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Phased Retirement: Case Studies

With all the news lately about the upcoming phased retirement option for federal employees, many people are considering whether it makes sense for them. To help clarify the issues at stake, let’s look at a couple of case studies, one for an employee under the Federal Employees Retirement System and another for someone covered by the Civil Service Retirement System.

FERS

Let’s say Jim is 66 and still loving his federal job. He has 30 years of service and a high-three average salary of $100,000. His retirement would be computed as 1.1 percent of $100,000, or $33,000 per year (before any reductions for survivor benefits). He would love an extra day or two a week to play golf. Under phased retirement, he can collect half of his salary ($50,000) and half of his FERS retirement ($16,500).

Here are some factors Jim should consider as he weighs phased retirement:

Social Security: Because Jim is over the full retirement age for Social Security and is no longer subject to the earnings limit, he could begin to draw benefits (let’s say $20,000 a year). That brings his total phased retirement income to $86 ...

A Phased Retirement Q&A

Clearly, a lot of federal employees are interested in the idea of stepping gently into retirement using the new phased retirement option being unveiled this fall. I’ve received quite a few questions from employees about how phased retirement will work. The answers to some of them will have to wait until agencies issue their individual guidance for implementing the program. The Office of Personnel Management will be issuing separate guidance here to assist agencies and employees with administrative and procedural matters.

For now, let’s look at some of the questions that already have answers.

How will my retirement benefit be computed before and after I enter phased retirement?

Here’s the answer from OPM: “Upon entry into phased retirement, OPM will compute the employee’s ‘phased retirement annuity’ using the three highest consecutive average pay years the employee had accrued up until that point. During phased retirement, if a new high-three average pay were to accrue, it would be reflected in the computation of the composite annuity. At full retirement, the ‘phased retirement annuity’ portion of the employee’s annuity would not change; but, the ‘fully retired phased component’ portion would take the new average pay into account ...

Here’s Some Good News About Your Retirement Benefit

Are you in the mood for some encouraging news?

Every year, the Congressional Research Service issues a report called, “Federal Employees’ Retirement System: Budget and Trust Fund Issues.” This year’s report states that there is no point over the next 80 years at which the assets of the Civil Service Retirement and Disability Fund are projected to run out. The CSRDF provides retirement benefit payments for federal retirees covered under both the Civil Service Retirement System and the Federal Employees Retirement System.

The CSRDF held a balance of $835.7 billion at the end of fiscal 2013, and obligations from the fund totaled $77.5 billion. Those consisted mostly of annuity payments to retirees and their survivors. The fund also covers payments to estates of deceased federal employees and retirees of any money left in the employee or retiree’s retirement account. Those added up to $445 million in fiscal 2013. Administrative expenses for the fund totaled $128 million, or 0.17% of total obligations. (It’s also interesting to note that $2 million was transferred from the CSRDF to the Merit Systems Protection Board last year to pay for favorable retirement decisions for employees and retirees who won ...

5 Myths About Federal Retirement

One of the things I enjoy most about teaching classes and conducting webinars on the topic of pre-retirement planning is when I can bust a myth that is standing in the way of someone meeting his or her retirement goals. Sometimes these myths have been circulating so long that they’ve taken on an aura of truth. And they can stand in the way of planning for a bright and comfortable retirement.

Let’s take a look at some common federal retirement myths.

1. You need to save at least $1 million (or some other specific dollar amount) to retire comfortably.

Who says? More importantly, how do they know? Federal retirees have at least one and sometimes two sources of retirement income that will last a lifetime. In many cases, these will cover monthly living expenses not matter how much you’ve been able to save.

To figure out how much you really need in savings, start by thinking through your future living expenses. Here’s a simple worksheet from Vanguard to help you.

Next, get an accurate estimate of your Civil Service Retirement System or Federal Employees Retirement System benefit from your agency human resources office. And contact Social ...

Can You Count On Social Security?

This week, I’m in Ocean City, Maryland, with my husband’s sister and her husband, Joe. They are typical American workers who are approaching retirement, so we spent a little time talking about Social Security.

Joe works for the local government near our hometown near Pittsburgh, as the chief building inspector. He has a public pension and also pays into Social Security. My sister-in-law works for a small business and is saving for retirement in a 401(k) plan (she has no defined benefit pension). She assumed that because many of her relatives had lived in retirement on their Social Security benefits, she’d be able to do the same. She said she had never been very interested in learning more about Social Security and assumed it would be there for them.

Is she right?

Earlier this week, the House Ways and Means Subcommittee on Social Security held a hearing titled “What Workers Need to Know about Social Security as They Plan for Their Retirement.” The hearing came the day after the release of the 2014 Social Security Trustees Report.

Subcommittee Chairman Sam Johnson, R-Texas, said in his opening statement: “Unless Congress does its job, full benefits can’t ...