Return to Article: CSRS vs. FERS: The Reaction
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86471
I am currently employed at FEMA. My SCD is 2002. I recently inquired with my HR dept. about retirement. I was told that the number of years I have worked is not credited toward retirement. HR states that the first 4 years were under FICA not under FERS is that legal? Upon employment I was sworn in as a Federal employee and was not told I would be under FICA. Is there any advice or procedures that I can take to remedy this situation? Thank You
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61431
I was forced to retire when I had heart failure at age 44 and I now receive Medicare and Social Security each month since 1996. I still suffer with these disorders and some of the issues that go aloing with these diseases but I want to know if I can work a parttime job because my income is not enough to pay my bills and have food money left over. Iam married but my husband suffers from degemerative spine arthritis and stays in pain all the time. Iam now 59 years old my health is fair but my doctors won't authorize my going back to work because my ejacation is less than 25 in my heart what can I do. I need more money for all these bill and debts we have incurred. PE
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42402
When can I withdraw from my 401K or TSP without a penalty. I am under the CSRS, I started contributing in 1998 timeframe and the agency is not matching what ($200/mo) I am putting in.
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29751
I've been working in the federal government for approximately 5 years. I would like to stop working before Iam eligible. How can I file for retirement when I become eligible without going back to work?
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16308
In your chart comparing CSRS and FERS, you had the government contribution to the TSP as zero for both and a total required contribution of 7 percent. Actually, it is 1 percent for FERS TSP and therefore the total required contribution would be eight percent for the FERS. If a FERS employee makes no contribution to his TSP account, then an automatic 1 percent contribution is made by his agency.
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16203
Once more, a diary moment. Taxpayer and I agree. Well, as usual, to a point.
Point 1. Most people do not understand the volumes of personnel regulations.
Point 2. The volume and, sometimes, vehemence of these responses shows that people care.
Point 3. The questions and comments show that people are confused.
If the purpose of these articles was to generate interest, thought, and exchange information, I vote them a rousing success.
Thanks, Tammy, and keep 'em coming.
Tip off.
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16184
Tammy,
In one of your responses you stated that a FERS employee could retire at their MRA (55-57, depending on year of birth), with a FERS basic benefit, a FERS Supplement and well as immediate access to their TSP account without penalty. I thought you had to wait until the age of 59.5 before withdrawing from your TSP account without a penalty? My MRA is 56. I'll have 33 years at that time. Please clarify this for me about the early withdrawal of TSP funds.
Thanks,
John
RAFB GA -
16174
My response to: I have found that a person/organization can take any figures and manipulate or slant them to their advantage as was done with CSRS and FERS.
This is true ... depending on a myriad of variables, I (or anyone) can make CSRS or FERS look better.
How long do you plan to work?
How old will you be when you retire?
What do you plan to do after retirement?
How much are you willing to invest?
Are you going to do at least a 5 percent investment to the TSP?
How are you going to diversify your investment?
How do you plan to manage your investment?
How much prior Social Security coverage do you have?
Is your spouse covered under Social Security?
Are you widowed? Divorced?
The list could go on and on and on.
My point is to understand the design of the retirement system you are covered under and take advantage of its strengths. I also agree that CSRS is a system that runs on "auto-pilot" which makes it much easier to accomplish retirement goals and less effort is required of the employee to get a comfortable retirement. Sorry to say, those days are gone, but if you had to design a Social Security based retirement system, you could do a lot worse than FERS.
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16172
My response to the following comment: Number one is many feds don't trust someone seen as partial to federal management.
If you are talking about me, I am not a federal employee. I was one in the 1980's. Since 1988, I have been conducting pre-retirement seminars for federal employees in an effort to educate and assist employees in preparing for a smooth transition to retirement. I am currently self employed, but work through the National Institute of Transition Planning, Inc. to conduct government training.
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16164
Here is my response to: FERS runs out after a period of time -- I think it's 30 years, CSRS gets the full retirement COLA, FERS gets half of that, CSRS is based on government securities, FERS market based ...
None of the above is true! FERS basic retirement is paid for life and includes a survivor annuity similar to CSRS. The withdrawal options of the TSP also include a "life" annuity ... but there are certainly many other choices for dispersing the TSP.
The FERS COLA is not half of CSRS. Social Security benefits are adjusted annually with exactly the same COLA as CSRS benefits. FERS basic retirement benefits are no less than 1 percent less than CSRS. 2005 COLA for Social Security and CSRS was 4.1 percent. FERS retirees received 3.1 percent. TSP can be withdrawn in a number of ways that will allow for inflation.
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16163
In response to: I am requesting a clarification to your response, "At the FERS minimum retirement age (55-57, depending on year of birth), FERS employees can retire with a FERS basic benefit ... " Per our agency HR Website, a FERS employee takes a 5 percent hit each year unless he/she has put in 30 years.
Just like CSRS, FERS employees can retire with unreduced benefits at the MRA with 30 years of service; at age 60 with 20 years and at age 62 with at least five years of creditable civilian service.
