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Advice on how to prepare for life after government.

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When possible, I try to provide answers to questions that I find in the comments that follow my column. Well thought-out political comments and questions are appreciated. They are a gauge of how I’m doing as far as hitting issues that are relevant to the readers. So keep ’em coming. Thanks again for your loyalty and I appreciate your feedback.

Here are some recent questions readers have asked, along with my responses.

On changes to the federal retirement system in recent decades:

You didn’t go all the way back to the introduction of the Federal Employees Retirement System [in 1983], which was a major change. I consider it a wash; there are positives and negatives to FERS that I won’t go into here. But a major negative was putting federal employees under Medicare when we already can carry our Federal Employees Health Benefits Program coverage into retirement. I feel we are paying twice for medical coverage when we retire.

One of the benefits of covering federal employees under Medicare is when Medicare becomes the primary payer, the FEHBP plans save a tremendous amount of money. This generally occurs when an individual is older than 65, retired and no longer covered by current employment health insurance coverage. For most outpatient expenses, Medicare pays 80 percent of the Medicare-approved amount. For inpatient care, the benefit to FEHBP is even greater.

This saves money for everyone enrolled in FEHBP. When the health plans save money, these savings are reflected in premiums. Health insurance isn’t cheap these days, especially when federal plans cover not only all active employees and their families, but also almost all retirees and their families as well. It’s good for all FEHBP participants to have Medicare included for participants who are 65 and older. (Participants aren’t required to enroll in Medicare at 65, but most retirees older than 65 take advantage of the dual coverage). Many FEHBP plans provide incentives for retirees who are older than 65 to enroll in Medicare, such as waivers of deductibles, copayments and coinsurance. That leaves the retiree with close to 100 percent coverage for most medical expenses other than prescriptions and dental and vision services.

My other complaint is that many of the benefits enjoyed by federal employees were available to private industry long before they were made available to federal employees. We always seem to be the last to benefit, such as finally lifting the Thrift Savings Plan contribution limits in 2005. It took a long time for the S and I funds to come online as well as some other modernizations of the TSP. The Roth TSP is finally available -- too late for me, as I plan to retire soon. Premium conversion and flexible spending accounts were a plus, but slow in coming.

This is true. Many benefits that federal employees currently have became available after they were introduced in the private sector. Federal benefits are governed under Title 5 of the U.S. Code, and this law must be amended to change benefits for employees and retirees. But beware: Many of the recent innovations in the private sector have been aimed at reducing benefits. For example, defined benefit pension plans are very seldom offered to new employees in private industry any more. So far, federal employees still get a defined benefit (the FERS basic retirement benefit for most current feds and the Civil Service Retirement System benefit for most employees hired before1984). If Congress follows private sector precedent in this regard, future federal employees could be out of luck.

On buyout considerations:

I took a buyout in October 2009 when I was at the Postal Service. We were not offered $25,000, as your article states. It was only $15,000 and was paid in two separate installments, one the following year in 2010. After taxes, it amounted to around $10,800. As I understand, a grievance was filed over the rest of the amount, but I have heard nothing further on the subject. For all of you out there considering leaving your branch of federal service, you should have a buffer of money to tide you over until your annuity is finalized. My retirement was finalized in early March 2010, but I had prepared myself with living expenses while waiting and calculated my needs before I left.

Postal Service officials were in a predicament because they needed to downsize and wanted to offer employees an incentive to leave, but didn’t have the budget to offer the full $25,000. I am not aware of the grievance or the status of it. You are correct about making sure you have enough cash on hand to carry you through the transition from employee to annuitant, which is still taking an average of five to eight months, even though the Office of Personnel Management has picked up the pace on retirement processing recently.

On choosing the best date to retire:

I’ve pretty much had it, and I’m retiring next year. I’m not aiming for the “best dates,” but still wondering if I will be better off leaving on July 31, 2013, or Aug. 31? My guess is July 31 would be better as I would get three days of pay and not feel like I’m losing as much leave.

Huh? By working until Aug. 31, you would have 22 more days of salary than if you retired on July 31 and you would have two additional leave accruals for the month of August. Either way, the end of the month is good since you would be paid your salary through your retirement date and you would be entitled to a full month of retirement for the following month. Every month that you add to your length of service will add to your retirement benefit value. Of course, someone who followed that advice consistently would never retire.

I suggest you request a retirement estimate for July 31, 2013, and make sure you’re financially ready for retirement and mentally prepared to make this transition. If all systems are go, then the planning can begin.

On long-term care and thinking about the future:

So what can I really expect when I retire after the baby boom has busted the system and there is no Medicaid or Medicare even close to what my parents got? Long-term care is a Band-Aid that I don’t see helping me. And with interest rates and ROI for investments hovering near zero, I’m not even sure my retirement savings will come close to allowing me to survive, much less live the kind of full life for 18-plus years my parents have experienced after retiring. I’ve been saving at the max for retirement, and have experienced a 25 percent to 30 percent reduction in the total value of my portfolio over the last few years. I make a decent salary, live in a modest home that is paid for and drive economy cars. I still have two children to put through college. Who and what is going to be there for me?

There’s no question we’re living in hard times economically. There is a lot of uncertainty and major challenges to consider as a huge population of baby boomers (myself included) enters old age. But I’m still optimistic. To prepare for our future, we have to continue to invest for our retirement as best as we are able to and provide insurance to protect against life’s unforeseen catastrophic events. That means having faith in our investments and understanding the ups and downs of the markets. Then we must evaluate our insurance to cover those expenses that we cannot realistically expect to save for, such as long-term care, health expenses and untimely death.

 

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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