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Guide to the Deferred Retirement Option Program Sponsored by: Flavio J. “Joe” Carreno

July 29, 2020 /by joe carreno

With a history spanning back over 20 years, the DROP (Deferred Retirement Option Program) helps employees retire without leaving the world of employment. While this generally lasts for five years, it’s extended to eight for some teachers. During this period, retirement benefits still build and earn much-needed interest at a rate of 6.5%. If you entered the DROP after the beginning of July 2011, your interest rate would be set to 1.3%.

This program is available to members of three main groups:

â€¢ TRS – Teachers’ Retirement System

â€¢ SCOERS – State and County Officers and Employees’ Retirement System

â€¢ FRS – Florida Retirement System (Pension Plan)

The first two groups did not have access to defined benefit plans in 1970 when the FRS was first created. Also, we should note that members of other retirement programs under the FRS are not eligible for the DROP; this is also true of FRS renewed members.

If you’re a DROP participant, employment conditions don’t change; employment is terminated as soon as the period is up (elected officers often have special provisions). When termination comes, you’ll start to receive your monthly retirement benefit alongside any accumulated DROP benefits. The benefits are calculated at the point of entering DROP and then retiring, while also considering rises in the cost of living.

Eligibility and Election

If you’re enrolled in one of the three plans listed above, you may be entitled to become a DROP participant once the normal retirement date is reached – this date is when you’re eligible for full benefits thanks to service or age.

If you joined before July 2011, FRS members need six years of service to retire at 62. Otherwise, retirement is also possible regardless of age after 30 years of service. Alternatively, Social Risk Class members need six years of Special Risk service to retire at age 55 (or 25 years of service in total). For those with military service, retirement may be possible at age 52 after 25 years of experience.

For those who joined after July 2011, you need eight years of service for retirement at age 65 (or 33 years of total service). Special Risk Class members can retire at age 60 after eight years of service or 30 years in total. With military service, retirement is earlier at age 57.

To become a DROP participant, you should apply for an election around six months before planned participation. You cannot get an election from the Division of Retirement on the month DROP begins. Unless eligible for deferred election, there’s a 12-month election window which begins at normal retirement date. With no application, eligibility is lost.

Deferred Election

There are some circumstances where a deferred election is possible, and the first is for elected officers in the FRS ECO (Elected Officers’ Class). After reaching retirement age, it’s possible to defer until the next succeeding term of office. You can participate for the entire term or five years, whichever is shorter.

Elsewhere, you can defer after completing 30 of 33 years of service (depending on when you enrolled in the FRS – pre- or post-July 2011) before reaching age 57. You can delay and start participation when you reach age 57 or between 30 and 33 years of service. This rule also applies to Special Risk members with 25 of 30 years of service before the age of 52.

Deferring might also be an option for those in the Special Risk Class with covered employment (or coverage by a different plan or class). Finally, the fourth group is for â€˜instructional personnel’ in K-12 grades. The employer must consider you in this group, and participation begins after reaching the retirement date. Most will have eligibility for 60 months, but a few will have it for 96 months.

Optional Service Credit – When considering a normal retirement date for participation or eligibility, don’t forget optional service credit. For instance, many people purchase credit for a leave of absence. If you exclude this from the calculation, the optional service is still included in the calculation for benefits.

DROP Benefits

As mentioned previously, interest rates vary depending on DROP participation:

â€¢ Before July 1, 2011 – 6.5%

â€¢ After July 1, 2011 – 1.3%

At these rates, your DROP account will grow monthly. Every July, the account will also enjoy a 3% increase as a COLA (cost of living adjustment). If you did manage to join before July 2011, the COLA is only applicable for service before this date. For your very first year, COLAs are calculated on a pro-rata basis; i.e., you’ll get the number of months you were in DROP before the adjustment rather than a full year (or nothing at all!).

When employment is terminated, the way you receive DROP proceeds is up to you. You can get a direct rollover, a lump sum, or a combination of the two.

Participation Limit

We mentioned earlier that you could stay in DROP for five years, but some teachers will get an extension to eight years. If you joined DROP to leave early, you could easily extend to enjoy the full 60 months (to do this, your employer must approve). Don’t worry, this approval is not necessary if you want to end your DROP participation earlier than planned.

You may apply for DROP after the beginning of the eligibility period; if so, the 60-month limit will reduce depending on how long you waited. At the end of the DROP period, it’s essential to terminate employment; otherwise, you will void both the DROP participation and retirement. Furthermore, additional contributions are required from your employer to cover FRS service credit for the DROP period.

You will not void your retirement or DROP by failing to terminate employment if currently in an Elected Officers’ Class elective office. Instead, you can carry on serving for the term of office (or even multiple terms of office). Even though you’re still effectively a DROP participant, all retirement benefits halt at 60 months. This being said, you will still get a slight boost thanks to the interest payments.

For those who began DROP before July 2002 and still work in an EOC elective office at the end of participation, the same termination requirements are not present. At the end of the DROP period, you will enroll as an FRS renewed member instead.

Disability and Death Benefits

What if you pass away during the DROP period? In this case, the benefits will go to your designated beneficiary. If you chose the option while setting up DROP, the beneficiary would get a continuing monthly benefit.

In some cases, the beneficiary won’t qualify for a continuing benefit, and this is where a full refund is given; this is true when employee contributions add up to more than your DROP account. This calculation includes payments for service credit or upgraded service. Since you retired when entering DROP, disability benefits are not an option.

When DROP comes to an end, all participants receive the Health Insurance Subsidy. Not only this, but they’re also subject to renewed membership provisions and reemployment limitations just like all other FRS retirees.

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.

Deciding Your Retirement Age – 3 Things to Consider Sponsored by:Todd Carmack

July 1, 2020 /by todd carmack

At what age are you going to retire? This is a question that plagues many, and it’s something we begin to think about from very early in our career. One of the worst things you can do is select an arbitrary age just because it sounds good; research is always the key to a firm decision. If you choose the wrong age, you face the potential to run out of money or regret working too long when you had enough saved much earlier.

When making this big decision, we think there are three primary considerations:

1. Life Expectancy

This isn’t something that anybody enjoys, but we recommend thinking about your health and how long you expect to live. For those in great shape and with a good family history, you’ll be planning a longer retirement than somebody in poor shape and with a lousy family health history. If you fall into the latter category, an earlier retirement will allow you more time to enjoy life towards the end.

Recently, the Aegon Center for Longevity and Retirement said that four in ten people now retired were forced into the decision earlier than initially planned. Health problems are the most common reason for early retirement, so consider your health and the likelihood of developing issues.

2. Savings

While some people have good savings, others are forced into working longer because they need the time. Unfortunately, we can’t provide a single number for the amount you need to retire. It depends on your spending habits and plans for retirement (and expected length of retirement); one Charles Schwab survey predicted a requirement of $1.7 million in savings for the average worker.

To find out the status of your potential retirement, we recommend using a retirement calculator. After entering your retirement age, it will show how much you need to save per month. Play around with different ages and compare what you need to save next to your current savings plan.

3. Social Security Claiming Age

For millions of people, Social Security is an integral part of retirement. Not everybody retires and immediately starts claiming, but there’s certainly a relationship between the two. Full retirement age (FRA) is as follows:

â€¢ Born after 1960 – 67

â€¢ Born before 1960 – 66 (or 66 and a handful of months)

You can wait until FRA to get the full benefit amount or claim after 62 to get a reduced amount. If you’re able to wait until the age of 70, we highly advise it since you can potentially earn one-third more per month.

Again, the time you start claiming Social Security benefits will depend on your current savings, life expectancy, and other plans. Some people hold off on benefits because they want bigger checks (and this also means waiting on retirement too).

Summary

We know it’s stressful, but we urge you to consider retirement carefully. Most Americans are behind on retirement savings, so don’t panic. Plan as early as you can and take action (knowing you’re behind and taking action is better than not knowing until it’s too late!). If you need help, don’t be afraid to contact a financial advisor for tailored advice.

Contact Information:
Email: [email protected]
Phone: 6232511574

Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.

Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice filed, or is excluded from notice filing requirements. BWM does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision.

Expectations vs. Reality of the TSP Modernization Act Sponsored by: Todd Carmack

June 23, 2020 /by todd carmack

The main reason for saving money in retirement savings accounts like your Thrift Saving Plan account is to keep some income for yourself in your retirement.

TSP is one of three income benefits of an employee under FERS retirement, but it’s the only source of income whose income is calculated by the account balance – based on your savings and investments.

There are two distinct phases to plan retirement savings: accumulation and distribution. The biggest challenge here is, more people emphasize the first phase and not the second one. Let’s study both of them in detail.

