Federal Retirement NEWS
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Trade Wars Increase Financial Tension
President Trump was true to his word when he told the nation he intended to enter into a trade war with China. Whether or not he was telling the truth when he said it would be “easy to win,” has yet to be seen. No matter what the outcome might be, at this stage our current back-and-forth naming of new tariffs with the Asian economic giant certainly has sensible investors worried. Working for the federal government is no protection here. The Thrift Savings Plan (TSP) portion of the Federal Employees’ Retirement System (FERS) is that which the employee has the most control over and can often make the difference between a comfortable retirement and a stressful one.
The reason for this is that unlike the FERS Annuity and Social Security, the TSP allows employees to determine their own level of contribution and choose from a set of funds that can vary in performance. Market volatility caused by the looming trade war caused the majority of TSP funds to fall in March even though the first direct measures taken against China did not take place until March 22nd when the first $50 billion worth of goods to receive tariffs was announced. That day saw the Dow Jones Industrial Average drop 724 points, a figure that represents the fifth-largest single day drop in the Dow’s history.
While this was the first major move by the White House directly targeted at China, they had been hinting at it from they began imposing tariffs earlier this year. In January a 30% tax on imported solar panels was implemented. The idea was to make U.S. solar panel manufacturers more competitive, but many experts doubted its effectiveness while cautioning that the move could cause huge job losses for solar installers, salespeople, and others working in the industry outside of manufacturing. The U.S. did not single out China at the time, but the majority of solar cell imports do come from Chine. At the beginning of March, a 25% tariff on imported steel and 10% tariff on aluminum was announced. However, shortly after it was announced that many North American, European, and other countries would be excluded from the tariff. China did not make that list.
There is no doubt that investors have been feeling the pressure. In regards to the TSP, post separation withdrawals and retirement applications have both been increasing since the beginning of the year. The Office of Personnel Management has reported huge backlogs in their ability to process claims.
Many powerful, and sometimes surprising, players have entered the arena to try and dissuade Trump from pursuing trade wars. Apple CEO Tim Cook was in Washington, D.C. on Wednesday where he had a closed-door meeting with the President. Speculation suggested that Cook would try and steer Trump away from further escalation of the trade barriers being put in place in the way of tariffs between the U.S. and China. Chinese trade is vital to Apple both for selling their products and meeting the huge demands of their supply chain. Cook’s private meeting with the President followed his participation in talks between Trump and French President Emmanuel Macron.
Macron’s visit was closely followed by another visit from a European Union head of state, German Chancellor Angela Merkel on Thursday. She was there for much the same reason as Macron, in hopes of tempering down the first signs of a trade war between the U.S. and the E.U.
With so many different interests at play on a global level, it must be expected that investors are jittery and markets are seeing increased volatility. The suggestion most frequently proffered to federal employees worried about their TSP is to diversify in a number of the different funds.
Retirement Income Tax: Five Tips to Reduce How Much You Pay
Retirement Income Tax: Quick Tips
As Tax Day is rushing up, it can be challenging to understand how to deal with retirement income tax. If you aren’t working, it may seem that you would be in the clear. However, between paying taxes on your TSP, cashing out your other investments, and any possible small jobs you may take on during your retirement years, it can pay to make sure that your taxes are as minimal as possible, primarily because of your limited funds during your retirement years.
Contribute Fully to the TSP
The most important part, of course, is participating in your company-sponsored retirement plan. For federal employees, this will be your TSP. Make sure that you are saving the maximum 5% up to retirement, as the government offers a match that means you effectively double your TSP just by saving money you will spend anyway.
Consider Some Types of Life Insurance
Whole life insurance policies can be a useful means of possibly gaining tax-free income during retirement. Often, there is the possibility, as with indexed life insurance policies, that the policy accumulates a cash benefit connected to the market that means that you could go throughout retirement without having to pay any life insurance premiums or withdraw the money and spend it freely. You can simply avoid retirement income tax as much as possible by saving it instead.
Look Into Tax Deductions for Business
Sometimes, if you supplement your retirement income with part-time self-employment, there are some business expenses and deductions you could include on your tax return. Consult with a financial professional before you make any significant decisions about your career or business, as there is a possibility that the profit you make might not be worth the investment. It is your retirement, after all- if the work you already do doesn’t appeal, consider trying a more low-investment job that could be an enjoyable source of income.
Examine Your Personal Debt
If you have auto or other personal debt, consider consolidation into a lower rate of interest. Unfortunately, rolling it into a home equity loan to deduct the interest is no longer practical since the Tax Cut and Jobs Act passed into effect. Once again, the best solution for this is to discuss your options with a financial professional to be sure that you are getting the best financial solution possible.
Pack your Bags and Move Away
Ever wonder why so many retirees move to Florida? The reason is simple; there’s no state income tax, which can eliminate a massive financial load. In some states, the income tax rates can be as high as 9.90%.
All in all, there is no one right way to retire, but at least with these strategies, retirement income tax may be a little more navigable. To learn more about your options for retirement, go to tsp-withdrawal.com and talk to a financial expert.
