Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

Spring Cleaning

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I think it's time for a little spring cleaning. So I'm going back over some recent columns to answer some questions that have come in. What I love about your questions is they give me an opportunity to explain a retirement topic in a way that might help people understand their own situation a little better. As Albert Einstein said, "The important thing is not to stop questioning. Curiosity has its own reason for existing."

In more than 20 years, I have yet to find any retirement specialist to answer this simple question. Regarding the Civil Service Retirement System military deposit "Catch 62," which party is responsible for notifying the Office of Personnel Management that I am not eligible for Social Security? Does OPM contact the Social Security Administration for determination, prior to my reaching 62, on my behalf? Am I responsible to forward a certified letter from SSA to OPM regarding my eligibility, prior to turning 62?

This question relates to the situation that affects CSRS retirees hired before Oct. 1, 1982, who have post-1956 military service and did not pay a deposit to receive credit for it. Under CSRS, military service counts whether the military deposit is paid or not. But if a retiree qualifies for Social Security retirement benefits at 62 (or at retirement, if later than 62), then the military service can no longer be used in the computation of the CSRS benefit unless a military service credit deposit was paid before retirement was finalized.

When an employee who was hired prior to Oct. 1, 1982, under CSRS retires, it is OPM's responsibility to determine whether the annuitant is qualified for Social Security. OPM will contact the Social Security Administration during the retirement adjudication process or at age 62, if the employee has retired prior to turning 62.

I'm considering switching from full time to part time for my last 12 months before retiring after 13 years of creditable Federal Employees Retirement System service. I need some clarification about how to calculate my high-three average salary for annuity purposes if I switch to part time. (I have always been in FERS, never in CSRS.) My FERS service period will be exactly 14 years when I retire.

Your high three will be computed using your full-time salary rates for the highest three consecutive years of your career. There will be no difference in the high-three computation whether you continue full time or switch to part time. For example, if you work part time from June 1, 2010, to when you retire on May 31, 2011, your high-three period would be May 31, 2008 to May 31, 2011 (assuming this period represents the highest pay rates of your career). The salaries that will be used in the computation will be the full-time equivalent of your pay rates, even if you were working part time. Once the high-three average salary is computed and your total length of service is determined, your retirement benefit will be pro-rated to reflect the part-time service.

More specifically, if your high three (using the full-time salary rates) was $65,000 and you have a total of 14 years of service, your FERS basic retirement benefit would be computed as follows:

14 x 1% x $65,000 = $9,100

Then the benefit will be adjusted to reflect the actual amount of service you performed. This is done by adding up all the hours you actually worked during 14 years:

13 years x 2087 (full time) = 27,131
1 year x 1,248 (part time, 24 hours / week x 52 weeks) = 1,248
27,131 + 1,248 = 28,379

Then the actual hours are divided by the full-time hours possible for the same period:

28,379 / 29,218 (2087 x 14) = 97%

Finally, the pro-rated service percentage is multiplied by the unreduced FERS basic retirement benefit:

97% x $9,100 = $8,827

I am due a step increase on April 27, 2011. If I retire on Jan. 3, 2011, will I still get the increase?

If you retire before your step increase kicks in, it will not be included in any of your retirement computations. If it makes you feel any better, even if you retire after April 27, 2011, the new salary rate will be figured only in the computation of your high-three average salary for the number of days it was in effect prior to your retirement. Of course, if you wait until after the step increase takes effect, the value of your Federal Employees Group Life Insurance benefit and the lump-sum payment of your annual leave also will be computed at the higher salary rate.

I am a CSRS and FERS employee. I find it very frustrating that I cannot figure out how much my retirement will be. When would it be advantageous for me to retire and how can I figure out how much I will be getting? I also cannot figure out my Social Security payments and if they will be reduced. I get different answers every time I go to a retirement session.

If you are nearing retirement and you want to know how much your retirement will be, you should request a retirement estimate from your human resources office. A retirement specialist who is assigned to you at your agency will be able to review your federal service to determine the proper calculation of the CSRS and FERS portions of your retirement and then will provide you with a retirement estimate. If you want to request estimates for two different dates of retirement so you can compare the value to working a little longer, this is generally considered an acceptable request.

The benefit of getting an estimate (or two) is not only to find out the value of your retirement, italso helps determine if there are any discrepancies in your service history as documented in your official personnel folder or any service in your career that might be subject to an optional service credit deposit. Every employee who is within a few years of retirement eligibility should request a retirement computation so when the time comes, there won't be any surprises. Keep in mind, however, that most retirement specialists are very busy since there are so many federal employees making plans for their retirement. Sometimes a request for an estimate could take as long as six weeks to prepare. If I retire on the last day of the last pay period in 2010, which would be Jan. 1, 2011, then my retirement pay would be based on what I would make in 2011, correct? I'll have 448 hours of annual leave and enough sick leave accumulated to give me 37 years and three months under CSRS.

I think you might be confusing the high-three average salary computation with the computation of your lump-sum payment for accumulated and accrued annual leave. Your high three will be the highest three consecutive years of basic pay during your career. Usually this computation will begin with your date of retirement minus three years. The payment for your unused annual leave will be computed using the 2011 pay rate, since this payment is based on the salary rate in effect if you would have been able to take this leave.

By the way, there's no need to retire on Jan. 1, 2011, which is a Saturday. Dec. 31, 2010, will accomplish the same goal and you'll have one more day of retired pay in your January retirement payment.

I'll have 31 years of creditable service under CSRS by September 2010. I have 240 annual leave hours banked, and have not used any annual leave this year. The 2010 leave year ends Jan 1, 2011. Is it better to use 2010 annual leave now and retire Jan. 3 to get a salary increase rate and pay lower taxes on my check for 240 hours of banked leave? Or should I retire Dec. 31, 2010, and receive payment for banked annual leave plus 2010 unused annual leave?

My suggestion would be to continue to save your 2010 leave accruals and set your retirement date for close of business Dec. 31. You will receive a lump-sum payment for 448 hours of unused annual leave (the 240 you carried into 2010 and the 208 that you earned during your final year of service). If you retire on Jan. 3, you would not be able to receive a lump-sum payment for more than 240 hours of annual leave.

It is true that the 2011 pay rate takes effect on Jan. 2, but this won't have much of an impact on your retirement if you retire the next day. Your high-three average salary is based on how many days each pay rate is in effect over three years. One out of 1,095 days isn't going to make much difference.

By the way, even if you retire on Dec. 31, your lump-sum annual leave payment still will be paid at the 2011 salary rate since your payroll office will project the value of this payment based on your salary if you had been able to use the leave.

Here are the advantages to receiving a lump-sum payment for annual leave:

  • The payment can help you through the transition from employee to annuitant. While your retirement is being processed you might need some extra money.
  • There are no retirement deductions or insurance premiums withheld from the payment.
  • Under a proposal pending in Congress, you would be able to contribute some of your lump-sum to your Thrift Savings Plan account.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.

 

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on NITPInc.com.

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