First Phase: Money into TSP (Accumulation)

The TSP has made it SIMPLE to move money into your TSP. An employee can quickly sign up and put some percentage or dollar figure from his or her paycheck, and over time, an employee’s money is moving into the TSP throughout the career. An employee can set investments in two areas: the place to move new contributions and the placement of total account balances. The aim here is to save for retirement.

Second Phase: Money out of TSP (Distribution)

In the second phase, an employee needs to consider retirement on priority moving money into TSP that is Phase 1, to investing for the next 20+ year withdrawal period that is Phase 2. Planning your TSP for a successful Phase 2 can make a lot of difference between your secured retirement and an unsecured one where a person will find it difficult to survive and meet the needs for his lifetime.

TSP Modernization Act made it easierâ€¦ or not

Well, we can say that the TSP Modernization Act made it easier to some extent. This act was introduced to open more withdrawal options from the TSP to add flexibility to retirees’ payments.

With the act, TSP added options to stop/start/change payments and move payments between traditional TSP, Roth TSP, or both. This was a sign of relief from the “take it or leave it” like options that were available in the previous act.

A vital factor stayed the same

An essential element in a withdrawal strategy was not changed in the TSP Modernization Act.

No option to select the fund(s) to take a withdrawal from was given in the new act also

An employee was forced to withdraw the amount proportionately from each fund he or she had â€” even if he or she saw losses in the fund(s).

It is imperative to develop a strategy, especially in retirement. For example, the approach helps people avoid economical difficulties and stock market losses by choosing one investment strategy over the other for a withdrawal, but the TSP participants are not allowed to do that â€” you have to withdraw proportionately from each of your funds so that the investment percentage remains the same. This may put retirees in a less-than-favorable situation: they may skip their withdrawal and save themselves from selling too many shares of a stock market fund going into losses.

As part of your retirement strategy, it is advised to estimate your TSP funds to make sure they’re proportionate with your withdrawal schedule.

Present Day: What you want, and what to ask for

There are some aspects of the TSP Modernization Act that ask you to go digital. Their withdrawal process has gone online. This has many advantages and disadvantages. The good news here is that you need to take seven steps online, as the form has been generated based on these steps only.

The bad news here is that you have to make your decision without any support. You have to select both the options: Withdrawal and the income tax that is best suited for you. That means you must know what you want before you start withdrawing online because you will not get any external support.

Check your math twice!

There’s an old saying that says check your math twice! While withdrawing money, get complete information on what options are being offered to you. You get four options to use for retirement income withdrawal from the TSP:

Scheduled Installment Payments: This is a scheduled payment option wherein you can pick the amount you want to receive, and you are asked to mention whether you want it monthly, quarterly, or annually. You will continue to get payments unless you stop them, or your account balance becomes zero. There are different federal tax options depending upon your account balance.
One-time Withdrawal: Withdrawal is considered an unscheduled payment wherein an employee can withdraw $1,000 or more from his account as a one-time payment. No limit has been imposed on the number of single withdrawals, but the TSP can only process one in 30 days.
Buy an Annuity: You can use some or all of your TSP account to buy an annuity with their outside vendor. You can use your money and get control of it for a guaranteed lifetime monthly payment. You are advised to check the TSP fact sheet annuities to get more information on this matter.
Shift Your Withdrawal: You can shift some or all of your TSP account balance to an IRA or an eligible employer plan. You need to consult your IRA provider or plan administrator to check which transfer is acceptable in your case.

Most people find this process challenging because you are making the most important decisions of your life, and the technology may not be right for you.

Try to get answers to your questions directly from the TSP’s publications, someone who represents TSP or is a well-qualified advisor to give you legitimate answers. Do not look for a â€˜TSP Transfer Specialist’ who cannot explain the benefits of TSP but is trying to sell his or her product.

Contact Information:
Email: [email protected]
Phone: 6232511574

Retirement Claims Keep Falling But the Full Impact of Coronavirus Outbreak is Still Not Known Sponsored by: Flavio J. “Joe” Carreno

June 11, 2020 /by joe carreno

The latest report from the Office of Personnel Management is that the retirement claims may not give a clear picture of the impact of Coronavirus on the federal government employee. In this article, we’ll put light on the fact that the retirement claims might have dropped significantly, but the full impact of Coronavirus is not clear yet.

Further reports from the OPM state that the office received 6,566 retirement claims last month compared to 10,048 claims in March 2019, so we can say that the claim rate dropped by nearly 35% following the 35-day partial government shutdown. The retirement claims of March 2020 dropped by 15% from the time almost two years ago, when the Office of Personnel Management received 7,767 new claims.

OPM worked on fewer claims in March than in February â€”stats indicate that officers processed 8,931 claims in March and 9,627 in February. This data is different from the 2019 data when the OPM processed more claims in March than in February.

Just like other federal government agencies, OPM had to shift its working to teleworking due to the Coronavirus lockdown. According to the OPM’s report, as far as the time to process the retirement claims is concerned, the average time to process for March was increased from 54 days in February to 61 days. The year-to-date average processing time of claims increased from 59 days in February to 60 days.

This data brought both metrics monthly average to the processing time in days and the year-to-date average processing time in days nearly in line with the OPM’s average processing time goal of the two-month average process time.

Contact Information:
Email: [email protected]
Phone: 8139269909

Your TSP and The Corona Virus Pandemic Sponsored by: Flavio J. “Joe” Carreno

June 4, 2020 /by joe carreno

The pandemic that erupted from China’s city Wuhan in the third week of December 2019 has now spread worldwide. The epidemic does not only carry health threats, but it is even worse when it comes to the global economy. The whole world is facing lockdown, people are confined to their houses, and all types of business activities have been suspended.

In the wake of COVID 19, medical emergencies have been implemented all over the world, and economic growth has stalled. COVID 19 has had an overwhelming effect on every sector of the world. Therefore, it’s the same situation with employee retirement plans, whether their retirement is associated with annuities or TSP saving plans; all of them are facing a severe crisis.

How are retirement plans affected by COVID 19?

You might have heard the statement that there are decades where nothing happens, but there are days where a decade happens, and the past few weeks is a real manifestation of these statements. Investors are nervous and afraid of pouring their money into stocks in any other fund, as the market has been facing swings that span from 5% to 20%. So, this uncertainty in the stock market has genuinely broken the backbone of investors.

If we have a look over the statistics, last week, the daily returns of the S&P 500 index were as follows: -9%, +5%, -5%, -10%, +9%. If we implement this figure on the TSP funds, the S&P 500 works in the same as the C fund works in the TSP. So, now you can better understand the swings that are being faced by the TSP saving plans.

It’s necessary to discuss the Federal employees who are vulnerable to the situation. Most of the Federal employees set a specific market pattern in their minds and believe that the market will go at the same pace. But, now, in these circumstances, the situation is entirely different, and no federal employee expectations will occur. So, they must not keep their hopes high.

The reason behind this is the behavior of the investor, which is driven by two primary forces: fear and uncertainty. So, unless these factors exist in the market, Federal employees must not expect much more from the market. Here is one more important thing: If you are seeking early retirement, forget about this idea right now, as there are many issues attached to the early retirement in this time of COVID 19.

How would TSP saving plans behave in the future?

It’s too early to predict anything right now because the uncertainty is at its peak, and it will not be a prudent choice to draw an impractical expectation. But we can estimate the pattern of the market in the coming future. In the past, we’ve had pandemics like SARS, Ebola, and Swine flu, so that we can predict the pattern of the market for this specific situation.

At the start of these pandemics, the market experienced a downturn. Sometimes, this downturn became severe, and sometimes it was minor enough to be neglected. It wasn’t easy to deal with these crises, as the value of account value constantly changed, similar to what we are experiencing now.

In the first couple of months, when SARS spread in countries, the S&P 500, which is similar to the TSP saving plan’s C fund, faced a decline of 14%.

These pandemics are not new in the world, and it is not a new thing for the global economy to experience a situation that’s going on now. However, the crisis was never as hard as it is this time, and, of course, its effects will be even worse than any of its predecessors.

Still, we cannot predict the patterns through which the economy will come back to its previous position. Once the markets are open, lockdowns are lifted, and people start their business, only then can we predict how much damage needs to be repaired. So, it means we will tap into our TSP saving accounts in the future, and we will know that our behavior had a lot of things to do with our TSP saving plans.

Should you switch to another fund in your TSP saving plan?

Well! This has always been a hard question to answer, as the requirements for the TSP saving plans vary from person to person. We have estimated that even after facing this much severe economic crisis, the world economy would not collapse. However, there is still a question in the minds of people as to whether they should move to other TSP funds or not.