Pet Life Insurance: It’s Real and You Might Want It
In a dog-eat-dog world, sometimes we forget what will happen to our furred friends. Over 68% of US households, in fact, own pets, and a surprising amount of those households are making financial plans regarding their pets. After all, in the same way, you want your family or beneficiaries to have a good life when you pass away, it is important to make sure that your pet will also be safe from being potentially abandoned. That’s where pet life insurance comes in.
The most famous case of estate planning for pets is the case of Leona Helmsley’s dog Trouble, the ‘Richest pet on Earth.’ Helmsley, an infamous billionaire who cut two grandsons out of her will, bequeathed a sum of two million dollars to her Maltese when she passed away in 2007. The dog passed away four years later, in 2011.
Though you may not be in the position to leave 12 million dollars behind for your dog, or cat, or goldfish for that matter, it is still sometimes a good idea to plan for your pets’ well-being. Before you purchase pet life insurance, though, you must check a few things:
- If you have nobody to care for them. If someone is there to care for your pets, then there is no need to make special allowances for them.
- Make sure that you describe the pet to such a degree that it is not possible to commit fraud by replacing them with a similar animal.
- Determine your Caretaker: make sure to determine both a trustee and a caretaker; the trustee will make sure that the money is properly used by the caretaker for your pet.
- Provide for remaining funds: when your pet passes away, the fund may still have some remaining money. Be careful, though- stray away from making an individual the beneficiary, in case they choose to ‘accelerate’ the payout. Instead, choose a charity or cause where you will donate your money.
A recent survey indicated that 44 percent of pet owners have a financial plan to make sure their pets are covered. Some have verbal plans; others have written plans. Pet care, as a rule, is costly and complex, so make sure that you have covered every base. Find out how much it costs you on a monthly basis to feed and provide necessities to your pet, and use that as a basis to understand how much you must leave behind.
Be sure to talk to your financial advisor before you make any financial decisions regarding your pets and pet life insurance. In addition, when you draft your formal trust or will, consult your legal professional to make sure that you have covered all the necessary bases.
Do your Finances Need a Checkup?
Financial Health and You
When is the last time you went to the doctor for a checkup? You probably went at least once last year, and maybe you’ve gone sometime this year, as well. It’s important to have regular checkups; whether it’s your body, your car, or your family. Unfortunately, there is another vital check-up that most federal employees can’t remember doing: a financial checkup. Your financial health is one of the most vital parts of your life, and you should take every chance to check these nine things.
1) Are you taking full advantage of your TSP?
Federal employees can take advantage of retirement savings plans like the Thrift Savings Plan, which offers several excellent benefits, such as a match in contributions up to a certain percentage and the ability to invest in a wide variety of funds with more or less conservative growth and risk.
2) Are you investing in the TSP appropriately?
Before you invest entirely in the TSP, make sure you fully understand the best way to invest to get the most out of your agency’s contribution matches. Be sure to talk to a TSP expert before you make any vital decision.
3) Are you Missing Out on Better Federal Employees Health Benefit Opportunities?
Whenever you make a significant life change, you should check to see if there is anything that could change about your FEHB. Whether it’s retirement, a new child, or marriage, there is a chance that you could be getting a better rate. Be sure to take advantage of this year’sFEHB open season to learn how you could save your money.
4) Are you ignoring the alternatives?
FEGLI is not the only life insurance provider on the market. Make sure that you are looking for better life insurance deals before you commit to FEGLI since your financial health could be at stake.
5) Are you overestimating your H3?
Your H3, your three highest-income years before retirement, may be subject to change in the coming years if you are looking to get a raise in the years to come. Be sure that you have a reasonable understanding of how your finances will change in the future.
6) Are you likely to miss out on creditable service time?
In calculating your retirement annuity, service time is one of the most critical aspects of how much you will earn on your investments. Be sure all your working time can accumulate service credit.
7) Are you overestimating your Social Security benefits?
Social Security can be an intricate process to understand without the help of a professional. It’s based on a complicated formula that is subject to adjustment based on wage growth, so it is too easy to overestimate how much you will be receiving.
8) Do you want the Survivor Benefit?
If you are married, you should make a decision now regarding how you want to handle your survivor’s benefit. Do you want a full benefit, partial benefit, or to reject the survivor annuity wholesale and put the money into alternative investments?
9) Are your beneficiary designations up to date?
Make sure you know who your money is going to- it saves time and avoids complications when it comes to redeeming claims.
Use these 9 tips next time you talk to your financial advisor and make sure your financial health is acceptable for your future.
Are Your Savings Right for Retirement?
What are you doing to save for retirement? It’s probably not enough.
There are a variety of reasons you probably aren’t saving enough, but are they good enough to excuse causing yourself more hassle and pain down the road? According to a 2018 retirement savings survey, about 42% of Americans will retire without sufficient savings- not even $10,000. Women also lag behind men in retirement by as much as 5%, but it is still an improvement over past years- in 2016 63 percent of women had less than $10,000 saved, with a large section having saved nothing at all.
