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Return to Article: You Can Afford To Retire!

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  I need to ask a question if someone can help me. My husband draws FERS when we are divorced am I entitled to a part of that. Can someone help and tell me who to contact.

  Janet Crow Posted October 20, 2008 7:29 PM
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  When you retire under CSRS do you still get a or obtain a Voluntary Contributions refund (CSRS) from OPM for all the money you paid in the system over the years? Is this lump sum still an active program in addition to receiving your monthly retirement check?

  Jerry Lindley Posted April 8, 2008 12:49 PM
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  I started my government career with SSA, then transferred to DOD, stopped working after 10 years with DOD to stay home and raise my children. After being home for approximately five years I then went back to work. Now I will have 27 years in 10/06. I am on the CSRS offset, so I pay into CSRS and Social Security. I would like to ask a financial planner which is the best situation for me.

  In 3.5 years from now, I will have 30 years at the age of 56. I left all of my CSRS money in when I left government service after 10 years. At the age of 56, I would be able to draw 56 percent I believe of my civil service retirement. My question is, would I come out better to draw my CSRS retirement at 56, then get another job (I may want to get my own business, plus I have a college education where I could maybe teach school, there are several options I have in mind) or would it be better for me to stay with the government and accumulate the 2 percent per year increase in my CSRS retirement, then about 60 or 62 retire, then get my own business going. This CSRS offset is king of complicated to know what to do and I don't really know what is best. I believe I have about 18 years or so under the social security system so far. Can you explain how my CSRS will be offset and how much social security will be used to replace CSRS offset. Would I come out better if I have the full 30 years paid into social security along with the CSRS offset? I hope you can help me with this, because no one seems to be able to help you plan retirement with this. The government complicated the retirement system with this offset so it is not an easy 123 step. Hopefully you can help me with this decision. Thank you.

  GovExec.com reader Posted March 31, 2006 12:18 PM
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  Tammy,

  I've been trying to get this question answered through our agency's HR (Help Rejected) Office and OPM to no avail. I can retire in about 10 years under FERS. I was originally under CSRS for a couple of years, have a couple of years temporary service and have military time. I have already received an estimate of my military earnings and would like to know what do I do with this information now and what deposits would I have to repay in order to receive full annuity? The whole idea of deposits is confusing but I want to pay anything back now instead of waiting until I only have a couple of years left. I appreciate any assistance you can give me.

  DoD Civilian

  GovExec.com reader Posted March 28, 2006 7:07 AM
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  Well Tammy, you answered my question, but now I'm really confused. When you referred to a potential FERS retiree with "34 years of service" -- but with 12 of those in the "private sector," then those 12 years really don't count for anything in our system. Hmmmm ...

  John H. Posted March 18, 2006 8:39 PM
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  Just a quick note to correct a possible error in your article titled, "You Can Afford to Retire."

  You stated: FERS Example: Many FERS employees who are currently eligible to retire have spent a portion of their career in another job (private sector or military service). Since FERS covers employees hired after 1983, the most FERS service someone could have right now is only about 22 years.

  That is partly correct, but you failed to account for the option of "buying back" a person's military time and seasonal time. I am a FERS employee and I will have 28 years of service this June. I paid for my four years of military time several years ago and also my seasonal employee time which totaled about two years, thus the extra six years.

  Thanks for the great article. Jim

  James Summers Posted March 17, 2006 1:01 PM
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  Heads up information for future related articles: I am currently trying to obtain a Voluntary Contributions refund (CSRS) from OPM. They advertise two months to process this but I am going on my eighth month. This time delay, while not affecting me too much since I am active employee, would result in a significant loss for someone who waits until retirement to request refund. Reason: Government stops paying interest on account the day of retirement ... could be significant if a lot of money in account (up to 10 percent of lifetime earnings allowed), so request refund early!

  Dave Roha Posted March 17, 2006 12:55 PM
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  Tammy - Thanks for a great article and your subsequent article on reader feedback. I have one comment on your response concerning FERS covering employees hired after 1983. You stated the most FERS service someone could have right now is about 22 years. I made a military deposit and "bought back" 13 years of military service, giving me over 30 years of FERS service.