There’s no hard and fast rule in determining whether you should move or not because each Federal employee has its own circumstances. Still, some general principles could be followed to maximize the chances of success.

How much risk can you take?

Risk tolerance is an important thing that can relate to how successful you will be in your TSP saving plans.

#1. How many fluctuations in the market can you bear?

This is not that simple to answer whether you should move to another savings fund or stay where you are. One of the most significant factors is making a self-assessment about whether you can bear the market’s volatility. In simple words, you have to determine whether you can deal with the swinging of the market, especially when the whole world is facing an economic crisis.

#2. Can you take on a higher risk?

This is one of the most important factors that decide whether you should move or not. Most of the time, federal employees, whose retirement is ahead after 5 to 6 years, want to have a higher amount from their retirement plans. Therefore, what they do is try to move to other funds that offer better interest rates. For example, people quit the G fund whose stability is high, but the interest is low, and move to the C fund, whose volatility is higher enough, but the interest rate is also smart and attractive.

So, when federal employees move from lower risk to higher risk, they must keep themselves prepared for the consequences. Once you have transferred from the G Fund to the C Fund, you might get an unexpected benefit and going side by side, and this benefit can also turn into a loss. So, don’t act in haste and decide with great care.

#3. You might earn loss; rather than benefit:

If you are five years away from your retirement and have invested heavily in the stock markets, you’ll be more vulnerable to the situation. You might need to access your TSP accounts for extra expenses whenever you come across any need for the money. Therefore, in these times of high volatility, the stocks in which you have invested your money might lose their value.

Consequently, you might need to sell your stocks at a price lower than you spent in buying them. So, be careful in your choices; otherwise, you may face severe losses.

#4. Too young to retire:

This is the sole argument that supports the stance of switching from one fund to another. If you are too young to retire, and you are daring enough to sustain the fluctuations of the market, you can switch from one fund to another fund. But, bear in mind, if you are far from your retirement, you need not play aggressively. Especially for the time being, when the uncertainty has spread all over the market, it will not be a prudent choice to go with the switching option.

Still, if you are confident enough, you can plunge into it with liquid cash that you may spend on an unexpected need.

Therefore, now you can better understand the consequences of switching from one TSP saving fund to another fund.

Short-term plans vs. long-term plans:

So, what is the result of the above debate?

Of course, two things need to be considered when it comes to predicting the advantage and loss caused by the TSP saving plans.

If you’re going to wait for the long-term, you will be much safer than those who want prompt income out of its TSP saving plans. Because, in the longer time horizon, you have multiple occasions that can benefit you, and the risk factor decreases considerably in this regard. You will have a long time until you need to touch the money saved in your TSP account.

If we analyze the situation for an employee whose retirement is right after five years, he will be more vulnerable to the harsh environment of the stock market. If that employee switches from the F fund to the C fund, he/she might lose a significant amount that was on the table, but he/she may gain that amount which did not belong to him/her. It means there is a possibility of both things.

In the same way, if that employee possesses stocks in the market, he/she might lose the original value of their stock due to fluctuations in the market.

So, note all these points before making a final decision. Moreover, you may get yourself into financial problems.

How to make a proper TSP allocation?

There is a variety of factors that you need to consider while crafting the plan for allocation in your TSP saving accounts; here is the list of these factors.

#1. Consider the part from your spouse:

To have a more fruitful TSP saving plan, you must consider that part of the investment that should belong to your spouse. Moreover, if your husband or wife works in a private sector, you must see what he/she has invested too.

#2. Other Saving plans:

Of course, each one of you sets a targeted amount that you want after your retirements. So, consider the other saving plans like 401(K) too, along with your TSP saving plans, as all of these plans provide you with money that you want at the end of your retirement.

#3. Consider all sources of income you have:

You need to have a proper consideration over having income from other sources. This consideration will help you work out when you need to touch the money from your TSP account. Moreover, summing up all incomes, you might consider playing more aggressively, as you might have enough money to cope with any unexpected movement in the market.

Final words:

There are several factors that you need to consider when it comes to allocation into the TSP saving plans. COVID 19 is undoubtedly hurting the global economy, and for sure, this factor will also affect your choice of choosing your TSP saving plan.

Moreover, the important thing is that while deciding the allocation, be wary, as markets are driven by fear and greed, and you must maintain balance in both of these things to make sustainable growth.

No doubt, this is a hard time, but the market will recover as soon as the lockdowns are lifted from the country. Take an example from the past, where markets were down to the lowest but improved again with an even better position.

So, if you are concerned about this prevailing crisis, it won’t last forever.

Contact Information:
Email: [email protected]
Phone: 8139269909

Don’t Damage Your Retirement with These 3 Common Mistakes Sponsored by: Todd Carmack

May 29, 2020 /by todd carmack

When it comes to retirement planning, one of the most challenging aspects is that there’s no right answer. Wouldn’t it be great for there to be one â€˜best route’ to follow? Instead, everybody has their own ideas about the best ways to save, how much to save, and when to retire.

How do you get started when there’s no â€˜right’ way to go? Well, it starts by learning the wrong moves. Regardless of your knowledge or experience level, we’re sure you want to avoid common mistakes from damaging your retirement, and this is why we’ve listed three of the biggest in this guide. Let’s take a look!

1. Forgetting Retirement Account Fees

You may know about the fees that come with investing in an IRA or 401k, but do you know the extent of these costs and how they will impact your retirement income? By confusing even 0.3%, you could miss out on tens of thousands, so this should tell you the importance of understanding retirement account fees.

Thanks to the Centre for American Progress and their recent study, we know that 1% of total assets managed is the average charge for a 401k. With $200,000 under management, this means you’ll pay around $2,000 each year. In the same study, it showed that the average worker pays nearly $140,000 in fees alone. However, this increases to $166,000 when the fee is increased to 1.3% – a significant increase.

If you’re unsure of what you’re paying, we recommend calculating the percentage based on your statements. Look at the expense ratio (this shows the percentage dedicated to fees) and talk to your financial professional.

If you’re paying more than you hoped, don’t panic. Firstly, those with employer matching contributions should keep their account until the full match is earned. You’re essentially getting free money, so don’t leave just because of the high fees. If not, there are cheaper retirement accounts out there. Again, talk with your advisor and find an IRA with smaller fees.

2. Forgetting Taxes

After years of not having to worry about tax with a tax-deferred retirement account, this will finally come back to haunt you in retirement if you forget about them and fail to plan for them. In both a traditional IRA and 401k, this is something that catches many off guard every single year.

As you withdraw more than planned each year, your funds won’t last for as long as you initially hoped. When you find that retirement is more expensive, there’s a risk of getting into a higher tax bracket, and your savings drain rapidly. Of course, we also mustn’t forget tax on Social Security benefits. At the state level, these taxes may apply depending on your location. Even after this, there are federal taxes on monthly checks if these surpass a specific point.

As soon as your combined income as an unmarried individual passes $34,000, there’s an 85% tax on all benefits. In this scenario, â€˜combined income’ means half of the yearly benefits plus all other retirement income. For married couples, the same tax is applied at a threshold of $44,000 per year.

Many retirees find that there’s a significant chunk of their income that can’t be spent when it comes down to it. With income tax and state and federal taxes, those completely unprepared will get a nasty surprise when retirement finally comes.

3. Poor Choice of Financial Advisor

Finally, we’ve recommended talking to your financial advisor in this guide, but what if this very foundation itself is weak? What if you can’t rely on the advice provided by this professional? For those who choose to hire a professional, you realize that some will get a commission for selling specific investments and products. According to one report from the White House directly, Americans lost $17 billion in potential gains recently because these advisors chose to sell their own products rather than make decisions based on their best interests.

To make a good decision, the first step should be an assessment of their qualifications. Since the term â€˜advisor’ isn’t monitored, you need to determine how qualified they are to look after your finances. In our opinion, it’s best to go for a CFP (certified financial planner) since they have a qualification and can only boast the CFP status after rigorous testing (which is maintained regularly).

Furthermore, there’s nothing wrong with asking an advisor how they’re paid. If they rely on commission, their monthly salary depends on what they can sell to clients – in other words, their motivation isn’t ultimately going to be your wealth. On the other hand, advisors can take a percentage of your assets or charge an hourly rate. We aren’t saying that a commission-based advisor can’t be qualified to handle your finances, but you still need to be wary and confident that they have your interests in mind.

Take Your Time and Prepare Well

There’s no universal solution for retirement planning, but there are simple mistakes that people make. We recommend choosing a financial advisor carefully, remembering taxes, and planning for retirement account fees. You can make the right decisions with a reliable and professional financial advisor and get the retirement you’ve been dreaming about for many years!