FERS has an additional option that allows a reduced benefit to employees who want to retire before meeting the "regular" retirement requirements. You are correct that if you leave with less than 30 years of service (and are under age 60) or less than 20 years at 60-61, you will take a 5 percent hit for every year you are under 62. To avoid this reduction, you need to work longer or postpone receiving the benefit. This option adds flexibility to FERS.
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16162
In response to: I have never seen in my 25 years-plus federal law enforcement career a case where OPM has made any move to benefit the federal employee.
OPM didn't make the laws, but there have been plenty of laws that made it through Congress in recent years to benefit the federal employee:
1. Implementation of TSP for CSRS and FERS (you said so yourself in the previous paragraph).
2. Premium Conversion (Flexible Spending Accounts, no tax for employees on health insurance premiums).
3. Improvements to the TSP ... no percentage limits, daily valuation, increased investment choices, no open seasons.
4. Expanded Life Insurance options (multiples of Option C, Living Benefit on Basic).
5. Putting a defined benefit into FERS instead of only a Thrift Savings Plan.
6. Improvements of Survivor and disability benefits for law enforcement officers who die (with 20 years of covered service) or become disabled before retirement (who have completed 20 years of covered service).
7. Locality Pay.
Those are ones that came to me without doing more research.
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16161
I am responding to the following comment: FERS people have been clearly screwed, in that they are required to commit more of their paychecks for the same guaranteed result that CSRS employees get -- in effect, they are working for less money than CSRS employees.
Again, FERS employees do not pay more than CSRS employees. If anything, FERS employees pay the same or less! FERS employees get a 5 percent deferred pay raise as a result of the matching TSP contributions. Plus ... highly compensated FERS employees stop paying the Social Security tax if their salary exceeds the maximum taxable wage base (CSRS contributions are withheld regardless of salary level).
And ... before you tell me. I realize that FERS employees need to contribute to the TSP, but if done consistently throughout a career, they wouldn't necessarily need to contribute more than 5 percent (that is matched). I think part of the problem is that we want it now! We don't want to wait until retirement to spend the money we are earning.
The real downside of FERS is that the employee is more responsible for the success of his/her retirement and if the employee doesn't realize that until 10 years before retirement, it will be hard to catch up on the savings. That is a true disadvantage of FERS.
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16132
Tammy,
We realize that you were only trying to inform us. However, it is hard to try to "sell" one retirement program over another in this highly charged forum. Number one is many feds don't trust someone seen as partial to federal management. Another reason being, of course, we don't have a free choice as to which retirement system we want to be in.
FERS people have been clearly screwed, in that they are required to commit more of their paychecks for the same guaranteed result that CSRS employees get -- in effect, they are working for less money than CSRS employees.
The government is about to hurt federal employees again with this NSPS. This time, I hope that federal employees don't accept the new performance plan simply because the government will only make new employees take the plan -- just as what has happened with the retirement system.
Dis-gruntled.
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16128
My father retired from CSRS and I am on FERS. The CSRS program is a self-sufficient retirement that has a very nice retirement payment and a very good retirement insurance packet. FERS does not, if you can't pull money out of your pocket for retirement you lose. I have found that a person/organization can take any figures and manipulate or slant them to their advantage as was done with CSRS and FERS. If I were given a choice I would have taken CSRS. Just like NSPS, we will lose again and again we will have no choice.
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16125
The fellow from Tennessee has it about right. And let no one forget one obvious, glaring and telling historical fact about FERS. The Reagan Administration, prior to developing and implementing FERS, attempted quite vigorously to eliminate CSRS in its entirety and to unilaterally place all current federal employees (except members of Congress, of course) into Social Security. Without the valiant effort and the vigor of the Democrats in Congress in the early 1980s, this topic and discussion would be moot. CSRS would have been gone 25 years ago, and all feds, irrespective of FERS, would be in Social Security! And if you don't believe these words, then do your own homework about what (albeit in vain) efforts the Reaganites took to take away the federal employee retirement program.
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16116
This article can be summed up briefly. When the government got rid of CSRS in 1984/1985, it saved millions of dollars in employee pension benefit costs. CSRS was in fact a defined pension benefit plan in the classical sense. Corporations today are dumping defined pensions like hot potatoes. A recent case is IBM.
Any person with half a brain can see that FERS is nothing more than a portable 401K, nothing more, with lousy TSP choices to boot. It is irresponsible to make any reasonable comparison between FERS and CSRS. CSRS is far superior, especially when you max out in your IRS allowable contributions with TSP as a CSRS employee. Add the over age 50 TSP contribution to your TSP and you've added a high octane burner to your TSP account.
I have never seen in my 25 years-plus federal law enforcement career a case where OPM has made any move to benefit the federal employee. The switch over to FERS was no exception. The Reagan years, God bless his soul were all about government cutbacks, except for defense. I remember when our agency in 1985 asked if anyone wanted to switch over to FERS. The general consensus was, are you crazy!
