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Advice on how to prepare for life after government.
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Winning the Three-Legged Race to Financial Security

Financial planners have long used the term “three-legged stool” to characterize retirement income, which traditionally has been based on a pension, Social Security benefits and personal savings. For many private-sector employees, the first leg of that stool is a thing of the past. But many current and future federal retirees have a genuine three-legged stool based on:

  • A retirement benefit under the Federal Employees Retirement System or the old Civil Service Retirement System
  • Social Security benefits
  • Thrift Savings Plan retirement savings

The percentage of replacement income from each of these three sources depends on such factors as length of federal service, wages, coverage under CSRS or FERS and the ability to invest in and manage a TSP account.

Leg One: Annuity

According to the Office of Personnel Management, the average monthly annuity for the more than 100,000 annuitants added to the federal retirement rolls in fiscal 2014 was $1,639 for FERS and $4,634 for CSRS. The benefit is calculated based on highest three years of average salary, length of federal service (including unused sick leave) and a formula that depends on retirement coverage under CSRS or FERS.

For those who retire with the minimum of five years...

Tips and Tricks for a Smoother Retirement

According to the Office of Personnel Management, as of fiscal 2014, 2.7 million federal employees were covered under one of the government’s two main retirement systems -- the Civil Service Retirement System and the Federal Employees Retirement System. At this point, more than 90 percent of them are in FERS.

There also were more than 2 million employee annuitants as of fiscal 2014 (the most recent year for which data are available) and more than 550,000 survivor annuitants.

Where’s the most popular federal retirement destination? California, followed by Florida, Texas, Maryland and Virginia The average CSRS annuity is $3,400 per month, compared to $1,300 for FERS.

Are you ready to join the ranks of the annuitants? If so, it’s helpful to look at how the process plays out in the real world.

The Timeline

Here’s how the timeline unfolded for two recent retirees under FERS:

Susan retired from the Food and Drug Administration on Nov. 30, 2015. She received a regular paycheck following her separation (federal employees are paid two weeks behind), and her annual leave payout came on Dec. 18. She received her first interim payment from OPM on Jan. 12, 2016...

Breaking Up Is Hard To Do

Sometimes, life comes with unpleasant surprises. From a financial planning and retirement preparation perspective, one of the most difficult is divorce. This week, I asked Dan Jamison, a CPA and retired FBI special agent, to share some information that might help those going through this process. Dan specializes in assisting federal employees and annuitants with the division of retirement benefits in divorce and also has written the popular FERS Retirement and Benefits Guide.

The number one misunderstanding, in Dan’s experience, occurs when a former spouse of a federal employee is granted a pro-rata award of a federal retirement benefit and also a survivor annuity without the level of survivor annuity being defined. In such cases, the Office of Personnel Management interprets it as a full survivor annuity.

This situation can lead to two unfortunate outcomes:

  • It might make the annuitant worth more dead than alive to the former spouse.
  • It means that no survivor annuity is available to the current spouse if the employee or annuitant remarried after divorce.

Many times, employees don’t fully understand this until after retirement. After the retirement or death of the employee, the survivor annuity portion of a divorce agreement or court order...

A Fresh Look at How Much Money You Need To Retire

The Government Accountability Office this week released a report assessing the latest data on how much income people need in retirement. The study sought to evaluate how retirement replacement rates are developed to gauge whether a target of 80 percent of pre-retirement income is accurate for employees to use when they plan for their retirement years.

GAO studied the spending patterns of different age and income groups to see if younger people spend more or less than older retirees and whether spending patterns were different among low-income groups compared to those with higher income. The study noted that without improved financial literacy and better retirement planning tools, workers may over- or underestimate the amount of income they’ll need in retirement.

In the past couple of decades, employment-based retirement plan coverage has shifted from defined benefit plans (such as the Civil Service Retirement System and, to a lesser extent, the Federal Employees Retirement System) to defined contribution plans (such as the Thrift Savings Plan). Federal employees have a leg up on most of their private sector counterparts because the “defined benefit” leg of their three-legged retirement planning stool is still attached.

But the more complex nature of planning under FERS...

The New Rules of the Social Security Game

A couple of weeks ago I wrote about changes to Social Security claiming strategies for couples that are taking effect in 2016 after passage of budget legislation late last year. There was not a lot of clarity about the new law at the time, but things have become clearer because the Social Security Administration has updated its website. Now we can look at some specific examples of how the law will affect people who are thinking about filing for Social Security retirement benefits.

Here are the new rules, according to SSA:

If you submit a request to suspend your benefits to earn delayed retirement credits on or after April 30, 2016, you will not be able to receive auxiliary benefits on someone else’s Social Security record. In addition, if you suspend your benefit, anyone receiving benefits on your record (excluding divorced spouses) will also be suspended for the same months you request suspension.

Finally, for requests submitted April 30, 2016 and later, payments will be suspended the month following the month in which the request was made and ending with the earlier of the month following the month in which the individual turns age 70 or the month following...