Contact Information:
Email: [email protected]
Phone: 6232511574

Life Insurance… Now for the Living! Sponsored by: Flavio, Joe Carreno

May 24, 2020 /by joe carreno

What is the amount of FEGLI coverage which you can avail as your life insurance in your retirement while you are still alive?

We all know about the old-style system for life insurance. Imagine if it could also offer coverage for you, the owner, throughout your life? Imagine there was a system to easily and quickly get a share of your Death Benefit in the situation of a non-deadly emergency? There is! Policies made through Living Benefits. They ensure precisely that.

Living Benefits consist of policy riders that offer the facility for a life insurance program owner to get a share of their life insurance Death Benefit when they face any severe non-fatal emergency. These broad-minded aspects are more vital nowadays than ever before due to the exponential development in healthcare over the last twenty years.

In short, we can now successfully cure several diseases, severe injuries, and other sufferings that would have been deadly to previous generations. The continuous medical research is saving lives at an extraordinary rate, yet enduring these formerly lethal measures can have several economic consequences and secondary difficulties.

Let’s observe a few safety gaps faced by Federal Employees, even when the FEHB and FEGLI insure them entirely.

The sole FEGLI Death Benefit feature is accessible while you’re alive is the Basic Coverage (pay summarized to nearest $1000 + $2,000). You can only get it if you have a fatal sickness with less than a year to live.

Let’s say, at 58 years old, you had a severe heart attack. FEHB mainly covers the hospital charges, but maybe you can’t return to work.

Federal Disability benefit insures sixty percent of “HI-3” income, and it starts if the disability is going to last over one year. If you’ve been disabled for eight months, you won’t see a dollar of that money. A heart attack is not classified as a “Fatal Ailment,” so FEGLI coverage will not grant you any money.

Several employees go to their TSP (Thrift Savings Plan) when they are compelled to get involved in these complicated scenarios, so let’s go through the accidental results of getting the money from your TSP as a substitute. The unlucky Fed in such a situation will be eligible for a “Financial Hardship In-Service Withdrawal” from the Thrift Savings Plan.

While TSP funds become available in this scenario, there is still the problem of receiving Traditional TSP payments documented as taxable pay – and since the person’s age is under 60, they will also be subjected to the ten percent Early Access Penalty (EAP) and state salary taxes. When we begin computing taxes and drawbacks, it’s easy to understand why medical predicaments cause nearly half of all bankruptcies.

So let’s assume that this person required an after-tax payment of fifty thousand dollars to replace eight months of salary while they’re recovering. FEGLI coverage will not grant any disability benefit, so we have to acquire all fifty thousand dollars from the Thrift Savings Plan, despite paying twenty-five percent in salary taxes, the additional ten percent EAP, and seven percent for our supposed State Revenue Tax before we get a dime.

So, what amount do we need to withdraw in an attempt to get the fifty thousand dollars?

$86,206! (Note: This depends on the situation of each individual, this is a theoretical case)

In several homes, this amount of taxable payment could even bump the total domestic revenue obtained for that year over the verge of a higher tax bracket, compelling this household to give a higher percentage in salary taxes for each dollar.

Moreover, taking a hardship withdrawal indicates that the employee is not permitted to add to the Thrift Savings Plan for six months. If you were previously adding five percent to get the complete five percent match from the Federal, then together that indicates that before the hardship withdrawal, an overall ten percent of your income was transferred to the TSP. For six months after the hardship withdrawal, that amount is reduced from ten percent to the one percent, auto-support from the Federal. Who is fond of turning down free money?

But the problem is that it severely decreases the Fed’s key retirement benefit (the TSP), and it happens in the career (age 58) when you don’t have sufficient time left to recover the TSP. It shows that we have strictly mired the TSP’s aptitude to offer essential development over the next two or three decades to suitably support our retirement.

Have you ever heard of the story about the hen that lays the golden eggs? You can sell the golden eggs, but the hen can only be sold once! It’s the same idea as the principal (a hen) and the gains (golden eggs) in the TSP.

If you had life insurance with a “Life-threatening Sickness” rider, you could have a quicker share of that death benefit to swap the lost revenue during the time of recovering from the heart attack, without considerably decreasing TSP balance. Hence TSPs aptitude to make satisfactory pay in your golden years remains intact. This is also done without suffering the vast extra expense of buying a distinct Short-Term Disability Insurance program.

Living Benefit Riders’ coverage is conciliatory enough to cover several diverse “life-threatening sicknesses,” which is vital for future plans. The Critical Illness rider isn’t restricted to one particular illness.

The Critical Illness Benefit offers a part of the program’s Death Benefit as an untaxed payment if you have a critical illness.

On the other hand, some policies are made to keep the owner safe from just one problem, like the situation with cancer insurance. The figures on cancer are pretty disturbing, but despite the safety requirement, cancer policies are so costly and complicated. Most of the cancer policies come with “use it or lose it” system, which implies that no matter how much coverage one buys, if he/she doesn’t use it, then it is lost.

For example, suppose you pay three thousand dollars per year for twenty years for cancer protection, but you get hit by a bus, then your money is lost. Cancer is a certified diagnosis to activate the advantages of this free-rider.

These are complicated subjects with several consequences and difficulties, so it is undeniably vital to get guidance from a federally focused expert that knows your benefits when coming up with an inclusive safety policy for your future.

Contact Information:
Email: [email protected]
Phone: 8139269909

Federal Employees and Boomers Should Delay Retirement Like It’s 2009 Sponsored by: Todd Carmack

May 20, 2020 /by todd carmack

If we say that the past is repeating itself-and it usually isâ€”the current economic condition is proof that the financial crisis due to coronavirus could have impacted federal employees or Boomers long after whatever present date they are retiring in. In this article, we shall discuss more federal employees’ retirement and whether they delay it or not?

The economic situation today can be easily compared to the 2008 financial crisis that mainly impacted the housing and financial sector. Two immediate effects in both crises were a major drop in the stock markets and a drastic increase in the unemployment rate.

Thankfully, the unemployment issue is not of much concern to a federal employee. There wasn’t a considerable loss of federal jobs at that time, and no one talked about losing their federal jobs for now.

Well, investment losses are things that need to be considered. Most Federal employees feel much like all investors, especially the TSP participants, where the average account size was about $150,000 as of the end of February.

There is one way to compare the present crisis with the earlier one, at least financially-speaking, the behavior of TSP investors has changed. Last time, when the crisis occurred in late 2008-2009, the stock market dropped. Similarly, TSP investors overall were involved in a “flight to safety” by transferring money into the safe government plan that is treasury securities, or the G fund. The same thing happened this time, but we must mention here, in both cases, that only a minority of investors have moved their money.

The question here is whether to delay retirement or not?

Now the question that needs closer consideration that most of the federal employees are facing these days is whether to delay retirement or not?

If you are a federal employee, and you choose to delay, an employee can continue to work and earn a salary higher than any annuity; can build up a good sum of the annuity by saving more money out of service; and can recover a plunging TSP account with his or her additional investments that are otherwise, not permitted after retirement.

The potential numbers are known to everyone but worth summarizingâ€”and yes, they have a story to tell that belong to generations. Whenever the topic is Federal employees’ retirement, or at this point, we call them Baby Boomers, those born in the 20 yearsâ€”after World War II. We can say that none of the Greatest Generation exists in the federal workforce, and only the oldest of X Generation behind the boomers are becoming eligible for retirement.

Even if we talk about the youngest of the boomers, they are now at or past the earliest standard immediate retirement eligibility (56 under FERS, 55 under CSRS). 15% of the federal workforce is eligible, and 30% are 55 and up, and a similar number is expected in a few years away from becoming available.

Again, learning lessons from the past is advised.

In the year 2007, when the first half of the boomers were in the cited retirement eligibility category as the second are now, some 51,000 executive branch employees took voluntary retirement (note: this doesn’t include Postal Service and other forms of retirement like early-retirement and disability).

In the year 2008, as that financial crisis hit the economy hard, that number significantly dropped to 49,000, and after 2009, the stock market losses had it full to 40,000. In 2010, it increased to 47,200. It wasn’t until the three years after the market was hit that the number started returning to a pre-downturn level, at 54,900. After that again, it increased to 60,000, where it stayed showing minor fluctuation each passing year.

Meanwhile, we can say that the Boomers already show more significant dedication to work until they are old enough to save more during their years of service.

It will take some time to get a clear picture of this crisis and its impact on the Federal employee’s retirement. However, if it lasts for some more time, it will impact workers in the long run.