  Bob Scherer Posted March 17, 2006 12:24 PM
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  In response to your March 17 article, I was surprised to see your comments about using a FSA account after retirement. I contribute to the health FSA and have been told by FSAFEDS that not only can I not continue my deductions after I retire, but also that any medical expenses that I incur after I retire cannot be paid out of pre-retirement FAS deductions. So it appears to me that FSAFEDS is completely out of the picture after retirement. On an unrelated note, all of the classes I attend and columns that I read fail to address the issue of recouping your already taxed retirement contributions tax free on a yearly allocation based upon your life expectancy. Can you explain that calculation, which seems to be a significant post-retirement tax benefit? Thanks.

  Allan Benson Posted March 17, 2006 10:37 AM
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  Quick question:

  You said in follow up: "Since FERS covers employees hired after 1983, the most FERS service someone could have right now is about 22 years."

  Although I am CSRS and did not switch to FERS, we were offered the option to change when FERS began ... would not someone who switched be able to have more than 22 years? No need to reply, your answer just seemed incomplete.

  Mark Gilbert Posted March 17, 2006 10:15 AM
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  I think you need to change the title of your article to: You Can Afford to "Sorta" Retire. While I liked your article very much, think including $12K for after retirement work gives an unrealistic picture of the future for those of us that actually want to retire. While I know many people return to work after "sorta retiring" for various reasons, including in your analysis provides only a "sorta retired" analysis.

  Robert Weymouth Posted March 17, 2006 8:53 AM
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  This was an excellent article when used for its intended purpose which I believe was to illustrate to the majority of your readers they can afford to retire if they really evaluate what it is they intend to do or want out of life. Most of us will not really retire from working but rather change careers or the focus of our lives. When I retire on 1/2/2009 (a date I've had selected for at least 14 years), I'll have 36 years service. At that time I will retire from this career and start a new one where work will have a totally different meaning and purpose.

  Retirement doesn't have to mean doing nothing, it can simply mean doing something different.

  Charles (Retiring at 55) D Posted March 17, 2006 8:52 AM
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  Tammy. Great to see someone take the time to point out some things that most of my fellow employees don't have a clue about! I am still amazed at how many folks have never taken a look at their retirement and are depending on good ol' Uncle Sam to "take care of them." I have 67 months to go before my FERS retirement kicks it, with 38.5 years service at MRA = 56. My question to you is this, "Where can I find a calculation covering the OPM kicker, or as you called it, the FERS supplement?" I know it exists, but have never seen an article that talks about how to figure it up or what the penalties are for making too much money. Can you lead me in the right direction to find out about this small cache of money? Thanks for the time! Ted

  Ted Dillard Posted March 17, 2006 6:45 AM
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  In response to the question about the FERS Supplement: The supplement is computed using only the civilian service under FERS. In my example, the employee only worked under FERS for 22 years of his/her career. The computation does follow the Social Security formula to some extent, but does not credit non-federal wages (or military salaries) into the computation. When the retiree reaches age 62, and applies for Social Security, then the actual Social Security benefit would be based on all of his/her "lifetime" of Social Security covered work.

  Tammy Flanagan Posted March 10, 2006 6:13 AM
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  Dear Tammy and staff,

  Thank you for that explanation. Sorry for my forgetting the target population. You folks put out such good information, I truly believe that you should be focusing beyond that narrow scope.

  But not to worry. I forward your stuff to just about anyone that will receive it. It's practically required reading 'round the shop.

  Tip off.

  P.S. I'm still worried about a new working poor from the government ranks.

  Tip Posted March 9, 2006 4:27 PM
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  Tammy, Very good article -- I believe you accomplished your goal of prompting workers to think about their retirement.

  One thing I do have a few questions about: Is the FERS Social Security-Supplement calculated based on age 62 Social Security entitlement? Now, doesn't the Social Security Administration consider those last 5-6 years of retirement (assuming no post Federal employment work) as zero earning years for the lifetime earnings Social Security calculations? Isn't the same zero earnings applied/used for the FERS Supplement lifetime earnings calculation?

  Hasn't anyone now knocking down $85,000 a year "deposited" a massive amount of money into their Social Security account over the 30-40 years it took them to reach that earning level? Now, where is the fairness in telling people $700 dollars a month is an adequate return of their monies? If it isn't fair, or if that isn't your department, at least advise people where to find advice on how to leverage their money and/or how to avoid dear old "Uncle" from stealing it from them (estate planning).

  Folks, the more you play with snakes (Insurance companies, IRS, Congress, etc.) the more likely you'll get bit! Save every penny you can, just don't do it in a way you will owe anything on it --save after tax money and pay the tax on the earnings as you go. Hell, you might even consider investing in foreign currency and tangible assets like bullion, kept off-shore of course, so the snakes don't force you to surrender it!

