inherit.

Factor # 3: Adjusted Retirement Account Values

A balance sheet is just an estimate of the assets net worth of your assets at the present market rates. On the contrary, it doesn’t portray what you might be worth if the market collapses or rises. Since 2000, the market has dropped twice by more than 50%. This is why you need to factor this percentage when preparing a balance sheet. On the other hand, assume you had $300,000 in a dividend paying life insurance policy.  In this case, you could leverage a legal provision that allows for cash withdrawals that have no tax obligations. You get to keep your entire $300,000 asset.

In case you die before depleting saving in a traditional retirement account, your family pays any owed income taxes on the sum they inherit. Under current law, a life insurance policy pays the entire value of your death benefit to your family without any income tax deductions.

Therefore, you should consider the impact of income taxes, market volatility, and estate value when preparing a balance sheet in the future. Doing so will help you create a saving strategy to meet your unique needs.

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Should Federal Employees Choose Supplemental Coverage with FEGLI Option B?

The federal government provides group life insurance coverage that is more affordable for federal employees, and the trend is also common among many private sector businesses. However, it is important to note that the FEGLI coverage has its share of limitations and advantages. The Federal Employees Group Life Insurance (FEGLI) is only meant for federal employees.

 

Why is FEGLI a good option?

 

Under the FEGLI coverage, there is an additional $2000 to the base pay when it comes to the basic life insurance coverage. The program is subsidized by the federal government by up to 33%, and one does not need a medical exam to be eligible for coverage.

 

For each pay period, the current price at 0.15 for each thousand of coverage and the basic benefit for the policy is not determined by your health or age. Moreover, federal employees get to enjoy free basic plan when they reach 35 years. Before the age of 45, you can enjoy a 10% increase in benefits every year. Once you reach age 45, the supplemental benefit is no longer applicable.

 

Beyond Basic Coverage

 

Apart from the basic coverage, federal employees are allowed to increase their family coverage or their own coverage. Federal employees have the following options;

  • Option A goes up to age 55, and the pricing is done in a five-year bracket with a $10,000 increase in the benefit amount.
  • Option B allows five-year adjustment intervals where one can increase their insurance amount by adding a multiple of their salary. The base salary can be increased by up to five times by adding a multiple to your insurance amount.
  • Option C provides coverage in multiples of $2,500 and $5,000 for dependents and couples respectively. The option has five-year adjustment intervals for its cost just like options A and B.

 

The Option B Decision

 

As compared to option C, most decisions are made based on option B as the coverage does not change with age and the fact that the option offers affordable cost per thousand dollars of coverage. Also, it is easy to implement option B as it allows you to enhance your coverage center. The fact that the option is payroll deducted and has no health requirements makes it popular among federal employees. However, one might be forced to wait for a life event like marriage or provide evidence of health when they miss the initial 60-day window.

Alternatively, there are non- FEGLI options that you can see with CompareFEGLI.com‘s easy FEGLI comparison quote calculator.

Viatical Settlements and FEGLI

FIRST PUBLISHED ON COMPAREFEGLI.COM

FEGLI and Viatical Settlements

viatical settlementsViatical Settlements, in case you didn’t know, are defined as the sale of a policy owner’s existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit.  The buyer becomes the policy owner and pays the premiums, and gets the death benefits when you die.

Where FEGLI is concerned, there is no cash value, but that’s not stopping you from assigning it to one or more assignees, and one of these may be a viatical settlement company. READ MORE:

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Who Gets Your FEGLI Life Insurance Benefits When You Die?

FEGLI Death Benefits Claim Guide

FEGLI Death Benefits Claim Guide

death benefits FIRST PUBLISHED ON COMPAREFEGLI.COM If you die while still covered by your FEGLI life insurance, your designated beneficiary or beneficiaries need to file a claim for FEGLI death benefits. The following links contain useful resources to aid beneficiaries in how to pursue these benefits.   READ MORE:

 

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What is FEGLI Option A, Option B and Option C?

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Converting FEGLI to Individual Life Insurance After Separation From Federal Service

Who Gets Your FEGLI Life Insurance Benefits When You Die?

FEGLI – Federal Life Insurance Living Benefits Guide

 

Death Benefits: Trustee Designation For FEGLI

FIRST PUBLISHED ON COMPAREFEGLI.COM

Trustee Designation For FEGLI Death Benefits

death benefitsDid you know that federal employees and retirees can establish a trust to receive your FEGLI death benefits? This can be done through an inter vivos (living) trust, or through a testamentary trust that is created through your will upon your death. Your survivors and beneficiaries can then purse the claims to receive the benefits they are due. The following links contain more resources for a survivor seeking to receive FEGLI death benefits. Be sure to remain informed and take advantage of every resource involving FEGLI and receiving death benefits.

 

These links will give you more information about FEGLI and survivor benefits. Stay informed! READ MORE:

 

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What is FEGLI Option A, Option B and Option C?

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FEGLI Accidental Death and Dismemberment Benefits

First published on CompareFEGLI.com

accidental deathFEGLI Accidental Death and Dismemberment (AD&D) Benefits

You or your beneficiaries can claim FEGLI accidental death and dismemberment (AD&D) benefits when you, as the insured, suffer from loss of life, limb or eyesight. The following  READ MORE:

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Who Gets Your FEGLI Life Insurance Benefits When You Die?

FEGLI – Federal Life Insurance Living Benefits Guide

 

Concurrent Employment: How Much FEGLI Coverage Do You Get?

First published on COMPAREFEGLI.COM

How Much FEGLI Coverage Do You Get With Concurrent Employment?

concurrent employmentConcurrent employment, in this reference, is where a federal employee is working for and earning federal wages from more than one agency. If you’re wondering when and how this is possible, there are certain situations which make it possible.

For example, you could be temporarily be reassigned to another agency, while still being expected to do some of the work you were already doing for your original employing agency. You could be in nonpay status for a position, and be asked to serve in another capacity for the interim.

In any case, the only eligibility requirement in cases of concurrent employment is that at least one of your positions should entitle you to be enrolled in FEGLI. So the next obvious question is about the coverage amount, and which agency will pay the government contribution towards your FEGLI premiums. READ MORE…

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What is FEGLI Option A, Option B and Option C?

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Who Gets Your FEGLI Life Insurance Benefits When You Die?

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Impact of Breaks in Service on Your FEGLI Coverage

First published on CompareFEGLI.com

Impact of Breaks in Service on Your FEGLI Coverage

breaks in serviceIt’s not uncommon for federal employees to take breaks in service and then come back to work for their employing agency, reinstated into their prior position. Under such situations, what happens to your FEGLI coverage? READ MORE:

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What is FEGLI Option A, Option B and Option C?

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Who Gets Your FEGLI Life Insurance Benefits When You Die?

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Reemployed Annuitants and FEGLI

FIRST PUBLISHED ON COMPAREFEGLI.COM

FEGLI For Reemployed Annuitants

annuitantsSo you decided to hang up your federal employment boots and enjoy retirement benefits such as FEGLI for annuitants. But then you get lured back into the federal workforce, whether by want or need or the call of duty. Whatever the reason, one of the things you have to sort out here will be about your life insurance coverage. READ MORE:

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What is FEGLI Option A, Option B and Option C?

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Converting FEGLI to Individual Life Insurance After Separation From Federal Service

Who Gets Your FEGLI Life Insurance Benefits When You Die?

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