Contact Information:
Email: [email protected]
Phone: 6232511574

How to Put Your Retirement on Hold During a Pandemic Sponsored by: Flavio, Joe Carreno

May 19, 2020 /by joe carreno

One of the biggest things to put on hold during the ongoing Coronavirus pandemic is your retirement. Just think of this situation as you are retiring during the furlough of last fiscal year that extended for 35 days. During that spare time, the government allowed only essential workers to work. The process of retirement slowed temporarily. People who were unfortunate in choosing the same retirement time during that furlough had to retire with uncertainty about the benefits of their retirement. Some retired employees waited longer than expected because their applications were still at the agencies. During the Coronavirus slowdown, most employees are working (some working from home), but there are still many questions that remain unanswered to those employees who were supposed to retire. In this article, we will answer their questions and try to make their life easier.

Tammy received an email from a client who was planning to retire this year.

She gave 40 years of service to the federal government and had already started the retirement process on March 28, 2020. She is under the CSRS retirement program. She is worried and confused if she should put her retirement on hold due to the Coronavirus pandemic. She has a few dollars saved for her TSP. She is pretty sure about her retirement, but due to the pandemic, she has questions like if her timing is right, if she can retire this month, or should she wait and put her retirement on hold. Her goal was to reach 40 years of service and take retirement. She did work for 40 years and completed her tenure this month. Should she be concerned, and what should she consider before retiring?

Tammy said that her primary source of income in retirement would be from her CSRS retirement benefit so that she would be least impacted by the ongoing stock market roller coaster ride. Hopefully, she would do well and would not withdraw money from her retirement savings.

Tammy called the Office of Personnel Management‘s call center and checked if their office is still open for business and processes all work-related documents within retirement services. But she believes that some retirement processing will take time because most OPM employees and other agencies are working from home. We know that the federal retirement process is still paper-based, so most of the paperwork is done at the underground facility in Pennsylvania. Though the operation is still open, employees are working, but the time to respond may change.

The Thrift Saving Plan operations continue to operate normally during the pandemic. The TSP workers are still working and continuing to process retirement forms and requests. TSP representatives are answering calls and giving you access to operate your account online. The situation there is changing too, so their operation style may eventually change.

The stock market is the worst one to be impacted by the ongoing pandemic, but we must mention that this is not the first time that federal employee investors have seen this type of hit.

Lastly, Tammy said that if the client wants to continue with her retirement date, she might have to delay her retirement to April 3 instead of March 28. The reason is, shifting the date would give her client additional pay for an extra week of work, and her CSRS retirement benefits should start on April 4.

For employees working under CSRS and FERS retirement system benefits, the date of voluntary retirement annuities is the first day of the month after the employee leaves the service and is eligible for age and service requirements. But under CSRS benefits, the employee who serves in pay status for three days or fewer in the month of retirement, the benefits start on the same day after separation. This includes non-work days as well.

If the client worked under FERS, Tammy would have suggested that March 31 be the best date to retire. In this case, she would get a salary for the last two days of March. Her retirement benefits would start from April 1, irrespective of her retirement date on the 28th or the 31st. In both cases, her last paycheck would have a salary for the days she worked in the previous pay period, even though her full-pay period was not over.

Contact Information:
Email: [email protected]
Phone: 8139269909

Six Retirement Decisions That Fall into the Unalterable Category Sponsored by: Flavio, Joe Carreno

May 6, 2020 /by joe carreno

Retirement planning consists of federal employees employing strategies that place an employee on an unchangeable path once the process is initiated. There is no turning back once the process has begun.

The problem with life is that time and circumstances never stay and keep changing, which creates problems for your prior choices. We have done some research and come up with this list of six retirement selections that come under the unalterable category:

â€¢ Converting your traditional taxable IRA to a tax-free Roth IRA

â€¢ Choosing your retirement date

â€¢ Buy an annuity or select an annuity is the most irreversible retirement plan distribution option

â€¢ Picking the form of an annuity distribution

â€¢ Choosing a Social Security benefits start date

â€¢ Continuing Care Retirement Community (CCRC)

Let’s discuss these retirement decisions in detail and try to understand what choices can be made, analyzing if an escape window can be opened or if this decision is irreversible, and checking if there is an option available to reduce the final outcome of the issue.

Converting your traditional taxable IRA to a tax-free Roth IRA

Many federal employees will get an opportunity to convert their traditional IRA that is taxable when distributed to a Roth IRA (tax-free when distributed) under specified conditions. While making your decision, your major goal will be to minimize taxes on your savings. The rule of thumb, in this case, is if the tax rates are higher than switching to Roth will be a good idea. More specifically, we can say that switching to Roth means you are paying the taxes now to get a greater yield on your converted funds and not pay taxes when the funds are distributed. The break-even analysis focuses on whether the tax-free withdrawals surpass the time-value maintained price of paying taxes before. Unfortunately, once you switch to a Roth IRA from your traditional IRA, you are bound to stick to your choice. It is important to note here that Roth reversal is no longer an available option. In other words, it was possible to reverse ROTH conversion before the Tax Cuts and Jobs Act. But now, you are not allowed to convert Roth at the start of the year, but you can always reverse course later in the year if stock values drop and do the conversion when the stocks are at their lowest values.

How to reduce the impact of this unalterable decision? There is one strategy of Roth conversions that may help you to reduce the burden of the irrevocable nature of this transaction. The best thing you can do is to plan a series of annual Roth conversions so as to reduce the tax impact for each year. Or, we can say, use a strategy that can keep your taxable income below the next higher bracket. For example, your conversions will not be taxed at the 32% marginal bracket and will be taxed only at the 24% bracket. The multiple conversions will delay the irrevocable nature of the Roth conversion. The positive point here is that a planned strategy will give you time to adapt to the changing market situations. The negative side of this point is that mathematically, it may not work out if you take a long time because the overall yield on investment will be constrained by fewer years only.

Choosing your retirement date.

Another decision that falls under an unalterable, yet possible category is your decision to pick your retirement date. Once you give your retirement date in writing, it is almost impossible to reverse the action and restart your career in your future. The good news for you that we see here is that you get an escape window under this category, and your current employer or another employer may help you down the road and hire or rehire you.

How to reduce the impact of this unalterable decision? One way you can try with your current employer is to ask for paid leave. The second way to avoid surrendering your entire salary would be to surrender a part of your entire salary by looking for some phased retirement program. In many cases, the phased retirement program could benefit the retiree, and he or she gets an option to resume full-time work if desired. You always get an option to explore programs under the Family and Medical Leave Act (FMLA) that might be open for you.

Buy an annuity or select an annuity is the most irreversible retirement plan distribution option

Well, we must clarify here that Annuitizing retirement nest egg is not open for everyone. However, if you are interested, and you buy an annuity or choose an annuity distribution plan, then this decision of buying or choosing a plan is an irrevocable part of your retirement decision once annuity payments begin.

How to reduce the impact of this unalterable decision? One way to delay the impact of this irrevocable decision is to ladder purchases of single-premium annuities. With this, we can say that you can buy a smaller part of your annuities over several years and delay the process of losing liquidity on your funds. This way, you may end up reducing the risks associated with interest rate by delaying annuity purchases to the time low-interest rates rebound.

Picking the form of an annuity distribution

Another retirement decision we shall discuss here is picking the form of annuity distribution. There are two common choices between life-only annuities and joint and survivor annuities. Rest all annuities are the same, except a life-only annuity that provides a larger sum of the monthly payment, but it will not make any payment upon the annuitant’s death. A joint and survivor annuity is advantageous in this case and will continue providing payments to the survivor, assuming that the spouse lives longer than the annuitant. Taking an example, if you are 65-years old, and you are putting $100,000 in a life annuity, you might get a $706 monthly payment. On the other hand, life-partners both currently age 65, putting $100,000 in a 100% joint and survivor annuity might give a $586 monthly paycheck and will continue to give as long as one of the two spouses is alive. In both cases, once the selected payout option is entered, it cannot be changed.

How to reduce the impact of this unalterable decision? One way to reduce the impact of this decision and avoid the drop in monthly income is to activate the annuity pop-up feature that will help you to increase the annuitant’s income at the death of the non-annuitant spouse. This would charge a monthly income when this option pops up. Another way to avoid the drop in income is to choose the life annuity and get other assets available like life insurance to compete with the income that the surviving spouse would get if you had a joint and survivor annuity.

Choosing a Social Security benefits start date

Another decision that needs consideration is picking the right date to start your Social Security benefits. Most of the time, employees choose between 62 and 70. The general rule of thumb is to delay the start of benefits to get more monthly income. There are so many articles written on this subject matter, and the writers have always advised people to wait until 70 to get maximum benefits. However, the main purpose of this column is to guide people and make smart decisions to avoid falling prey to locked choices.

