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

The Hidden Cost of Federal Health Plans

Did you know that more than 25 percent of total spending under the Federal Employees Health Benefits Program goes to prescription drugs? Rising drug prices and increasing drug utilization continue to drive up FEHBP premiums.

Every year, the Office of Personnel Management sends a call letter to all FEHBP carriers. This year’s edition encourages the carriers to thoroughly evaluate options to improve affordability, reduce costs, boost the quality of care, and protect the health of their enrollees. The letter also advises that any proposed benefit enhancements must be offset by proposed reductions so premiums are not increased due to benefit changes.

The first item that OPM is setting as a theme for the upcoming health insurance open season is a focus on prescription drugs.

That makes sense, because drug costs are clearly on people’s minds. In the Kaiser Family Foundation’s latest health tracking poll, respondents identified it as their number two priority in health, just behind reducing out-of-pocket health care costs in general.

The May issue of AARP Bulletin featured a story called “Why Drugs Cost So Much.” It noted:

  • Americans spent $457 billion on prescription drugs in 2015, up 8 percent from the previous year.
  • From...

With Cuts on the Table, Is It Time to Go?

I’ve received a lot of emails lately about the proposed changes to federal retirement benefits included in President Trump’s budget submission to Congress. Employees are asking if they should move up their retirement date to August or September so they can leave before the new fiscal year begins on Oct. 1.

Here’s my first response: Remember that nothing has changed yet. Any act of Congress causing a substantial negative change in benefits is going to face a lot of opposition from groups who lobby on behalf of federal employees and retirees. Already, members of Congress who represent significant numbers of federal workers have stated their opposition to the changes.

Also, remember that that these ideas have been proposed many times in the past and so far have not been enacted. It is unlikely that all of the proposals affecting retirement will be approved this year. It’s possible that none of them will.

However, many people, including yours truly, are a little more concerned this year than in past years. That’s because Republicans are more likely to enact measures to trim federal benefits, and they now control the White House and both houses of Congress.


Benefits Cuts and the President’s Budget

There’s been a lot of news lately about the release of President Trump’s proposed budget on May 23. Of greatest concern to the readers of this column are proposals to make significant and substantial changes to the two federal retirement programs: the Civil Service Retirement System and the Federal Employees Retirement System (including modifications in 2013 and 2014 that required larger employee contributions to FERS and reduced agency contributions).

I typically don’t write about proposed changes to benefits in my column until they become law, but since there may be more support in Congress than in years past for these changes, it is worth exploring them.

The president’s budget, which is strongly opposed by groups such as the National Active and Retired Federal Employees Association, contains the following provisions:

  • Cost-of-living allowances for current and future FERS retirees would be eliminated altogether.
  • COLAs for CSRS retirees would be reduced by 0.5 percent each year from what they would have been otherwise.
  • FERS employees would see employee contributions to their annuities increased by 1 percent each year for the next six years, without any corresponding benefit increase.
  • The FERS annuity supplement would be eliminated for new retirees...

The Perils and Pitfalls of Retiring Really Early

Last week, we explored the possibility of joining the FIRE (financial independence/retire early) movement as a federal employee. It involves aggressively saving and investing in the hope of retiring as early as age 45.

There are some specific issues that federal employees would need to carefully consider before pursuing such a strategy. Let’s look at a few of them.

A deferred retirement benefit under the Federal Employees Retirement System is payable as early as your minimum retirement age (55 to 57, depending on when you were born) if you have a minimum of 10 years of federal service when you leave. But if you retired early, you’d have to rely completely on your savings to get you to your MRA for your FERS basic retirement benefit to be payable. Then you’d have to wait until you turned 62 for your first eligibility for Social Security retirement benefits.

Also, without entitlement to a FERS basic annuity benefit, you would forfeit lifetime continuation of federal health insurance under the Federal Employees Health Benefits program. To continue your health and life insurance benefits, you must be eligible for an immediate retirement and be covered for the last five years...

Can You Retire at 45?

I received an email recently about someone interested in getting fired — but not the way you think:

I have recently caught interest in the FIRE (financial independence/retire early) movement and was wondering if you have ever written any articles or helped any other federal employees plan retirement for this situation. I am in my early 30s and have dreams to retire by age 45 or 50, but most of the guidance out there does not apply to my situation. Other websites cover this topic in detail, but something specific to federal employees would be a great read.

After doing some research on the FIRE concept, I found that retiring very early is a real goal of more than one federal employee. Here are some of the articles I read to learn more about the concept:

According to Rob Berger, a contributor at Forbes and the author of the last of the articles listed above, the goal of extreme early retirement can be achieved by following four steps. But be forewarned: They’re not easy.

Step One: Earn a...