You Can Afford to Retire! (2013 Edition)

By Tammy Flanagan

July 26, 2013

This is an update of a column I wrote in 2006. With many employees enduring salary reductions due to furloughs, some are wondering what to do. Some of them are in a position to retire comfortably -- and don’t even know it.

In a recent Washington Post column, a federal employee with 45 years of service said being furloughed has had a profound effect on how she spends her money. She might not understand that her retirement benefit will provide her with as much income as her full salary (maybe more, depending on how much she saves in the Thrift Savings Plan). In addition, since Civil Service Retirement System employees like her max out at 80 percent of their high-three average salary after 41 years and 11 months of service (although unused sick leave credit can allow a higher computation), she is entitled to a refund of three years of excess retirement contributions representing 7 percent of her salary annually -- plus interest.

I recently wrote about the 80 percent rule on how much of your income you need to replace in retirement. By looking at your own numbers, and considering how much money you have left over every month (or how much you additional money you need to break even), you will begin to see if you need 80 percent, 100 percent, 50 percent or some other figure. You’ll have more confidence in planning for life after government if you can visualize how much of your pre-retirement income you will be able to replace with retirement income sources.

Retirement Worksheet

To gauge your projected income, you will need the following documents:

Estimated retirement computation (request an estimate from your human resources office or check the employee page on your agency’s website to see if your agency provides an online retirement calculator)

Use this information to help complete the worksheet below.

Note: To produce annual figures, multiply biweekly numbers on your leave and earnings statement by 26 and monthly numbers on your retirement estimate by 12.

Annual Pre-Retirement Income

Annual Retirement Income

Gross Salary (with locality pay)

Estimated Retirement (CSRS or FERS basic retirement benefit)

$

Part-Time Pro-Ration factor (1)

X

Overtime

+

Age Reduction (1)

-

Bonus

+

Unpaid Deposit/Redeposit Reduction (CSRS) (1)

-

Furlough Reduction (daily pay rate x # of furlough days)

-

CSRS Offset Reduction (1)

-

Adjusted Salary

$

Survivor Election (1)

-

Federal Taxes **

-

FERS Supplement (2)

+

State Taxes **

-

Reduced Retirement

$

FICA Tax (Social Security)***

-

Federal Taxes

-

Medicare Tax ***

-

State Taxes (3)

-

Retirement Contributions (CSRS or FERS)

-

Health Insurance (FEHBP)

-

Thrift Savings Plan

-

Life Insurance (FEGLI)

-

TSP Catch-Up Contributions

FEDVIP (Dental and Vision Supplemental)

-

FEHBP (Health Insurance)

-

FLTCIP (Long-Term Care Insurance)

-

FEGLI (Life Insurance)

-

Other Withholdings

-

FEDVIP (Dental and Vision Supplemental)

-

FLTCIP (Long-Term Care Insurance)

-

Other Withholdings

-

-

-

NET INCOME

$

NET CSRS or FERS RETIREMENT

$

Other Income

+

Social Security Income (4)*

+

+

Thrift Savings Plan Income (5)*

Other Pensions *

+

Other Investment Income, Inheritances, etc.*

+

Post-Retirement Work*

+

Total Salaries, wages and other income:

$

Total Retirement Income

$

  1. Your retirement could be reduced for part-time service, early retirement, unpaid civilian or military service credit deposits, CSRS Offset and survivor benefit reductions. These numbers can be computed on a retirement estimate prepared by your agency's benefits office located in your human resources office.
  2. The FERS Supplement is not payable if you are going to work and earn substantial income after retirement (in 2013, the supplement is reduced by $1 for every $2 that you earn over $15,120). If you are retiring at age 62 or later, the supplement is not payable. MRA+10 and deferred retirements are not eligible for the supplement.
  3. Depending on the state you live in when you retire, you may not need to pay state income tax, or some of your retirement income may be exempt from state income tax.
  4. Social Security retirement is payable at age 62 or later. Up to 85 percent of your Social Security benefit may be taxable. In some cases, your spouse (current, former or deceased) may provide Social Security benefits that could be higher than your own. Social Security will help you find the most advantageous benefit. CSRS retirees may be affected by the Windfall Elimination Provision or the Government Pension Offset.
  5. Go to the TSP Web site to explore various withdrawal options. Calculators are available for monthly payout options as well as the annuity option.

*Use income after deductions for taxes and other withholdings.

**Reduce taxable income by FEHBP premiums, Flexible Spending Account contributions, FEDVIP and TSP contributions

***Reduce taxable income by FEHBP premiums, FEDVIP and Flexible Spending Account Contributions


By Tammy Flanagan

July 26, 2013

http://www.govexec.com/pay-benefits/retirement-planning/2013/07/you-can-afford-retire-2013-edition/67457/