How to reduce the impact of this unalterable decision? One good thing about this option is that it gives you the flexibility to change your decision for up to a year after you register for benefits. Or we can say that you can withdraw your Social Security claim and re-file them to get more benefits at a later date. There are three conditions for employees: The first one being the alteration in the decision must come within 12 months of filing for Social Security benefits. The second one is you have to repay all the benefits that you received. The third and the last one is you can withdraw your application only once in a lifetime. You can raise your request for withdrawal using form SSA-521. Once the 12-month period passes, your decision to take a lower monthly amount from your Social Security benefits will become irrevocable.

Continuing Care Retirement Community (CCRC)

Some employees prefer moving to a Continuing Care Retirement Community CCRC to enjoy health care services and best amenities like one-floor living accommodations, cooked meals in a common dining hall, light-housekeeping, social entertainment, etc. The main problem with this service is the reduced monthly fee and an upfront lump-sum payment that you need to make. The good news about this service is that your lump-sum payment will be partially refunded for a specified time. For example, a payment of a $200,000 lump sum would be lost after 20 months. You could look at this option if your monthly rent for 20 months was appreciated by $10,000 a month because you died after 20 months! In simple words, we can say that a short-lived resident ends up making an irrevocable decision on the payment that would be lost despite paying a significant amount.

How to reduce the impact of this unalterable decision? The best way to avoid losing your lump sum is to watch your refund option when you pick a CCRC closely. The other way is to check if the refund is for an individual or a couple because couples who have one spouse living when the other one dies will get the lump-sum. The third option is to choose a CCRC with a higher monthly cost but lower lump-sum payments.

Retirement decisions that do not allow you to make changes once they begin should be made after careful planning only. You can always take time and delaying your decision to think more, but you may end up paying the price for that delay.

Contact Information:
Email: [email protected]
Phone: 8139269909

Losing FEGLI Coverage – What If It Happens? – Joe Carreno

May 5, 2020 /by joe carreno

Unfortunately, there are certain circumstances in which you may lose FEGLI coverage. Although leaving the government (not including retirement) is the most common reason, this also includes:

â€¢ Terminated annuity

â€¢ Moving across to a new role with no FEGLI coverage provision

â€¢ When pay/annuity after deductions is too small

â€¢ When in a non-pay status for one full year

Of all these reasons, the most common two are when leaving the government and when moving to a role (even a federal job) where FEGLI coverage isn’t provided. Sometimes, it’s an intermittent or temporary position expected to end within a year.

What happens when coverage is lost? Along with a free 31-day extension, you’re also entitled to convert existing coverage to an individual policy. As long as you have this coverage under Basic, Option A, or Option B, there’s no need to show medical insurability evidence. Remember, you’ll pay for 100% of this new policy rather than just a portion as a group policyholder.

In terms of payments, they will depend on four main factors:

â€¢ Policy type

â€¢ Amount of insurance

â€¢ Risk category (on the end date of group insurance)

â€¢ Age

Please note that you have 31 days to apply from the day coverage stops; from here, it can be written at an amount less than or equal to the coverage in the group policy.

In the future, you could return to a federal job where FEGLI coverage is provided. If this is the case, you may be entitled to re-enroll. For example, assuming you’re medically insurable, you can do this in an open season. Alternatively, a certain life event may have occurred, such as the birth of a child or marriage. Sadly, it’s incredibly difficult to get back in once retired.

Contact Information:
Email: [email protected]
Phone: 8139269909

Why Indexed Annuities May Not Be All They’re Cracked Up to Be

September 26, 2019 /by Admin

These popular retirement income products may promise more than they deliver, and often with hefty fees.

Both financial regulators and planners are warning customers more and more to consider whether an annuity is right for them. While gaining in popularity, annuities are retirement income products that tend to offer better-than-average returns but at a high cost to the consumer.

Sales of annuities have increased over the years as insurance brokers and agents try and convince older Americans that this product is a smart way to boost retirement income. However, what these agents omit is that indexed annuities can be extremely complicated, often fall short of their promised returns, and carry very high surrender charges and fees.

Certified New York City financial planner Tony Isola says that these types of annuities resemble investment timeshares in that they’re challenging to get out of, the brokers are often misleading, and the costs are high. Isola recalls helping clients in their 70s who purchased annuities and then had to wait for another decade to get out of them to avoid paying high surrender fees. Isola says they didn’t understand what they were getting into or what they owned.

If you ask anyone in the insurance industry, they will tell you that indexed annuities offer investors the chance to avoid the returns of alternative fixed-income sources and regular annuities. Vice president of Nationwide Financial, a provider of insurance and annuities, Michael Morrone says that the stock market has been strong in recent years and individuals nearing retirement wouldn’t want to miss out on the principal they’ve gained. Morrone further states that indexed annuities are ideal for retirees who don’t want the volatility of the market but want more upside than fixed investments provide.

According to an industry research group, LIMRA Secure Retirement Institute indexed annuity sales reached a record of $20 billion in the second quarter, which is an increase of nearly 20% since last year. The agency predicts that by the end of 2019, indexed annuity sales will surpass $70 billion.

This uptake in sales is what caused the Securities and Exchange Commission to release an investor bulletin to explain the potential risks associated with indexed annuities. Director of the SEC’s Office of Investor Education and Advocacy Lori Schock said that because of the growth in the number of sales of indexed annuities the agency felt it had a responsibility to release accurate and unbiased information to potential investors.

Locally, several state securities commissioners have seen an increase in the number of insurance agents who are not properly licensed to make recommendations on 401(k) plans. More so in Vermont, but other states have experienced this problem as well, says Michael Pieciak, North American Securities Administrators Association president and Vermont Department of Financial Regulation commissioner.

Costs and Complication

Regular annuities offer a fixed payout which differs from indexed annuities that experience the ups and downs of the stock market. CEO and President of Des Moines-based life insurance and annuity research firm Sheryl Moore further explains the process. She states that indexed annuities don’t invest in stocks. Instead, the money is invested in stock options and bonds, and the returns are dependent on a formula linked to an index.

Furthermore, indexed annuities typically put a cap on the payout, sometimes at 6-8%, which doesn’t include dividends. So your return may be lower, even if the stock market experienced strong gains.

Glenn Daily, a New York City-based fee-only insurance analyst, said that the problem with indexed annuities is that it’s very difficult to understand what you are getting for your money. Investors can get some peace of mind in the form of a minimum guaranteed rate of return, typically 0-3%, to protect them even if the market fails.

Most indexed annuities carry surrender charges, up to 10% of the overall value, and other fees that consist of 2-3% of the annual return. Certified financial planner based in Murrieta, California, Scott Dauenhauer says that what it comes down to is that you may be getting a net return that resembles a CD or a bond than in the stock market.

Conflicts of Interest

Many of the costs associated with indexed annuities can only be found in the fine print of the contract.

Micah Hauptman, Consumer Federation of America financial services counsel, says that individuals typically aren’t aware of these conditions because the annuity salesperson isn’t transparent during the free lunches and dinners they offer retirees to get them to sign up.

Often an independent agent that works for various carriers, annuity salespeople typically receive a 5-8% commission for signing retirees up. Furthermore, according to a 2017 report by Elizabeth Warren, agents may also receive free vacations, cash awards upon reaching sales targets, and other bonuses.

A rule put in place by the Labor Department during Obama’s time in office would have put a stop to some of these incentives by requiring the disclosure of conflicts of interest. It also would have enforced that advisers take on the role of a fiduciary to put a customer’s best interest before their own. However, the rule was put on hold in 2018, and indexed annuity sales have continued to rise in the meantime.

Income Alternatives

If you need to create sustainable retirement income, here are three possible alternatives to annuities:

1. Take advantage of your Social Security. The most reliable annuity you can use is from Social Security. Steve Vernon, consulting research scholar at Stanford Center and author of Retirement Game-Changers says that from Social Security you have access to a guaranteed, inflation-adjusted income over your lifetime. Determine the impact of filing at various ages because for each year that you wait to file, your payment increases until you max out at age 70. Vernon says that purchasing an annuity doesn’t make financial sense for those who want to claim early. What he recommends is that you save the money you would have spent on an annuity to cover your living expenses for another year before withdrawing from your Social Security.

2. Focus on low-cost annuities. While you may need additional guaranteed income from your annuity to cover expenses, Isola recommends that you limit your investments to 20-25% of your portfolio. For more retirees, it’s smarter to stick to a low-cost option, like a single premium immediate annuity, which offers investors a regular monthly check after investing a lump sum.