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16094
Tammy,
I am requesting a clarification to your response, "At the FERS minimum retirement age (55-57, depending on year of birth), FERS employees can retire with a FERS basic benefit ... " Per our agency HR Website, a FERS employee takes a 5 percent hit each year unless he/she has put in 30 years. Per our HR Website: Voluntary Retirement: Minimum Retirement Age (MRA) with at least 30 years of creditable service gets no reduction for age (if you started in1987, 2017 would be 30 years). Minimum Retirement Age with at least 10 years of creditable service gets a reduction of 5 percent for each year under age 62. I'd fall here, but take a 30 percent hit off FERS? At least age 60 with at least 20 years of creditable service, or at least age 62 with at least five years of service. So, if I retire at 56 with 25 years, I'll take a hit of 30 percent off of the FERS basic retirement? If so I'll be working until I'm 60 to fall under the age 60 with at least 20 years. The way I'm calculating there's no way to go at 56 without taking a big hit!
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16089
Tammy,
I appreciate the articles, and the opportunity for discussion. I just ran my FERS retirement numbers, and there is a huge disparity for those hoping to retire relatively early. Under CSRS you can retire in your 50's and get a non-government part-time job. Under FERS, two of your three legs are knocked right out from under you. Your TSP isn't ready until 59 and a half, and your Social Security and FERS supplement are both subject to an earnings offset. For more than $13,000, you lose a dollar for every $2 you earn. Plus your Social Security earnings are reduced by your TSP and other tax-deferred contributions (flexible savings plan, etc.), and reduced by your lower income at the time you start receiving contributions. I think the government will have an uphill battle trying to get people under FERS to retire early.
Thanks for listening, and thanks for your candid discussions.
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16085
Mike,
Well said ... she really is a good sport for even attempting to help decipher the retirement system for us! My thanks to you, Tammy.
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16081
Thanks for people like Tammy that want to do the best possible for people in the government's employ. It is amazing to me that the people commenting obviously either didn't read the article or do not comprehend the contents. Many of the questions are answered in the many policy papers of the government and the material that the personnel offices provide all the time. The absolutely ridiculous questions to Tammy indicate that the general reader does not understand what they read or does not care to know the truth and wants to continue their urban myths. Thank God that the Congress did not pass the "let them invest their own money and not pay social security." They would invest in a dumb manner and would end up with nothing -- thereby increasing the tax on me to take care of them!
Tammy keep up the good advice but make sure you list the assumptions you are making -- are you maximizing wealth or cash flow? Are you assuming your discussion is based on the fact that no one has any other investments than with the government? Are you talking to people that are over 50 or under 30? What happens to health care if you pass 65 and have Medicare? If you doctor does not take Medicare does your health insurance company pay as they would without Medicare? Why are you experts advising people to take part A and part B Medicare when we have health insurance with say Blue Cross-Blue Shield, doesn't that just add $83 a month to the health insurance cost of the retiree? What about part D of Medicare -- should we take it or not? Why aren't retirees allowed to contribute to the flexible health savings plan on a pre-tax basis -- government wants to have us pay tax on the annuity just as on income before retirement so why not allow FSA as a pre-tax deduction after retirement?
I think you need to spend a lot of time talking about what happens to health care after one retires and after one has Medicare! I have received a different answer from the human resources experts in government, as well as the people at Medicare and Social Security and the private health insurance plan. Can you add some light on retirement health care? I have four different answers for the same question. Also why doesn't the premium on the private health care (now the secondary carrier) fall once we qualify for Medicare?
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16066
The financial planner in Ms. Flanagan's article was basically saying that it is up to the FERS employee to take responsibility for their own retirement -- and I couldn't agree more. If the FERS employee does this -- they will have far more money at the end of the day.
Also -- someone suggested a true money market fund be added to the TSP. Why? The G Fund has no risk of losing money and pays 1-2 percent more than your typical money market at a bank. This makes no sense at all.
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16061
Tammy, I will say, you are a sport for fielding answers to the questions raised in the mailbag.
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16052
Tammy,
The way I understand FERS is this: it is a three part system. Part one is the FERS retirement annuity, part two is the Social Security supplement (if you retire prior to 62 then you start drawing Social Security then at 62 and lose the Social Security Supplement), part three is the TSP and how you want to start using it at 59.5. Is this correct? I am in the Foreign Service and can retire at age 50 with 20 years but will have 28 years at age 50. I will get my FERS/FSPS annuity and my Social Security supplement but where I lose big is that I have to wait almost 10 years to draw my TSP without a huge penalty. A CSRS employee retiring at age 55 gets full retirement from the retirement date.
