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

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...

Another Chance for Health Plan Changes

Except under certain defined circumstances, such as marriage or the birth of a child, you’re ordinarily not allowed to change your Federal Employee Health Benefits Program coverage outside of the annual open enrollment period. But this year, until the end of February, you may have such an opportunity.

It’s all because of the new self plus one option that became available in 2016. The Office of Personnel Management has created a window to allow federal employees who are participating in premium conversion (the pre-tax deduction of health premiums from their paychecks) to change enrollment from self and family coverage to self plus one. (Since federal retirees do not participate in premium conversion, they can downsize their FEHBP coverage from self and family to self plus one or from self plus one to self only at any time.)

Many employees already have made the switch to self plus one when they had the opportunity to do so during last fall’s open season. But if you missed out, it’s not too late. This is the first time in FEHBP history there has been an enrollment option other than self only or self and family.

The self plus one...

TSP Tax Tips

As you probably are well aware, the federal Thrift Savings Plan is about retirement savings. But it’s also about taxes. The money you put away in the TSP for your retirement years gets preferable tax treatment to provide you with a greater incentive to save now for your retirement later.

You have the option to save pre-tax dollars and allow your savings to grow tax-deferred. You can also, with the Roth option, choose to save after-tax dollars now, allowing the money to grow tax-free. That way, in your retirement years, the withdrawals will not be subject to income tax.

If you have retired and are beginning to consider your TSP withdrawal options, you also need to consider the tax consequences of your choices. The TSP offers variety of publications and a Retirement Income Calculator to help you decide which course of action is best for your situation.

Besides ordinary income taxes, your TSP funds can be subject to tax penalties for taking your money out too early–or not taking it out early enough.

According to this TSP fact sheet, if you receive a TSP distribution before you reach age 59½, in addition to regular federal income tax, you...

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