3. Have a withdrawal strategy. Lastly, your portfolio can be designed to include a withdrawal rate that will protect you from running out of money for 30 years. This includes building a diverse portfolio of bonds, stocks, and other fixed-income assets such as index funds. Typically, it’s best to initially withdraw 4% and then adjust that for inflation for the coming years. Michael Kitces, Pinnacle Advisory Group director and certified financial planner, says that this strategy has historically performed well even in bad markets.

Should Retirees Take the Life Annuity or a Monthly Paycheck?

September 12, 2019 /by Admin

The idea behind the TSP, or Thrift Savings Plan, is to use it as a piece of a healthy retirement plan, supplementing income, along with your Social Security payments and your FERS annuity. Without the TSP, most people will not hit their retirement goals. Most financial advisors suggest planning your retirement income around 80 percent of your working income, and without the TSP, that number might be exceedingly difficult to reach.

When it comes to the TSP paying out, you have two options: the first being a monthly paycheck, just like when you were working. The other is to put that money in a life annuity. More than half of retirees opt for former, taking the paycheck and taping into their TSP savings. And with the TSP Modernization Act about to launch, you’ll have even more options for how often and how much you’ll be able to collect. And adding to that, the Life Annuities contract for the TSP is set to be renegotiated, so there could be unforeseen changes coming on that front in the months and years to come.

The question is: which option should you choose? Because both are set up to provide payments to you at predetermined times, how are the Life Annuity and the TSP installment payments different?

Firstly, there is the freedom of choice you get with installment payments, especially with the new options available to you come September. Once you choose Life Annuity, that money is set, and your options of how and what you want to do with it after that become limited. Even if the new contract for Life Annuities ends up providing more options in the future, any current or about to retire employees will still be subject to the terms of the annuity when they locked it in.

This is in stark contrast to the new options with the TSP Modernization Act, which will allow you to collect payment either monthly, quarterly, or yearly, and will allow you to change your mind and restructure up to four times a year. This is true for all people who are already retired.

With Life Annuity, your money will be used to purchase an annuity (like MetLife) and is taken out of your TSP fund. Your money remains in the TSP account if you choose to make installment payments.

The thing is if you keep your money in the TSP there is a finite amount, even with the interest it has been accruing. You will have to manage that money closely, especially if it starts to dwindle. Life Annuity is a contract, and as such, comes with a guarantee. You will never run out of money in your lifetime if you invest in an annuity.

On the TSP website there are tools you can use to help figure out the exact numbers in your particular instance, but here’s an example: If your TSP was at 350,000 dollars when you retired at age 57 and you lived until you were 90 years old, the remaining money in the account would still retain a 5 percent interest. Currently, the interest rate for the annuities offered through the TSP is 2.625 percent. If you took out $1,500 a month for a paycheck from your TSP, you’d still have $240,000 in your account when you reach age 90.

Adversely, $1,600 is the amount you’d take in per month under an annuity, and that would remain even if you lived to 120 years ago, but upon your death, the fund is then absorbed into the annuity fund, and there will be none left over.

While installment payments are the most popular option by most employees, it is essential to weigh your individual needs and options when you segue into retirement. As it stands, it seems that generally speaking that the monthly payments are a greater benefit to you than the current annuities the TSP offers.

Retired Veterans May Not Want to Retire in Indiana

June 27, 2016 /by Admin

Most of the retirees wish for making their retirement more exciting by retiring at a place where they can get all the facilities and live peacefully without the need for spending a lot of money on daily expenses. If you are among the retired veterans then you may want to keep Indiana away from the list of ideal destinations to retire. Why? A recent survey has the answers.

What Do Retired Veterans Prefer Post Retirement?

It is a well-known fact that the average age of retirement for the officers is 47. As per Jill Gonzalez, who serves as an Analyst at a Washington-based personal finance site WalletHub, most retirees are left with 3 challenges at this stage. The first challenge is to re-enter the job force. It is the most likely challenge. The second challenge is to seek only veteran-specific jobs and the third challenge is to get VA care and benefits.

The Ranking

The company also ranked the best and worst states for retired veterans. In the list, Indiana was fourth from the bottom. The main reason for the low ranking was that Indiana partially taxes military pensions. The other reasons were a lack of VA health facilities and the low quality of the available VA health facilities. These reasons make Indiana a military retiree deterrent, revealed Gonzalez.

The Main Quality Parameters

WalletHub has ranked the states by measuring them on various quality parameters such as access to VA facilities, access to arts, access to leisure, the cost of living data, housing costs, the state tax on military pensions, the number of doctors per capita, etc. In total, 20 such quality parameters were used by the company to prepare the list.

The gist of the matter was also shared by Gonzalez. She said that the retirees must always know what they are getting into when they look for an ideal place to retire. They should particularly have a look at the state’s tax policies.

The List

The list prepared by WalletHub had 51 states and the overall topper of the list is Alaska. It is closely followed by South Dakota and Montana. Alaska is number one in providing the best economic environment while Montana is number one in providing health care and quality of life. The worst place to retire for retired veterans is Rhode Island where the economic environment and health care are nearly the worst and the quality of life is not so good either.

THE TSP STEPS UP FOR THE MILITARY by Dianna Tafazoli

February 17, 2016 /by Dianna Tafazoli

Many individuals go into the military but do not retire or serve a full 20 years, the time usually required to retire and have a pension. Those leaving the service before that time are left without a pension. The Thrift Savings Plan (TSP) is estimated to add 250,000 military personnel each year to the rolls starting in 2018. New troops to the military will be automatically signed up to the TSP starting January 1, 2018. This will allow the troops the same level of participation as other TSP participants.

More than 83% of military personnel do not have retirement and by participating in the TSP, the retirement dynamics could change for military personnel who certainly need security in retirement. The TSP has more than 4.7 million participants. Adding the military personnel to its rolls will more than strengthen the TSP and give the military the kind of added protection they need in retirement.

Often those military personnel who do have retirement of 20 years are young enough to go into another career. They receive a monthly pension upon retirement or have the option of receiving a lump sum. Many times troops use the lump sum money to make investments or purchases that might not be wise and find themselves still without the protection needed in retirement.

It is a good time for the Department of Defense to begin educating the military forces about the TSP and how it can help to ensure a safe and secure retirement future.

P. S. Always Remember to Share What You Know.

Dianna Tafazoli

No further action against General David Petraeus

February 8, 2016 /by Admin

MTE5NTU2MzE1OTMxOTAzNDk5 Ashton Carter who is the Defense Secretary has made the decision regarding the case of David Petraeus. He has indicated that there will not be any further actions taken by the Department against the retired General. This was indicated by a letter that was received by CNN this past week.

No more actions against David Petraeus:

The letter was meant to be received by Senator John McCain who is an Arizona Republican and also the Senate Armed Service Committee chairman.

The options that were available at Carter’s disposal were the following:

Demote Petraeus to a 3-star general from a 4-star general. This would of course have also affected his retirement salary.
Not make the demotion decision and allow David to enjoy the complete list of retirement benefits that he will now be set to achieve.

The letter’s credibility was confirmed by an official of the Defense department but there were no further elaborations made in this regard.

The whole situation developed when David acknowledged whilst in court proceedings that he provided Paula Broadwell access to classified material. Along with this, he also mentioned that he was in a personal relationship with the author. David Petraeus will still remain responsible for any wrongdoing that he might have done while being an active servant of the department.

Congress, the Last Battle for Women in Every Combat Role

February 6, 2016 /by Tamila McDonald

U.S. Southern Command Gen. John F. Kelly

Four F-15 Eagle pilots from the 3rd Wing walk to their respective jets at Elmendorf Air Force Base, Alaska, on Wednesday, July 5, for the fini flight of Maj. Andrea Misener (far left). To her right are Capt. Jammie Jamieson, Maj. Carey Jones and Capt. Samantha Weeks. (U.S. Air Force photo/Tech. Sgt. Keith Brown) — (U.S. Air Force photo/Tech. Sgt. Keith Brown)

U.S. Southern Command Gen. John F. Kelly closed out his 45 year Marine Corps career by ringing a bell that he wants heard on Capitol Hill. It came at his last press conference from the Pentagon when asked to comment on Defense Secretary Ashton Carter’s planned implementation that every combat role without exception be opened to women.

Kelly responded that the only thing that should matter is what makes “us more lethal on the battlefield?” He expounded his answer by attacking the possibility of lowering standards in these roles in the future. Even though leaders and Congress have said standards will be kept high Kelly has one fear.

As women move into these roles, there will be questions by leaders and Congress why they are not moving up the ranks, receiving promotions or staying in these roles. This may inevitably lead to a lowering of the standards to make equality in leadership. He states “it will be very, very difficult to have any… real numbers come into the infantry or the Rangers or the Navy SEALs.” U.S. Southern Command Gen. John F. Kelly

Kelly further attacked those wanting to empower women through this agenda-priority in Washington stating it will lead to a lower of combat standards, not now, but at some point in the future.