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16051
As a TransFER(S), with 17 years in CSRS before I switched to FERS, I am now planning to retire next month with a total of 36 years of govt. service. Back in '87 I looked at the options and chose FERS for the portability (at a time when my agency was on hard times) and for the opportunity to take control of my own financial destiny. I have maxed out on TSP contributions from day one, and rode the ups and downs of the stock market to end up with a sizable balance which, combined with my CRSR, FERS, and Social Security, enables me to fund a comfortable retirement. Taking responsibility and living on less than you earn are essential to make FERS workable. Contributing to TSP builds your account, but also disciplines you to spend less than you earn. Those who decry FERS are the same people who "want it all," both now and in the future. What most people haven't figured out is you can't have it both ways!
Unless there is a new opportunity to switch between FERS and CSRS, the debate is pointless. The more important issue is that FERS employees need to take responsibility for their financial futures. Thanks for shedding light on the subject. I suggest you keep it positive in guiding FERS employees in the right direction.
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16039
I just wanted to thank you for your columns on retirement issues. They contain a lot of good information and appear to be very well researched and in my opinion pretty unbiased. The information you are presenting is both helpful and thought provoking as we make our own decisions about these matters that will greatly affect us later in life. I hope people in the early stages of their careers are reading them with as much interest as those of us in the later stages. Thanks and please keep them coming!
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16037
I find that I tend to save my sick leave knowing that I will get no benefit when I retire. Like most folks, I am disgusted at the fact that I save the leave in the event of a serious illness with the possibility of losing it at retirement. I recently had a child and was more disturbed to find out that I was limited to 6 weeks of sick leave. In my situation, I was still in sufficient amount of pain from my procedure and all of the medical problems that arose. How dare someone tell me when my body is well enough to stop using sick leave and when to then start using annual leave again! I was fortunate that I was permitted to go ahead and take much more than the 6 weeks dictated as the cap for the maternity leave. Plus, my supervisor was well aware of my medical problems. I am amazed that there is a cap just so that down the road in retirement years I can lose the same leave that I was capped at during maternity. However, I have heard others have not been so fortunate. Their supervisors ensured they could only take 6 weeks of sick leave. This system needs desperately to be changed such that employees do not lose this sick leave. Allowing individuals to cash part or all of it will encourage folks to save it for those medical situations that might arise later in life.
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16036
The only way to beat the system is to use up all the sick leave. I've just done that (believe it or not managers) honestly. I now have 14 hours and you can bet before I go it will go also. It is a rip-off for FERS people, just like the FERS system itself. The government benefits under FERS for many reasons, but one main reason is that under FERS you can have your work hours reduced, increased, etc., anyway to benefit the agency, which in most cases means reduced cost and yet they have the personnel available when they want them. I can still recall a manager who told me one time, "I don't mind having you around when I need you." Now, I recently found out that OPM is six months behind in processing "buy back" on military service time. What do they do all day long? Sit on their butts?
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16035
Tammy,
You wrote the article intending to make FERS employees feel better about their retirement program? FERS was another in a long line of actions taken to diminish the benefits provided to federal workers. Retirement/vacation and job security were the three things that brought many of us to work here, two of those are gone. It would be interesting to know how many (few) current workers would encourage their children to pursue a career with the federal government.
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16032
I would like to see more retirement information specifically on the Special Coverage provisions. This retirement provision isn't even touched on in any of the retirement seminars unless the instructor is asked and then only a sentence or two as an after-thought.
My retirement falls under the provisions of the Special Coverage provisions for law enforcement officers. I am a Special Agent/Criminal Investigator (1811). You'll never convince an 1811 that FERS is a better retirement system. FERS was set up pre-supposing that the employee would have 30 years of service to base their years of service retirement benefit. More importantly, the FERS system also presupposes that you will have contributed into the TSP for 30 years. The problem lies in the fact that, I would guess half, of the 1811s are hired in their early 30s as agencies recruit those who have previous non-federal law enforcement experience. Law enforcement officers must also retire by age 57. I will only have 23 years of service when I will be forced to retire (if I make it that long -- I'm a former Customs agent now employed by ICE). To top it off, I wasn't allowed to contribute to the TSP for over six months and then, only the G Fund. I was hired in 1987 at age 33.5.
So, the most I can hope for is only a high 3 based on 23 years of service, will not be able to touch my TSP from 5-8 years unless I take an immediate annuity (which is not the best way to go), and my Social Security and my Social Security supplement will be adversely affected as it is based on you making the same pay through age 62. At age 54-57, where am I going to find another job paying what I get paid now?
And before anyone says anything -- yes, I receive the Law Enforcement Availability Pay. I am required to work an average of 40 hours beyond my regular 40-hour week to receive LEAP. In 20 years I will have worked 30 years, if I only worked the required 40 hours a month. But, for an example, last month I worked 192 hours over my regular 40 hour weeks, which means I worked a lot of hours for no pay. (LEAP saves the government money also). I'm not complaining. I love my job (or did before ICE).
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16031
There are not 10 choices for the TSP for anybody! There are five. The five "lifestyle" funds are just a mix of G, F, C, S, and I funds for people who don't understand diversification based on risk tolerance. I really wish there were 10 choices. I would add: a precious metals fund, an REIT, a growth/value blend, a decent money market fund that congress couldn't steal from (read G fund replacement), and an aggressive growth fund.
