Tips for Getting the Most Out of Your Retirement Benefits
Advice on assessing the options available to you.
This is the time of year when many federal employees plan their transition from employee to annuitant. Let’s take a look at various federal retirement benefits to highlight an important feature or recent update and a pro tip to help you maximize each benefit.
As you’re probably aware, the Civil Service Retirement System and the Federal Employees Retirement System have some similarities, but also some unique features. Here’s one for each system:
CSRS: The voluntary contributions program allows employees to save after-tax dollars (up to 10% of lifetime salary) and earn tax-deferred interest (2.25% for 2020) during employment in federal service. At retirement (or before), you can transfer the interest to a Thrift Savings Plan account and the already-taxed principal to an individual retirement account.
FERS: Minimum Retirement Age + 10 provisions provide an immediate (reduced) or postponed retirement option. This might be attractive to employees who either want to leave federal service a little early or those who came into service later in life and don’t meet the requirement to have 20 or 30 years of federal service to be eligible for an immediate retirement benefit prior to age 62. The MRA + 10 option only requires that you are at least the minimum retirement age (55-57, depending on your year of birth) and have at least 10 years of service.
- An estimate of your CSRS or FERS retirement benefit.
- Opportunities to attend pre-retirement seminars or webinars.
- Answers to your questions regarding such issues as retirement eligibility, service credit, computation of your benefit, selecting a retirement date, survivor elections, completing paperwork, crediting sick leave, lump-sum payments for unused annual leave and processing of your retirement application.
Thrift Savings Plan
TSP participants will no longer need to elect to make catch-up contributions as of Jan. 1, 2021. Next year, if you’re turning 50 or older and exceed the IRS elective deferral (or annual addition) limit, then your contributions will automatically start counting toward the IRS catch-up limit. Just add any contributions toward the catch-up limit in the same place as your other TSP contributions.
Your election will carry over each year unless you submit a new one. If you’re eligible for matching contributions, contributions spilling over toward the catch-up limit will qualify for the match on up to 5% of your salary. You may start, stop, or change your contributions at any time. If you choose not to contribute toward the catch-up limit, you should adjust your TSP contributions accordingly.
Pro tip: If you need assistance with financial and tax planning it is important to find a competent professional to help. You can use BrokerCheck to tell you whether a person or firm is registered, as required by law, to sell securities (stocks, bonds, mutual funds and more), offer investment advice or both.
Recently, Social Security Commissioner Andrew Saul spoke to Next Avenue about the state of the agency in the pandemic age. “When I took over here, we had a tremendous amount of plans to digitalize and modernize the way we deliver services,” he said. “But obviously when March hit and we were faced with this situation, we had to keep the lights on. We had to protect our employees and our beneficiaries, and therefore we had to revert to operating from home.
And we were forced to close our offices, both our field offices and our disability hearing offices, and become a virtual operation. We had no choice.”
Some of the changes will be permanent. “It doesn't mean that we're not going to have field offices. It doesn't mean that we're not going to have an 800 number. But we are going as quickly as we can so that our major form of communication to our customer is digital and video.”
Pro tip: Especially if you’re covered under FERS, think of your Social Security benefit as one piece of your retirement puzzle. The other pieces are your pension, Thrift Savings Plan, investments and other possible other sources of income such as a part-time job or self-employment. These pieces can be put together in different ways to create your retirement plan. But there are some ways that will create tax efficiency, a solid stream of lifetime income, and protection against future strains on your budget such as long-term care, assisting family members financially, and other unforeseen events that must be part of the plan.
The Federal Employees Group Life Insurance Program is group term life insurance. It does not build up cash value. There are two types of life insurance under FEGLI: Basic and Optional. Basic insurance pays out your annual rate of basic pay upon death. The optional choices are:
- Option A: $10,000
- Option B: one to five multiples of your annual rate of basic pay
- Option C: multiples payable to the insured individual upon the death of a spouse or eligible child.
One of the unique features of FEGLI is that unless your position is excluded from FEGLI coverage by law or regulation, you are automatically enrolled in basic insurance, regardless of your health.
Pro tip: If you meet the requirements to continue FEGLI into retirement, you can keep your Basic FEGLI and Option A at no further premium once you are over 65 and retired. Those benefits will retain 25% of their value for the remainder of your life to provide payment to your beneficiary to help cover your final expenses. If you want to continue Options B and C past 65 once you are retired, you must pay the full premium based on your age. For an additional premium, you can continue Basic FEGLI at no reduction, or at a 50% reduction.
Long Term Care Insurance
The Federal Long Term Care Insurance Program 3.0 includes a premium stabilization feature designed to reduce the need for future premium increases. Under this feature, an adjustable amount is calculated as a percentage of premiums paid under the FLTCIP 3.0 group policy. Under certain conditions, the PSF amount may be used to offset your future premium payments or provide a refund of premium death benefit.
Pro tip: The best time to buy long term care insurance is when you are younger and more likely to be insurable. You will either pay a smaller premium over a longer period of time or a larger premium over a shorter period of time. The end date won’t change.