On the other side of this conversation is one outspoken proponent of the Carter’s proposal, Rep. Tammy Duckworth, democrat for Illinois. As a retired Army National Guard Officer, Duckworth lost both legs and partial use of an arm while piloting a Black Hawk helicopter in Iraq.

Duckworth states “none of the women who are going to apply [and] meet the standards to serve in these units want the units to be less capable or less deadly.” She further stated that she is not surprised about a General stating comments along the lines of Kelly.

Duckworth admits not being able to make Ranger school, but knows there are a lot of guys that couldn’t either. “Whatever percentage of women can, even if it’s two percent, let them do the job!”

The discussion over skill exemptions put forth from the Marine Corps, the largest critic and naysayer about fully open and integrated gender training and combat roles, now goes before Congress for final decisions.

However even in Congress the debate is split between those that want to slightly modify Carter’s no-exception policy in opening all combat roles to woman and those that want all roles open to women that have the physical and mental toughness to do the job.

Currently about 10% of all military positions are closed to females totally almost 220,000 jobs. These positions are mainly infantry, reconnaissance, armor, and certain special operations units. So far the Marine Corps is the only military division to seek a skills-exemption for some front-line combat skill positions from gender integration arguing mixed gender units would be less capable in ground combat.

Even Duckworth admits that a women would need to be able to drag a 250lbs soldier (fully geared) while returning fire from their weapon to be able to meet the actual demands of ground combat, but agrees “If you can, and you’re ready to lay down your life for your country, good for you. Go do it.”

Military to get pay boosts in 2016 too

January 12, 2016 /by Admin

military pay While there were news all over the place about the recent pay raise that was awarded to all the federal employees out there, there is also good news for the military. President Obama has recently given his approval on the one percent increase that is going to be granted to the military employees. In this regard, after a few recent developments, there is going to be a further 0.3 percent increased based on the locality of the employees.

Military getting pay boosts:

There are a few localities that will benefit heavily in this regard. The Huntsville-Decatur-Albertville area is a little low on the scale (16.36 percent) and the scale goes from 35.75 percent to 14.37 percent in the San Francisco Bay and the Albuquerque-Santa Fe area respectively. Here, it’s worth noting that the lowest entity on the scale is still greater than the rate for Alabama which is 14.35 percent.

All in all, going into the New Year, nothing can please a military servant more than knowing that they are going to get compensated more than they were in the previous year. This goes to show that their concerns and rights are equally important to the government than those of the rest.

TSP Expecting Military Influx

January 5, 2016 /by Admin

The Thrift Investment Board of the Federal Retirement division of the Government has always been one for making announcements and dealing with all sorts of criticism along the way. They are trying to avoid as much criticism as they can these days and for that TSP board is making preparations to welcome the huge expected military influx in to the program by 2018.

New military members coming towards TSP:

The National Defense Authorization Act which was passed in November by Congress is intended to encourage the contemporary military members to make the investments in the TSP. The act will take effect starting next year.

The board is expecting over 500 thousand new additions within the first year and expects/projects that the number is going to get extended to as much as 1 million within the first year and a half. Greg Long who is the director of the board mentioned that this is destined to be a turning point in the recent history of the organization and that the whole dimension in expected to get changed in the longer run. He also mentioned that they are trying their best to improve their infrastructure so that it becomes able to deal with this large of an influx.

Renee Wilder who is the director of enterprise planning was the first person who raised the point that the system will have to be altered in order to make sure that they are able to sustain these alterations. There would have to be some extra efforts done by the communications team and the process will have to be sped up too.

That being said, all in all, it looks as if things are probably going to get a little hot to handle for the organization and here’s hoping that they are able to stay in the kitchen during the heat.

Details about the new military retirement system

January 3, 2016 /by Matt Pierce

Soon we will be hearing from the Defense Department regarding the new military retirement system that’s set to be put in to effect from January the 1^st of 2018. There are some intricate details regarding the system that are to be shared and everybody is looking forward to hearing something that they would like to hear.

Details about the new military retirement system:

During 2016, the armed personnel can expect the implementation of the financial education programs that are going to be spread across the whole force and will allow the service members that are eligible to get help regarding making decisions of selecting retirement packages. They can either get enrolled in a new retirement plan or just go with the rudimentary benefit that is given under the grandfather clause. Even though, as mentioned the plan will not be put in to practice before 2018, all the already in service troopers will be offered the traditional grandfather clause that is part of the basic 20 year retirement system.

If you entered the troops after January 1^st 2006, then you will have the liberty to choose between the 401 (k) system and the offered one. This would definitely create an ambience of uncertainty as 2018 approaches near for the people that are in the middle of their services.

The troopers who came before 2006 and have served for over 12 years, will be given the chance to opt for a waiver but because this ensures few financial fruits, not many would like to make the switch.

There have been cases where the Pentagon has forcefully asked some of the troops to take upon retirement plans but with the new military retirement system and its launch, it’s expected that things are going to get a lot more open to choice of the military.

Tag: military

military

Guide to the Deferred Retirement Option Program Sponsored by: Flavio J. “Joe” Carreno

Deciding Your Retirement Age – 3 Things to Consider Sponsored by:Todd Carmack

Expectations vs. Reality of the TSP Modernization Act Sponsored by: Todd Carmack

Retirement Claims Keep Falling But the Full Impact of Coronavirus Outbreak is Still Not Known Sponsored by: Flavio J. “Joe” Carreno

Your TSP and The Corona Virus Pandemic Sponsored by: Flavio J. “Joe” Carreno

Don’t Damage Your Retirement with These 3 Common Mistakes Sponsored by: Todd Carmack

Life Insurance… Now for the Living! Sponsored by: Flavio, Joe Carreno

What is the amount of FEGLI coverage which you can avail as your life insurance in your retirement while you are still alive?

Let’s observe a few safety gaps faced by Federal Employees, even when the FEHB and FEGLI insure them entirely.

The sole FEGLI Death Benefit feature is accessible while you’re alive is the Basic Coverage (pay summarized to nearest $1000 + $2,000). You can only get it if you have a fatal sickness with less than a year to live.

Let’s say, at 58 years old, you had a severe heart attack. FEHB mainly covers the hospital charges, but maybe you can’t return to work.

So, what amount do we need to withdraw in an attempt to get the fifty thousand dollars?

$86,206! (Note: This depends on the situation of each individual, this is a theoretical case)

In several homes, this amount of taxable payment could even bump the total domestic revenue obtained for that year over the verge of a higher tax bracket, compelling this household to give a higher percentage in salary taxes for each dollar.

Have you ever heard of the story about the hen that lays the golden eggs? You can sell the golden eggs, but the hen can only be sold once! It’s the same idea as the principal (a hen) and the gains (golden eggs) in the TSP.

Living Benefit Riders’ coverage is conciliatory enough to cover several diverse “life-threatening sicknesses,” which is vital for future plans. The Critical Illness rider isn’t restricted to one particular illness.

The Critical Illness Benefit offers a part of the program’s Death Benefit as an untaxed payment if you have a critical illness.

For example, suppose you pay three thousand dollars per year for twenty years for cancer protection, but you get hit by a bus, then your money is lost. Cancer is a certified diagnosis to activate the advantages of this free-rider.

These are complicated subjects with several consequences and difficulties, so it is undeniably vital to get guidance from a federally focused expert that knows your benefits when coming up with an inclusive safety policy for your future.

Federal Employees and Boomers Should Delay Retirement Like It’s 2009 Sponsored by: Todd Carmack

How to Put Your Retirement on Hold During a Pandemic Sponsored by: Flavio, Joe Carreno

Six Retirement Decisions That Fall into the Unalterable Category Sponsored by: Flavio, Joe Carreno

Losing FEGLI Coverage – What If It Happens? – Joe Carreno

Why Indexed Annuities May Not Be All They’re Cracked Up to Be

Costs and Complication

Conflicts of Interest

Income Alternatives

Should Retirees Take the Life Annuity or a Monthly Paycheck?

Retired Veterans May Not Want to Retire in Indiana

What Do Retired Veterans Prefer Post Retirement?

THE TSP STEPS UP FOR THE MILITARY by Dianna Tafazoli

No further action against General David Petraeus

No more actions against David Petraeus:

Congress, the Last Battle for Women in Every Combat Role

U.S. Southern Command Gen. John F. Kelly

Military to get pay boosts in 2016 too

TSP Expecting Military Influx

New military members coming towards TSP:

Details about the new military retirement system

Details about the new military retirement system:

TSP & Retirement