Preparing to Retire or Become a DROP Participant Sponsored by: Flavio J. “Joe” Carreno

If retirement is getting closer, you might be considering becoming a DROP participant. In this guide, we want to talk about important considerations and payment options. By the end, you should feel confident in making the right decision for you. 

Important Considerations 

At this stage of your life, we recommend taking advantage of the brilliant resources made available by various organizations. To make the right decision, you need to consider the length of your retirement, how you plan to live life in retirement, whether you need to provide for others, your current financial resources, and more. Some useful resources include: 

2nd Election Choice Service – For those who haven’t used their 2nd Election Choice just yet, you may benefit from a switch. Just head to this service on MyFRS, and you’ll learn how benefits differ under the two retirement plans. 

Advisor Service – Remember, you aren’t alone. MyFRS provides an advisory service that considers your retirement plan, goals, and other considerations before suggesting potential changes and adjustments. 

Health Insurance Subsidy (HIS) – If you have health insurance premiums to pay in retirement, you may be eligible for help through the Health Insurance Subsidy. For every year of service, you’ll get an additional $5. Currently, minimum monthly payments are set to $30, with the maximum set to $150. You’ll automatically qualify for HIS if you’re a Pension Plan member. 

Alternatively, you need six or eight years of service if you’re in the Investment Plan (eight years for those who enrolled after July 2011). Also, you need to be eligible for normal retirement and then retire from the Investment Plan. 

Payment Options for the Pension Plan 

Single Life Annuity – Firstly, this covers your entire lifetime with the maximum monthly benefit. Although you get payments for your lifetime, there’s no benefit for your beneficiary after passing away. 

Reduced Life Annuity – This time, the monthly benefit is reduced for your lifetime. Your beneficiary gets the same benefit until the 10-year mark if you were to die before this period has passed. The advantage is that you get benefits for a set period, and you can choose a beneficiary for payments too. The disadvantage is that your beneficiary won’t receive anything after your death if you outlive the ten years. 

Reduced Joint and Survivor Annuity – With this option, there’s diminished monthly benefits for life with your beneficiary or joint annuitant receiving the same benefit (if they were financially dependent on you). This is great because your survivor gets the same benefit even after you die, but this all ends after you both pass away. Also, your beneficiary needs to qualify as a joint annuitant. 

Reduced Annuity with 2/3 Survivor – Finally, you get a reduced monthly benefit as long as you and your joint annuitant live. When the first dies, the benefit is reduced to two-thirds for the other. This is ideal for couples because the benefit is large while you’re both alive before then dropping when only one is alive. You can also choose any beneficiary, and payments are guaranteed for life. On the other hand, it ends after both have died, and your beneficiary must qualify as a joint annuitant. 

Payment Options for the Investment Plan 

Fixed Annuity – As a guaranteed monthly benefit, you’ll always receive the same amount. You choose the annuity for the rest of your life or for a set period. You don’t have to worry about market fluctuations. Sadly, you don’t choose investment opportunities, you pay the annuity cost from your balance, and there’s no editing once payments begin. 

Lump-Sum – If you prefer a full or partial lump sum, this can be used to make a big purchase or pay off long-held debt. Of course, you need to budget carefully and think about tax with this option. 

Variable Annuity – Back to the annuities, the payments of this one change every month because they’re linked to your investment options. You’re in control of where your money goes, and there’s potential for higher earnings. The downside comes with market fluctuations, management fees, and the cost of the annuity. 

Systematic Withdrawals – Here, you can withdraw the amount you want whenever you need it. Thankfully, the investment continues to grow, and you withdraw whenever you need to meet living expenses. Depending on how you manage the account, payments might not last a lifetime, and you will be affected by market fluctuations. Also, you need to take care of and monitor investments carefully. 

Joint and Survivor Annuity – As well as a monthly benefit during your lifetime, the monthly benefit with this one is at least 50% of your original benefit for your beneficiary after death. For those who want to leave their beneficiary with something after death, this is an effective choice. Unfortunately, you can’t help a second beneficiary if your first (or spouse) dies. Additionally, the continued benefit is accommodated by reducing your initial monthly benefit. You also need to pay for the annuity from your account. 

Combination – Lastly, some people take a partial lump sum and then put the rest into an annuity. 

Payment Options for the DROP (Deferred Retirement Option Plan) 

If you want to carry on working, it’s possible to effectively ‘retire’ while continuing for five years. While the Pension Plan benefit freezes temporarily, you start to earn new benefits in a DROP account (with interest). When you finally retire for good, you get the Pension Plan monthly payment as well as the DROP benefit. The latter is taken as either a rollover, lump sum, partial rollover, or partial lump sum. If you genuinely enjoy working, this is the best way to carry on while earning extra (tax-deferred) retirement money. 

There is one problem: you need to choose a payment option for your Pension Plan before DROP participation, and this cannot be changed. 

Conclusion 

There we have it. These are your payment options. To apply for the DROP, you can elect participation up to 12 months before your normal retirement date. With the Pension Plan, within six months of retirement, you can fill out the Application for Service Retirement.
Contact Information:
Email: [email protected]
Phone: 8139269909

Bio:
For over 30-years Flavio “Joe” Carreno of The Retirement Advantage has been a Federal Employee Retirement System specialist (FERS) as well as a Florida Retirement System specialist (FRS) independent advocate. An affiliate of PSRE (Public Sector Retirement Educators), a Federal Contractor & Registered Vendor to the Federal Government, also an affiliate of TSP Withdrawal Consultants. We will help you understand your FERS & FRS Benefits, TSP & Florida D.R.O.P. withdrawal options in detail while recognizing & maximizing all concurrent alternatives available.Our primary goal is to guide you into retirement with no regrets; safe, predictable, stable, for life. We look forward to visiting with you.

Disclosure:
Not affiliated with the U.S. Federal Government, the State of Florida, or any government agency. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Although we make great efforts to ensure the accuracy of the information contained herein we cannot guarantee all information is correct. Any comments regarding guarantees, safe and secure investments & guaranteed income streams or similar refer only to fixed insurance and annuity products. Fixed insurance and annuity product guarantees are subject to the claimsâ€paying ability of the issuing company. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Annuities are not FDIC insured.

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