Sure the REIT, metal, and AG funds would be very volatile, but lower risk means lower probability of returns. I've said it before and I'll say it again: I trust myself with my money more than I trust the TSP board.
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16028
The other advantages are that CSRS has to continue to pay me and then my wife for as long as we are alive, and my wife's family lives to a ripe old age. FERS runs out after a period of time I think it's 30 years, CSRS gets the full retirement COLA, FERS gets half of that, CSRS is based on government securities, FERS market based ... as many have pointed out FERS was conceived to save the government money so we could spend it in Iraq and then some.
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16025
Tammy, there was a huge hole in your article comparing CSRS vs. FERS. People receiving Social Security benefits are not taxed on income under 32K (married, filing jointly) but CSRS people are taxed on the first penny of retirement benefits (minus a small portion of what they paid in, spread over life expectancy.) Please address this issue. I am one of the people who wanted to switch to FERS, but because of incompetence of those charged with providing information, I could not find out what would happen in case of losing my job under FERS due to downsizing, RIF, base closing, etc. With CSRS, I was only two years away from getting 20 years in and leaving with something instead of maybe nothing under FERS. I think FERS is far superior because of the 5 percent match.
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16022
I think there was some confusion about the mention of voluntary contributions. This is a program that is open only to CSRS employees. It is not the TSP. It is an optional savings program that is used by relatively few employees. Employees who wish to establish an account use an SF 2804 (Voluntary Contributions Election). After the account is established, employees can contribute after-tax dollars that will grow at a rate of return that is earned by the civil service trust fund (currently 4.125 percent). The interest stops accruing at retirement at which time employees can withdraw the funds or transfer all or just the interest to an IRA. There is also an option to convert the funds to an annuity (no COLA). It is almost like a non-deductible IRA, but the interest rate is sometimes better than what is offered at a bank.
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16021
My response to: Quite simply, if you didn't know that FERS was created to save the government money, then you are not knowledgeable enough, or qualified to write or advise on this subject.
The purpose of my article was not to debate why the government created FERS. My intent was to provide a fair and accurate comparison that would show a FERS employee (especially) that it is possible to retire under FERS with a full and complete retirement. The fact that the TSP is partially self-funded by employee contributions would be part of the reason that FERS will be less expensive in the long run. In the short term (as I showed in the article), FERS does cost agencies more of their budget!
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16020
My response to: I have a question concerning the social security "offset" for a FERS employee. Is this money paid to the FERS retiree a reduction in the amount of tax, a credit or what?
You contribute the Social Security tax on your "base" pay. The contributions you make to the TSP do not reduce your base pay that is taxed or reported to Social Security. The TSP contributions only reduce your taxable income for federal and most state income taxes.
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16019
Dear Mike, I am proud to call myself a benefits specialist because I have dedicated the last 25 years of my life to understanding and explaining the complicated federal retirement systems to thousands of federal employees. I have completed a very fair and more importantly, accurate, comparison of CSRS and FERS. I believe that there are many people who do not understand how a 3-tiered retirement system works and I would suggest studying the TSP web site or the references that I've provided at the end of my articles. I provide an example as a means for employees to substitute their own numbers and dates in order to apply the information to themselves. I use salary rates, interest assumptions and service dates that are similar to the employees that I meet when I conduct my pre-retirement seminars. Federal Salaries range from $18,000 to $200,000 ... so it is difficult to provide examples that will match everyone's situation. According to OPM, the average federal salary is now around $65,000, which I understand is skewed by the number of managers versus support employees.
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16018
Dear Cracked and Wired: I did not respond to your question yet because it would take a full column to provide an answer. But I can give you a reference to your question: "How is the Social Security Supplement calculated for FERS? Isn't it based on the same formula used by the Social Security Administration? Isn't that formula based on the last 35 years of earnings?"
Here is the chapter of the CSRS and FERS Handbook that explains in detail how the supplement is computed. At some point, I will write an article on this benefit.
http://www.opm.gov/asd/hod/pdf/C051.pdf
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16017
I am going to respond to the following: "How can you compare that with my situation? If I remain on the job until I am forced to retire (age 57), I will have accrued over 35 years of government service and my payout will be under 50 percent. In addition, I will have contributed hundreds of thousands of dollars to my TSP account as well as tens of thousands to Social Security."
This was a comment from a Postal Inspector who will receive a "liberalized" FERS computation of 1.7 percent x 20 years and 1 percent x years over 20 of his/her high-three average salary. So... as stated, the benefit would be 49 percent of the high-three after 35 years of service. What I don't understand is: why don't FERS employees consider their retirement savings -- TSP -- (a deferred 5 percent pay raise if you contribute 5 percent) as part of their retirement? This is puzzling and troubling to me.