So what are the reasons for all of this poor financial planning? There are a few excuses, but the primary one is that you don’t make enough money to be able to afford to set some aside. However, one consideration is that when your money is saved in a tax-deferred account, like the cash value of an indexed life insurance policy or IRA, you are not paying income tax on that segment of your income, which can have the exciting result of reducing your paycheck by less than what you contribute to the fund. It may sound odd, but when you think about it, it makes sense- after all, if your income were, say, 10,000 dollars a year, and you contributed 1,00 of those dollars to the fund a month, assuming a 25% tax rate, your final paycheck would only be reduced by $75, but your account would grow by $100. Attach this to a good market with reasonable growth, and you would be in a vastly more comfortable position with, all things considered, a negligible charge per month.
However, if you are drowning in debt, whether it is a mortgage, credit card bill, or another loan, it should always be an essential priority to pay off these loans. But at the same time, there is no more significant loan than the one you’re paying to your future self- after all, if your debts are all paid but you have nothing to live on, your retirement will be a disappointment, and you will have nothing to fall back on in the case of a medical, family or another financial emergency.
Of course, everyone’s case is different, and not everyone can make these sometimes difficult decisions without the help of an expert. Talk to a retirement professional today and make sure that you know what you need to do to ensure you are financially ready for retirement.
Study Finds Telecommuting Makes Job Satisfaction Take Off
Do you telecommute or telework? It may make your job satisfaction skyrocket.
In a new federal employee study by the Office of Personnel Management, participation in teleworking or other agency-run wellness programs perform heavily more favorably on performance reviews than those who do not. More than 72% of employees talking about the program said that the program not only made their performance better, it also vastly improved their morale and intent to stay with their current agency, no small feat in an atmosphere with cripplingly low federal employee confidence and security in their jobs in light of recent government shutdowns.
Nevertheless, there is still hope. The study indicated that the reaction to the increased work-life balance offered by telecommuting was overwhelmingly positive, with nearly 80% of all employees saying that they were happier with their more flexible schedule. The reaction to other wellness programs was more lukewarm- only 38% said that they were happy with health and wellness programs.
Less than half of all federal employees think that their managers approve of the use of work-life programs, and in many cases, they aren’t wrong. For instance, the Department of Agriculture changed its telework policy, requiring its employees to be physically present four days a week. Considering the results of the study, it would seem that the Department of Agriculture would want to instead increase options for federal employees to work from a distance. However, for the most part it seems that federal employees would be highly interested in, and remain invested in, a program that would allow increased flexibility in their working hours.
Ultimately, the idea of a work-life balance is a distinctly Millennial concept, and with a changing work culture and a significant Millennial disinterest in public sector work, there is a sort of ‘change or die’ impetus to make these changes. Over decades, the public sector has been stagnant, using outdated technology and work methods, and younger generations are taking note. It isn’t just a question of Millennials, either, as even to the relatively technically up-to-date Generation X represents the largest percentage of federal workers today. Without updating the essential processes that this country runs on, there is no chance that it will be sustainable.
Federal employees are quickly moving towards the generational change that implies a movement towards more modern demographics, and a massive leap forward in making that happen would be to implement these key work-life programs. It remains to be seen where this can go, but for now it will be something to keep an eye on in the future.
Life Insurance: Kid-Tested, Mother-Approved?
Life insurance companies have a new, unconventional sales strategy: selling life insurance policies on children.
The fact that most life insurance companies are asking parents to purchase life insurance for their children can seem to be incongruous, almost like buying your three-year-old a car with the idea that it will be cheaper when they are older. The idea seems absurd, but life insurance companies have recently strongly favored these sales strategies.
The most interesting thing is that insurance companies do not directly say that they are urging parents to purchase life insurance for children. Instead, the companies have coined some enticing phrases, such as “college plans,” “grow up plans,” or “get started plans.” Such pitching terms end up confusing parents and grandparents to fall into their trap, playing on their emotions to get an easy sell.
Realistically, children do not need life insurance and these companies are only interested in making easy profits. They just want to take advantage of the fact that parents and grandparents love their children and can fall for any plan that appears to benefit their kids. There is no problem with selling life insurance to adults as it is a wonderful retirement plan but extending the same to children amount to conmanship.
Life Insurance should retain its Original Purpose.
Life insurance companies should stick to the plan’s original purpose, as it is an excellent long-term financial plan. Purchasing a life insurance plan ensures that your family or dependents are fully protected from economic loss when you die. It is true that a person’s young family benefits from life insurance as it gives them the much-needed financial security.
On the other hand, a family is less likely to suffer any considerable economic loss after an unfortunate death of a child. The death of a child leads to an emotional loss, but the issue of financial loss, which is the main incentive behind the purchase of life insurance, is tough to justify.
Life insurance companies understand that they cannot sell life insurance for children by focusing on economic benefits, which is why the pitch is a more indirect approach to take advantage of the parent of children. The fact remains that these “grow up plans” are nothing but life insurance for people who do not need, or even really want, coverage.
According to life insurance companies, there is a possibility that some children may not qualify for life insurance when they become adults, and it is a good idea to take advantage of the cheap rates. However, the fact is that until middle age, life insurance will remain relatively cheap in the vast majority of cases.