  Cracked & Wired Posted March 9, 2006 2:29 PM
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  One last comment: If you wish to find out how much your former spouse will receive based on the court order, I recommend getting a retirement estimate from your personnel office and having the attorney who drafted the court order compute the amount that the former spouse is entitled to.

  Tammy Flanagan Posted March 9, 2006 8:38 AM
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  In response to the question about Social Security tax from the annual leave check. A high-salaried employee stops paying the Social Security tax when income exceeds the maximum taxable wage for the year. In 2006 this is $94,200. If the leave is cashed out at the end of the year, the Social Security tax would not be withheld. Compare this benefit to total tax on retirement income plus annual leave check received in the following year. In addition, this would require retirement a month or two earlier which would cause a small retirement computation and less of the annual leave paid at the following year's pay rate. Not sure if it is always worth the trade-off.

  In response to the NSPS system causing problems with the retirement calculation. Not sure why you think this would complicate the high-three? When an employee is in a non-traditional pay scale, there are still pay raises and promotions. The date that these pay increases take effect becomes the basis for computing the high-three average salary computation.

  Tammy Flanagan Posted March 9, 2006 8:34 AM
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  OK, here are some of my reasons for the examples I used:

  Salary: I used a higher salary since this article was written for Government "Executive" magazine (it is actually a low salary for an executive).

  FSA: I agree that money set aside for FSA will still be spent after retirement, but I included it on the salary side since it affects taxable wages.

  Taxes: There is no way to compute actual taxes without more information, I am trying to capture a snapshot that should only take someone a few minutes to prepare. I used a very general estimate of about 22 percent total fed/state withholding. The idea is to realize that taxes on a full salary are not the same as taxes on a retirement benefit. Also, I only applied the tax to the salary after FSA, FEHB and TSP withholdings.

  FERS Example: Many FERS employees who are currently eligible to retire have spent a portion of their career in another job (private sector or military service). Since FERS covers employees hired after 1983, the most FERS service someone could have right now is only about 22 years. A FERS employee would be eligible for Voluntary Early Retirement in my example... there are still many offers of VERA within the Federal government today.

  TSP and other investment income: Saving for retirement is not a new concept. Learning to save for retirement does create another source of income in the retirement years and also makes it easier to live on less in retirement since you get accustomed to saving a percentage of salary.

  Summary: My main thought when I wrote this article was to provoke employees to think beyond the retirement estimate. I have had several conversations with employees in recent weeks who have worked for 30-plus years and felt that they couldn't afford to retire. They were comparing their "gross" income to their "gross" retirement. Once we looked at the "net" it was much more comforting! The examples are hard to do since there are so many variables. As far as working after retirement ... this is common. Fifty percent of Americans are still working at age 62 (Census Bureau). It may not be a second career, but teaching, consulting, self-employment are all rewarding options for life after retirement!

  Tammy Flanagan Posted March 9, 2006 8:28 AM
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  Good article, but limiting, as it discusses retirement as a sole financial decision, which it is not! I'm an ex-federal employee living in New York (not Florida, thanks), and my wife and I are doing OK. Why, because we realized some while ago that we're effectively in "the last 30" years of our lifespan. Sure, money is very important, but so is quality of life! People don't have to fill up eight hours per day doing handicrafts, volunteer work, etc. They have each day to do or not do whatever they want to. Kick out the kids, paint the boat, and stop grinding the corn, it's time to party!

  GovExec.com reader Posted March 7, 2006 9:41 AM
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  I think y'all do a great job but I'd like to know where your statistics for this article came from. It looked like a white-wash from the get-go.

  When proposing retirement calculations, please use a more statistically "average" retiree for your calculations. IAW the Federal Civilian Workforce Statistics "The Fact Book", (latest edition 2004 - non-postal), that would be a GS-9 to 10, not a GS-13, step 6 (rest of US - 2006) as your $85K would indicate.

  Additionally, please distance some of your add-ins from the general tables. E.g. the "Post-Retirement Work" and "Other Investment Income," unless giving a reasonable basis for such figures. The ultimate goal of retirement for most folks is to be able to stop working unless you want to. Even if you need to work after retirement, most folks hope it will be part-time, temporary, or in an endeavor that they desire to do.