Also ... think seriously about what would happen if Social Security folded ... there would be millions more Americans on welfare and that would not solve any problems. We need to be more responsible for our future by saving if possible (and spending less). I also believe that CSRS was a great system while it lasted ... but in 1920 (when it was created), federal employees were not expected to be retired for as many years as they worked. Something has to give! I think the replacement is better than what most private sector employees are getting when their pensions are going bankrupt! If you understand how it works, you can retire comfortably -- isn't that the goal?
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16015
Here is my response to: The only difference for the CSRS employee in the Voluntary Contributions Program is that the money they put in already has been taxed." To the best of my knowledge, this has always been pre-tax money. If not, then what is the benefit?
The money that you contribute to Voluntary Contributions is money that has already been taxed. You cannot contribute pre-tax dollars to Voluntary Contributions. The interest, however, accrues tax-deferred. Also, it is a safe place to invest with interest rates typically higher than similar safe investments (such as money market accounts, CD's, etc.)
Here are a few references for you:
http://www.opm.gov/forms/pdfimage/sf2804a.pdf This interest is not subject to federal income tax until it is paid to you.
http://www.opm.gov/fers_election/facts/ri83-10.htm
If you take a refund of voluntary contributions, any accrued interest is taxable in the tax year in which you receive it. Employees should read both the Voluntary Contributions Notice (Form RI 38-125) and the Special Tax Notice Regarding Rollovers (Form RI 37-22) for information on refunds, rollovers, taxes and voluntary contributions annuities. The Special Tax Notice Regarding Rollovers is also found in Chapter 40 and may be locally reproduced.
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16014
Here is my response to: Could you please address more specifically, exactly how unused sick leave increases the retirement benefit? For example, exactly how do you calculate the effect of 500 hours of sick leave on a retirement benefit?
Check out the following publication: http://www.opm.gov/fers_election/facts/ri83-8.htm
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16013
Here is my response to: Perhaps the biggest difference between the two plans (to me) that was not addressed very well in the first article, is that the FERS employee has to wait until age 62-66 to get the full benefit of the retirement plan (i.e., the inclusion of unreduced Social Security), while the CSRS employee can retire at 55 with full retirement pay.
This is not true. At the FERS minimum retirement age (55-57, depending on year of birth), FERS employees can retire with a FERS basic benefit, a FERS Supplement (Social Security bridge) as well as immediate access to their TSP accounts (without penalty). This is not much later than CSRS and if FERS was not invented, I would think the age for CSRS would have been raised as well.
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16012
Here is a response for: You neglected to mention that the total required contribution for FERS employees is more than 7 percent, since they also are required to "contribute" to Social Security, whereas CSRS employees are not.
Please re-read the article: In the table, you will see the 6.2 percent FICA (Social Security) tax on the FERS side. Because of this required contribution, FERS employees only contribute 0.8 percent to FERS, making their total required contribution 7 percent!
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16009
Tammy,
Thanks for your excellent series of articles on retirement planning. As you point out, early career retirement planning can pay some real big benefits.
I'm a law enforcement officer in the CSRS-Offset system, and I plan to retire this year. Throughout my 31-year career, I've followed almost all of the suggestions you've made in your articles. The results of those actions will now allow my wife and me to retire quite comfortably. I look forward to your articles on CSRS-Offset. I would really appreciate any perspective you may have on the "6c" retirement benefits as well.
Thanks again.
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16008
The best thing to do is run all the numbers in each personal case, and not worry about arguing over general statements. I will have 25 years of service at retirement under FERS. Currently I have 20 down and five to go. I calculated what 25 years would have been for me under CSRS. I then calculated what I am projected to get from:
a) Social Security +
b) FERS pension +
c) the 5 percent government matching of my TSP contributions to be paid as an annuity.These three added up to more than what I would have received from CSRS alone. When I added the projected annuity value of my own TSP contributions (gains in the first 20 years projected over the next five), this addition yielded a total benefit of about 95 percent of my current salary. In 5 years this will be less than 95 percent of my final salary, but still not too bad for "just" a 25 year career! My conclusion is that if you can manage to at least get the 5 percent match in TSP, you will do pretty well under FERS.
-
16006
Tammy,
I enjoyed reading your article, but there is a major difference between FERS and CSRS you did not address. I am a Federal Law Enforcement officer under FERS and eligible to retire at 55. I receive the Social Security supplement until I am 62. Problem is, if I try to get a part time job and do any work after retirement and make more than $10,400 per year, I lose the Social Security supplement, which for me is about $15,000 per year. CSRS does not face this penalty. FERS in effect forces me out of the job market or requires me to get a job, if I choose to work, where I will already be $15K in the hole. For me, CSRS would have been a much better choice, had I been given the opportunity.
-
16004
Tammy,
You neglected to mention that the total required contribution for FERS employees is more than 7 percent, since they also are required to "contribute" to Social Security, whereas CSRS employees are not.
Also, how about the unused sick leave that CSRS employees get credit for and FERS employees automatically forfeit when they retire?
Here's the only way to get the trust and skepticism back: how about allowing FERS employees to switch to CSRS is they wanted to? Nope, that ain't happening. Dis-gruntled.
