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Retiring Sooner Than You Expected

Last week, I got a little ribbing for writing about divorce so close to Valentine’s Day. So this week, I decided to write about a topic that some of you may love: retiring a little sooner than expected. I’m going to tell you about a recent retiree and a soon-to-retire employee who were able to get sweetheart deals that allowed them to retire a bit earlier than initially planned.

Before I share these two examples, I need to explain a few retirement rules. For most federal employees, unused sick leave will add a little more money to your retirement benefit by providing additional time towards the computation of your retirement benefit. But it generally won’t help you be eligible to retire any sooner.

For example, if you’re planning to retire at age 55 under the Civil Service Retirement System, you will be required to have 30 years of creditable service to be eligible for retirement before your sick leave can be credited in the computation of your retirement benefit. The same goes for the Federal Employees Retirement System if you want to retire at your minimum retirement age (55-57, depending on your year of birth). You...

Divorce and Your Benefits

If you have gone through a divorce, are going through one, or may go through one in the future, you should be aware of the potential impact on your federal benefits. In many cases, employees are not sure exactly how much their former spouse is entitled to receive from their Civil Service Retirement System or Federal Employees Retirement System benefit. Some people are not aware of the difference between retirement benefits, the FERS annuity supplement and survivor benefits, and the meaning of such terms as “marital share” and “court order acceptable for processing.”

Let’s look at three of the most important concepts.

Court Order Acceptable for Processing

To understand why this phrase is so misunderstood, consider the definition of a COAP found in the Handbook for Attorneys on Court Ordered Retirement and Insurance Benefits: “a court order as defined in this section that meets the requirements of subpart C of this part to affect an employee annuity, subpart E of this part to affect a refund of employee contributions, or subpart H of this part to award a former spouse survivor annuity.”

This means that the court order must be written in specific language that is understood by the...

Preparing to Live a Long, Healthy Life

On Jan. 24, the Senate Special Committee on Aging held a hearing titled Turning 65: Navigating Critical Decisions to Age Well, which highlighted strategies to empower members of the baby boom generation as they move into older adulthood. The committee’s chair, Sen. Susan Collins, R-Maine, opened the hearing with a sobering report on our aging society. She noted:

  • About 49 million Americans are already 65 or older.
  • This number is estimated to grow to 98 million by 2060.
  • Over the next twelve years, 10,000 Americans will turn 65 each day.
  • More than one out of four Americans who live to age 65 can expect to live into their 90s.
  • Americans age 85 and older are the fastest-growing segment of our population.
  • The second-fastest growing age group is 100 and older.
  • Genetics determines 20 percent of longevity; lifestyle and environment dictate the other 80 percent.

As Collins highlighted in her remarks at the hearing, to maximize health and well-being it’s important to stay physically active, eat well, converse with friends, read engaging books, do something meaningful every day, and take proactive steps to improve wellness. She noted that in her home state, many people are isolated in rural...

Tax Assessments

Last week, we started looking at tax implications in the retirement planning process, which are complicated this year by recent changes in tax law. This week, let’s continue exploring tax issues, with some specific considerations for federal employees—and a few tips.

First, on withholding. When a federal employee files a retirement application under the Civil Service Retirement System or Federal Employees Retirement System, they can give the Office of Personnel Management a Form W-4P, indicating whether or not to have tax withheld. The amount of withholding depends on your marital status, the number of withholding allowances, and any additional amount you designate to be withheld. If you don't make any of these choices, OPM will withhold as if you were married with three withholding allowances.

OPM also will accept the W-4 that is already on file with your employing agency if you attach a copy with your retirement application. OPM will withhold federal income tax from your interim retirement payments while your retirement application is being processed—and you might receive several interim checks during the processing of your retirement. If you choose not to have tax withheld, then you can make estimated tax payments directly to...

Tax Planning in a Time of Change

With the holidays out of the way, it’s time to look out for those W-2 and 1099 forms and think about filing your annual tax return.

The transition to retirement has significant tax implications, so tax planning is a big part of retirement planning. In addition, there has been a recent major change to the tax code, which only adds further challenges to tax planning.

Since I’m not an accountant, I thought I would call on my associate, Bob Leins, who is a CPA, for help. Here are some tips from Bob and a few things to know about taxes and your federal retirement:

  • An individual retirement arrangement contribution for 2017 can be made as late as April 17, 2018. This provision applies to both traditional and Roth IRAs. Use IRS Form 8606.
  • If you file a joint tax return, you can contribute up to $5,500 to a spousal IRA for a spouse who doesn’t work outside the home ($6,500 if the non-working spouse is age 50 or older at the end of 2017).
  • If your earned income is below a certain amount, you may be able to claim the earned income tax credit. A...