Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

Is Phased Retirement For You?

Slowly but surely, phased retirement is being rolled out in federal agencies. Assuming your agency provides the option, now or in the future, would you consider it?

There are several reasons why phased retirement might provide a good way to transition to retirement:

  • You might love your job and your co-workers, but also be interested in working less than full time as you move towards full retirement.
  • Phased retirement allows your Civil Service Retirement System or Federal Employees Retirement System benefit to increase as you work less than full time. If you were to retire first and then work part-time, your retirement benefit would not go up.
  • Phased retirees who are over the Social Security full retirement age are no longer subject to an earnings limit and can choose to receive Social Security retirement benefits while continuing to work in phased retirement.
  • Phased retirees who are age 59 ½ or older can take a one-time in-service withdrawal from the Thrift Savings Plan. This allows them to begin using their retirement savings during the period of phased retirement and continue to contribute to the TSP and (for those under FERS) receive agency contributions.
  • The only withholdings from the CSRS or FERS partial...

Retirement With Training Wheels

Are you in the home stretch of your federal career? That last lap can be the hardest for many employees. Some face uncertainty, fear and anxiety about the decision to retire after a career of federal service. For others, the feelings include excitement, joy and a sense of impending freedom. Either way, it sometimes makes sense to gradually make the transition.

That’s where phased retirement comes in. It offers the possibility of easing into the next stage of life without unexpected surprises and with time to explore the activities that you will pursue in your life after retirement.

Congress provided the opportunity for federal employees to phase into retirement in legislation passed in July 2012. Four years later, only a small number of federal agencies have actually implemented phased retirement, and just a handful of employees across government have opted take the baby-step approach to retiring. That may be changing, though. Last month, the Defense Department rolled out its phased retirement plan, which opened up the option to a huge group of employees and could spur other agencies to follow suit.

As more agencies and workers begin the phased retirement process, I thought it would be worthwhile to take...

You’re Going to Have to Make Some Tax Decisions

Most federal employees know that they contribute to their future Federal Employees Retirement System or Civil Service Retirement System benefit via withholding from their biweekly paychecks. But some may not be aware of the tax implications of such withholding.

CSRS employees contribute 7 percent of basic pay (7.5 percent for special groups such as law enforcement officers and firefighters). FERS employees contribute 0.8 percent (1.3 percent for special groups). FERS Revised Annuity Employees (hired in 2013) and FERS Further Revised Annuity Employees (hired from 2014 on) contribute 3.1 percent and 4.4 percent, respectively (the special groups put in an additional 0.5 percent). CSRS Offset employees contribute 0.8 percent until their salary reaches the maximum taxable wage base for Social Security ($118,500 for 2016) and then 7 percent afterwards until the next year begins.

According to the IRS, part of the annuity benefit you receive is tax-free recovery of your contributions to the CSRS or FERS. The rest of your benefits are taxable. If your annuity starting date is after Nov. 18, 1996, you must use the simplified method to figure the taxable and tax-free parts. Over the course of a federal career...

Why It Pays to Keep Your Own Records

I recently received the following email from “Maria”:

As a fairly recent retiree, I wanted to alert you to an issue I had with the Office of Personnel Management when finalizing my annuity.

Many years ago a wise mentor of mine told me to save the last leave and earnings statement from every agency I worked for as proof of my retirement contributions should there be an error. I had followed this advice and saved this information, so I checked my total retirement contributions against the amount that OPM computed (retirees are provided with this information after the Civil Service Retirement System or Federal Employees Retirement System claim is finalized). I noticed there was a discrepancy in my retirement contributions. As you know, this information is used to determine the tax-free portion of my retirement benefit. (It is also used to determine the maximum contribution that CSRS and CSRS Offset employees may contribute to a Voluntary Contributions account). Fortunately for me, it was the agency prior to the one I retired from that was the root of the error and I was able to get it corrected by contacting that payroll provider. (I also involved my congressional representative.) Total time...

Comparing Your Income Before and After Retirement

After you retire, you’ll find that some of your expenses — such as the cost of commuting or maintaining a professional wardrobe — will go away. But you also might find that you increase your spending in such areas as travel and health care. That’s why it’s important to compare your actual income in retirement to what you are bringing home during your working years.  

Last week, we looked at ways to ballpark your retirement income. Now let’s do a more concrete “net to net” comparison of what you can expect pre- and post-retirement.

Your gross and net income are shown on your biweekly leave and earnings statement. The net is the amount after the withholdings for such items as taxes, insurance and retirement contributions. Some withholdings, such as Thrift Savings Plan contributions, health insurance premiums and flexible spending account allotments, reduce your taxable income.

Let’s look at an example involving “Shirley”:

Gross monthly salary: $8,413.60

  • FERS retirement contributions: -$67.32
  • Medicare tax: -$115.83
  • Social Security tax: -$495.24
  • Federal Employees Health Benefits: -$265.37
  • Federal Employees Group Life Insurance (Basic): -$33.80
  • Federal Employees Group Life Insurance (Option B): -$72.93
  • Federal Employees...

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