-
16003
Each time the government offers CSRS employees the "opportunity" to switch to FERS, I ask to switch from FERS to CSRS, and am not allowed to. If FERS is "more advantageous to the employee," why won't the government let us choose the one we prefer? That's obviously, a rhetorical question. If it were not cheaper for the government to have us in FERS, we would be allowed to choose. Perhaps the biggest difference between the two plans (to me) that was not addressed very well in the first article, is that the FERS employee has to wait until age 62-66 to get the full benefit of the retirement plan (i.e., the inclusion of unreduced Social Security), while the CSRS employee can retire at 55 with full retirement pay. The ability to be able to afford to retire seven to 11 years earlier is huge.
-
16002
Hello, Tammy --
Could you please address more specifically, exactly how unused sick leave increases the retirement benefit? For example, exactly how do you calculate the effect of 500 hours of sick leave on a retirement benefit? Thanks for your informative columns!
-
16001
The Wachovia financial planner is an idiot! "I don't buy the objection that it is the lower paid employees that are left behind. No matter how much money you make, to make your retirement work you have to have a similar process, which starts with spending less than you bring home. This is true whether you make $15,000 a year or $250,000 a year."
This is a true statement, but the lower grade employee has no discretionary income to put in the TSP. That is a fact. The more you make the more you can afford to put in TSP or 401K plans because you have met your basic needs for food, housing, etc. This is why Bush's plan for Social Security is a loser. Social Security is a poor tax. It is paid on the first dollar, not the last.
-
16000
Puh-leeze! Who is this respected financial planner you consulted, and has he ever tried planning for anyone making $15,000 a year -- or even $50,000 in this area? Can he honestly claim that spending less than one brings home is the same process for someone who can achieve that goal by sacrificing one vacation a year and trading in their Beemer after four years instead of three as it is for someone who must decide between heat in their apartment or winter coats for their children? How callous and unrealistic. I do not respect this financial planner.
-
15999
I don't think the following statement in the article is accurate:
"The only difference for the CSRS employee in the Voluntary Contributions Program is that the money they put in already has been taxed."
To the best of my knowledge, this has always been pre-tax money. If not, then what is the benefit?
-
15995
Tammy,
Keep slugging!! It's a dog eat dog world out there. You made a statement, "I do not really know if FERS was designed to save the government money ... considering all of the federal employees who are being downsized and outsourced." I remember (many years ago) when HRO met with everyone at our facility, Corpus Christi Army Depot, to talk about switching to FERS. They gave us a nice power point presentation but I listened very closely to what they said. The very beginning of the presentation started with these words, "the government has developed a new retirement system which should save billions of dollars." HRO should have never started its presentation with those words. As a CSRS employee I knew that the only way the government could save that much money with a new program was by cutting back on what's given to the employee. I had gone in with an open mind but that statement sealed their fate (for me). The money saved by Uncle Sam had to come from somewhere and it wasn't going to come from my pocket. I stayed in CSRS. NSPS is also designed to save money by not giving everyone an annual raise or periodic step increases. The government never does anything to increase the monetary status of government employees (unless you're in Congress or the Senate).
Un-Civil Servant
-
15994
I have been working for the federal government, in one capacity or another, for more than 25 years. I am covered under FERS. You can try and paint the picture that FERS is comparable to CSRS, but unless your head is buried in the sand, no reasonable person will believe it. Why would the government shift the retirement package, if for no reason other than lowering costs? All that talk about creating a "portable" system is simply your typical political double talk. Why would politicians create a system (FERS) that was more lucrative than the one in existence (CSRS)? I work with other inspectors who are covered under CSRS. They are routinely retiring at 70 to 80 percent of their pay, as well as being credited with additional time for their unused sick leave. How can you compare that with my situation? If I remain on the job until I am forced to retire (age 57), I will have accrued over 35 years of government service and my payout will be under 50 percent. In addition, I will have contributed hundreds of thousands of dollars to my TSP account as well as tens of thousands to Social Security. Had I been covered under CSRS, I would not have had to make any of these contributions, yet I would have been guaranteed at least an 80 percent payout on my retirement. How can you possibly beat that? CSRS employees need do nothing more than show up at work each day and they are guaranteed a huge payout. I have had to strategize for my retirement for years and there is no guarantee of anything. Social Security can fold at any moment and despite everyone's reassurances, the stock market, in today's world, is anything but "money in the bank." It is a slap in the face to read your "whitewashing" of this subject. You may be able to lead a horse to water, but not all of them will drink with you.
-
15992
Hi Tammy, I'm sure you did not "cherry pick" the reader's letters you answered so I'll ask again:
How is the Social Security Supplement calculated for FERS? Isn't it based on the same formula used by the Social Security Administration? Isn't that formula based on the last 35 years of earnings?