  Building in figures such as "Other Investment Income" also gave a slanted view of retirement potential. I'd like to know where those guess-ta-mates came from. The "average" civilian retiree would have much less in the way of outside investments than your hypothetical retiree. I'd be willing to get that GS-9's contribute less to their overall retirement than higher grades; not because they don't feel the need but because smaller operating budgets with children attending or preparing to attend college restricts the amount that they feel they can contribute.

  I found that most civilians had an over-rated opinion of what retired military pay is and I believe there is a similarly huge gap in their opinions on just what the statistical government retiree draws. My fear is that despite the huge personnel cost in the federal budget, when the vast majority of FERS employees retire between 2017 and 2020, there will be a new working poor.

  In general, I do think you were on the right track; preparation does go a long way, but please present some figures that are based at least half-way in the reality of today.

  Tip off.

  Tip Posted March 6, 2006 12:31 PM
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  Tammy, I'm under FERS, is there anyway to avoid paying social security tax when selling back unused annual leave? I intend to request a retirement date at the end of December when I decide to go. Thank you. Rick

  GovExec.com reader Posted March 6, 2006 8:57 AM
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  Great article.

  However, I disagree with including the Flexible Spending Account as a deduction from current net income, since it's money that still can be spent. In my case, with four family members who all wear glasses and one who is in the midst of braces, it's money I would spend anyhow -- whether I work or am retired. If FEHB covered dental better and vision at all, it might be different.

  GovExec.com reader Posted March 5, 2006 2:06 AM
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  How does a 56-year-old FERS employee with 34 years of service making $85,000/year only get a gross retirement pension of $17,765? That's less than 21 percent. Don't FERS employees who retire before age 62, but who still reach the minimum retirement age with 30-plus years of service get 1 percent per year -- thus a 34 percent pension (presuming that the $85K is the high-3 average salary)?

  John H. Posted March 3, 2006 2:07 PM
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  The implementation of NSPS and pay-for-performance will certainly make retirement earning computations impossible for those of us in DoD.

  Real nice.

  Dave Posted March 3, 2006 1:27 PM
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  Re: Federal income tax, there's no explanation of how it's computed. Suggest a footnote or a link to the exact page on the IRS website to determine what your post retirement taxes will be.

  GovExec.com reader Posted March 3, 2006 10:47 AM
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  This is a great tool for employees to use when deciding to retire. However, the example for the FERS retiree is likely to create a lot of confusion for employees covered by FERS. An employee covered by FERS is not eligible for an unreduced voluntary optional retirement at age 56 with only 22 years of service. The earliest such an employee could retire would be at age 60. In addition, the employee in this example would not be eligible for the FERS annuity supplement.

  The employee could retire at age 56 with 22 years of service under a MRA plus 10 annuity which is reduce 5 percent a year for every year he/she is under age 62 at the time of retirement. Employees retiring on a MRA plus 10 annuity are not eligible for the FERS annuity supplement.

  Larry Scanlan Posted March 3, 2006 10:01 AM
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  Hi,

  This is an extremely helpful article and a very insightful way to compute pre- and post-retirement income streams. I have a comment about including the FSA deposit as an income "expense." I view it as a tax-saving set-aside. Unlike the other expenses, the money is fully available as of Pay Period 1 of the new calendar year even before it is earned in your paycheck. I know this because I've already exhausted my set-aside of $1,560 for this year. I'd like to know why it's treated as an expense, or drain on income, in the examples given. The funds would have been spent anyway but, by temporarily diverting funds to the FSA, taxable income is lowered.

  Thanks very much for an extremely helpful calculation scenario.

  Jonathan Lash

  Jonathan Lash Posted March 3, 2006 9:34 AM
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  As a government employee that has to pay my former spouse a Court Order Award, there is no way to figure that amount to determine if I can afford to retire. I have been told that OPM will compute how much my former spouse will receive from my divorce decree; therefore, that computation cannot be performed until after I retire.

  GovExec.com reader Posted March 3, 2006 7:17 AM
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  Just in case you were wondering how the FERS employee in the example could retire at age 56 without a reduction to his/her annuity ... the employee was offered a VERA (Voluntary Early Retirement Authority). The requirements for VERA under FERS are age 50 with 20 years of service or any age with 25 years of service (same as CSRS). There is no age reduction under FERS and the FERS supplement is payable at the minimum retirement age (55 - 57).

  Tammy Flanagan Posted March 3, 2006 7:13 AM