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

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...

Ballparking Your Retirement Benefit

Last week, I presented a series of true/false questions to ask yourself to determine if you’re  financially ready to retire. One of the questions was whether you had done a “net to net” comparison of your net monthly income while working compared to your net monthly income you will have once you are retired.

In order to do that, you need not just the information available in your paycheck about your current net income, but a reasonable estimate of what you can count on in retirement. There are several ways to get that information.

I encourage employees who are planning to retire within the next year or two to request an estimate from their human resources office. Most likely, it will be prepared using one of two software programs:

These programs are designed for use by trained retirement specialists. Those specialists typically review your service history before using the software, to provide a more accurate estimate of your Civil Service Retirement System or Federal Employees Retirement System basic benefit. Retirement specialists are often inundated with requests for estimates, along with the work of...

Are You Financially Ready to Retire? A True-False Quiz

“You can be young without money,” Tennessee Williams once said. “But you can’t be old without it.” When it comes to planning for retirement, there’s a difference between being eligible to retire and being able to afford it.

In working with federal employees, I’ve found that many think they don’t have enough money to retire, but in fact are more financially prepared than they realize. For example, I’ve met an employee with more than 40 years of federal service who is saving $24,000 year in the Thrift Savings Plan, but still is worried about becoming destitute if he retires at 62.

Others have their eye on the eligibility milestone, but might be looking for a second career when their money runs out. I’m thinking of one who is planning to retire at 58 with the minimum required service of 30 years, but is struggling to contribute 5 percent of his salary to his TSP account. On top of that, he has all of the $150,000 in his account invested in the G Fund. And did I mention he has an ex-spouse who will be receiving 50 percent of the first 20 years...

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