Pocket Change

By Tammy Flanagan

April 8, 2011

Usually by this time of the year, I've written about the effects of annual changes in interest rates, Social Security figures and Thrift Savings Plan limits. For 2011, not much has changed, so I've been a little lazy about putting out the new numbers.

Still, it's worth taking a look at what's changed (and what hasn't) this year. Salaries

Federal pay charts are the same for 2011 as they were in 2010 due to the pay freeze that took effect on Jan. 1. If you haven't had a promotion or a step increase since 2008, your high-three average salary (upon which your retirement benefit depends) won't look too much different than your current salary at the end of 2011.

For example, suppose you're a GS-9, Step 10 and have been working at the Washington, D.C., locality pay rate for the rate three years. If you retire at the end of 2011, your high-three would be $66,575. At the end of 2012, it would be $67,120.

Let's further assume you'll have 30 years and six months of service on Dec. 31, 2011, (including unused sick leave) and 31 years and 7 months of service on Dec. 31, 2012, (also including unused sick leave). Here's how the difference in your benefit would work out, depending on the retirement system you're in and your age:

CSRS and FERS

Here's a rundown on annual changes to the two federal retirement systems:

Social Security

The Social Security payroll tax was reduced for 2011. The total tax is 5.65 percent (4.2 percent for FICA and 1.45 percent for the Medicare Hospital Insurance Tax) for those covered by full Social Security (employees under FERS and CSRS-Offset). CSRS employees are subject only to the 1.45 percent Medicare tax. The amount of wages subject to the FICA tax will remain at $106,800 this year, the same as in 2010 and 2009. CSRS-Offset employees will pay the reduced FICA tax of 4.2 percent plus 0.8 percent CSRS contribution. Once they exceed the maximum taxable wage for FICA, they will pay 7 percent to CSRS for the remainder of the year. The Medicare tax applies to all wages.

CSRS and FERS retirees, along with Social Security recipients, did not receive a cost-of-living allowance in 2011.

The amount of earnings required to receive a credit of Social Security coverage in 2011 has remained at $1,120, the same as in 2010. For those who already have more than the 40 credits (referred to as "quarters" prior to 1978) of earnings required to be eligible for Social Security, this change won't mean anything. For people with less than 40 credits, this is the amount of wages subject to Social Security (FICA) tax that are required to earn a credit of coverage. Only four credits can be earned each year and $4,480 in Social Security covered wages is the minimum amount needed to earn four credits this year.

The earnings limit for Social Security beneficiaries who are receiving their benefits and are younger than their full retirement age (65 to 67, depending on year of birth) and for people receiving the FERS retirement supplement will be $14,160 in 2011, the same as last year. Once earnings exceed this limit, the benefit is reduced by $1 for every $2 over the limit. There is no limit on earnings beginning the month an individual reaches full retirement age. The earnings limit is the reason many people don't receive Social Security benefits prior to their full retirement age -- they're still working.

Medicare Part B

The monthly premium for Part B, covering physician care and outpatient services, increased to $115.40 in 2011. For those enrolled in Part B since 2009 who have their Medicare premiums withheld from their Social Security benefits, the premium remains at $96.40 per month. For those enrolled in Part B since 2010 who have their Medicare premium withheld from their Social Security benefit, the premium remains at the 2010 rate of $110.50 a month. For all other beneficiaries, the premium increased in 2011.

You can enroll in Part B without a late enrollment penalty at age 65 (initial enrollment is three months on either side of your 65th birthday), or after 65 if you are still employed and covered by employer-sponsored health insurance, or if your spouse is still employed and you are covered under their employer-sponsored health insurance. During this special enrollment, you must sign up within eight months of retirement to avoid the late enrollment penalty.

Since 2007, about 4 percent of Part B enrollees with higher incomes will pay a higher premium based on their income last year. In 2011, if you file your taxes as "married, filing jointly" and your modified adjusted gross income is more than $170,000, you will pay a higher Part B premium. For all other types of filing status, if your modified adjusted gross income is more than $85,000, you will pay a higher Part B premium. If your income has gone down because of the death of your spouse, a divorce or some other circumstance, you should contact Social Security to have your premium adjusted.

Thrift Savings Plan The Internal Revenue Service annual limit on how much employees can contribute to their Thrift accounts will remain $16,500 for tax year 2011. There's been no increase since 2009. FERS employees must be sure not to exceed the limit before the end of the year so they won't lose matching agency contributions. The limit on catch-up contributions for 2011 also will remain at $5,500.

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.


By Tammy Flanagan

April 8, 2011

http://www.govexec.com/pay-benefits/retirement-planning/2011/04/pocket-change/33726/