A federal employee retiring at 56 years old with 30 years of service will have the years from 56 years old through 62 years old counted as zero earning years for that 35-year earning average -- yes or no? If they choose to work and avoid zero earning years, isn't the same Social Security earnings limit applied, effectively reducing the benefit for other dollars earned?
Now, how about it ... will you please answer? Otherwise, people may think you are applying whitewash instead of giving working stiff's the straight scoop.
-
15991
Thanks Tammy and GovExec.com for these great articles on retirement. Although I am 20 years away from the minimum age (57) I am surrounded by those that have their retirement clocks/countdowns as a screen saver on their computer. It seems that's all that anybody talks about at work. So, I appreciate the articles so I can at least intelligently plan for my retirement (or job/career change as I put it since I'm not likely to actually "retire" at 57) as well as call bogus on some people's false info. Keep the articles coming!
-
15989
I am shocked that, "Tammy Flanagan is the senior benefits director." It is apparent that she does not have the capacity or the willingness to complete a fair, mathematical based comparison of FERS and CSRS. Comparing snippets of information as she did in the article, applying assumptions when it suited her (as in the 8 percent TSP return), and ignoring or misapplying cost factors leaves her better suited to the field of sociology, where she can make her charges "feel good." Tammy, I challenge you to redeem yourself and produce a comprehensive comparison.
-
15987
Individuals generally make excuses about not investing in thrift savings plan stating they cannot afford it. Most do not realize the tax savings by doing such investing, the more that is invested in thrift pre-tax, the more they get to take home as tax base is lowered. It is a win-win situation.
Individuals need to take responsibility for their own retirement savings as so many do. Most do not even invest in thrift and they realize they cannot afford to retire when they want to. Take advantage of thrift investments especially since IRS lifted the percentage cap and now individuals can take advantage of investing $15,000 this year and for those 50 and over investing an additional $5,000 into thrift catch-up. It will substantially lower their tax base and will increase retirement income.
-
15986
I just wanted to say thanks for the excellent articles you have been providing on retirement.
-
15984
The article CSRS vs. FERS was very informative, which was the intent of the column: to inform. I can't help but notice, with every article on Govexec.com there accompanies feedback from naysayers and whiners, and ridicule. To you buffoons, I say get a life. Once again, excellent column Tammy. Keep up the good work.
-
15982
In the responses to your article there was one about the Voluntary Contributions Program:
"If CSRS employees took advantage of the [Thrift Savings Plan] Voluntary Contributions Program for the entire time of their employment, they would have far more in retirement benefits than illustrated while still putting in less than FERS employees must contribute to their retirement." Your response "...The only difference for the CSRS employee in the Voluntary Contributions Program is that the money they put in already has been taxed. This means it takes more money to equal a 5 percent FERS contribution. Additionally, there is only one investment option for the voluntary contributions, not 10 as in the TSP. Also, remember that the FERS employee receives automatic matching contributions from the government where the CSRS employee does not."
You need to clarify that the Voluntary Contribution Program is for CSRS retirement only and not related to any TSP account.
-
15980
There is one major problem in the FERS/CSRS comparison. The FERS system has remained intact since inception. The CSRS system has changed to include employee participation in the TSP, even without government matching. CSRS should not be allowed this benefit. Two times since 1987 CSRS employees had the chance to change over based on what each plan offered, then when they didn't, they whined about not having TSP access, which they were eventually granted. Basically CSRS was given the best on both plans, which is what should not have happened.
-
15979
The article stated, "The only difference for the CSRS employee in the Voluntary Contributions Program is that the money they put in already has been taxed. This means it takes more money to equal a 5 percent FERS contribution." Not true -- Both FERS and CSRS contribute to TSP in pre-tax dollars. Also, "Additionally, there is only one investment option for the voluntary contributions, not 10 as in the TSP." Also not true. CSRS were originally limited to only contributing to the G Fund. This was changed a good number of years back. I am CSRS and my TSP is divided among the different funds in the way I want.
The only difference is that the government is not matching the first 5 percent contributed by the CSRS employee. There is a guaranteed 100 percent return on that first 5 percent for the FERS contributor.
-
15977
Please address FERCA cases in a future article. It seems that if you are FERCA, you're left in limbo. Also, what about CSRS offset? It is important that you address all angles of government retirement. A lot of innocent people are stuck under FERCA and yet agencies and OPM are dragging their feet on this issue and good quality information and counseling does not exist. Thank you in advance.
-
15975
Dear Ms. Flanagan, In your reply article, CSRS vs. FERS, The Reaction, you state: "I do not really know if FERS was designed to save the government money, but ..."
Quite simply, if you didn't know that FERS was created to save the government money, then you are not knowledgeable enough, or qualified to write or advise on this subject.
-
15974
I thought last week's column on this topic was extremely helpful. I am a CSRS employee and when FERS was deployed so many years ago, no such useful comparison provided. Very, very well done.
-
15972
I have a question concerning the social security "offset" for a FERS employee.
Is this money paid to the FERS retiree a reduction in the amount of tax, a credit or what?
Thanks.
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