2020 FERS Retirement Planning Guide - Published by FEDweek

2020 FERS Retirement Planning Guide (eBook)

Published by FEDweek (Autor)

eBook Download: EPUB

2020 | 1. Auflage
200 Seiten
Bookbaby (Verlag)
978-1-0983-0110-1 (ISBN)

The most important factor in your retirement planning is understanding the federal retirement system and benefits. The more you know, the better the result. Our brand new FERS Retirement Planning Guide contains the very latest critical information on your retirement benefits and is stated clearly to help you take full advantage of opportunities and avoid costly mistakes. This reference guide clarifies important topics such as the retirement planning process, maximizing and calculating your annuity, the role Social Security plays, as well as health insurance, life insurance and the TSP. Included this FERS Retirement Planning Guide for 2020:Special Retirement SupplementLeaving service before retirement eligibilityService Computation DateMRA +10Catch-62Sick leave conversionRetirement eligibilityEarly RetirementRedepositsKey retirement terms you need to knowSocial Security and the Thrift Savings PlanHow to calculate your annuity (with plenty of easy-to-follow examples)Eligibility requirementsDifferent retirement types (regular, early, deferred, special disability)Credit for military serviceDeposits and redepositsCost of living adjustments - COLAsThe effect of divorce on annuitiesSocial SecurityPublic Pension OffsetWindfall Elimination ProvisionThe Thrift Savings PlanTaking health and life insurance into retirementSpecial retirement (law enforcement, air traffic controller, etc.)Annuity taxesAnnuity reductionsSurvivor benefitsAnd much more!Note: CSRS-Offset employees should order the CSRS version and those who switched from CSRS to FERS want the FERS version.

CHAPTER 1

Overview

The Federal Employees Retirement System (FERS) is composed of three parts: a defined benefit plan; the Thrift Savings Plan; and Social Security. All three components are needed to match or exceed the benefits available to retirees under the old Civil Service Retirement System (CSRS).

The defined benefit component allows you to predict the amount of annuity you will receive when you are eligible to retire. It is based on a simple formula involving your years of creditable service and your highest three years of average salary (called the “high-3”). The closer you are to retirement, the more accurate your estimate will be.

Social Security operates the same for you as it does for other covered employees such as those in the private sector. The percent of income you and your agency contribute to Social Security is set in law, as is the formula used to determine your eventual benefit. However, the amount you will receive varies according to the age at which you claim your benefit and your career earnings. Because Social Security is a social insurance program, the formula is tilted in favor of lower-income workers.

The Thrift Savings Plan (TSP) allows you to invest in a variety of funds on a tax-advantaged basis. Although the rules governing how much you and your agency may put in are defined, the long-term outcomes are far less predictable. That’s because they depend on what percentage of your income you invest, how much of that is matched by your agency, how long you invest, and the success of the investment strategy you pursue.

If all your service has been performed under FERS, your annuity will be calculated exclusively under that system. On the other hand, if you have a CSRS component in your annuity, that service will be calculated under CSRS rules and the two amounts combined into a single annuity payment.

EMBARKING ON THE RETIREMENT PLANNING JOURNEY

Planning for retirement involves numerous financial, personal and other considerations. As you go through that process, and as you go through this book, you will want to bear in mind several key issues. The chapters that follow explain each of these in more detail, but at the outset of your retirement planning journey it’s important to have a perspective on these considerations and to recognize how they relate to each other.

Build a solid knowledge of your retirement benefits, even if it means starting from scratch. Discard almost all of what you have heard in the lunchroom over the years. Even if your co-workers are well informed, the decisions they are making about retirement won’t necessarily be best for you. That’s true even if you seem to be in more or less the same life and career situations. You have to make your own decisions. In some cases this means going in a different direction than your peers—retiring earlier or later, for example, or making a different choice on survivor benefits—and possibly having to stand up for your decisions under their criticism.

Also discard any notions you have of retirement based on your opinions of what the benefits “should” be. Benefits are set by law and regulation, and those policies don’t change easily or often. Your focus must be on what the benefits are, not what you wish they were, or else you risk misleading yourself. The proper way to go about it is to learn how your retirement system works, what benefits you might be entitled to, what you have to do to make sure you get them, and roughly how much you stand to receive and when.

Various resources are available to you as you transition between a career and retirement. The agency that you work for is responsible for documenting the history of your career, keeping track of your contributions and taxes paid toward retirement benefits, and assuring that you are eligible to maintain insurance benefits when you retire from service. The Office of Personnel Management and Social Security Administration are responsible for computing your retirement benefits and paying them out. The Federal Retirement Thrift Investment Board keeps track of your Thrift Savings Plan money and will pay it out to you in the form you choose. And there are webinars and other forms of training available to you. There are many decisions to make and issues to understand when it comes to planning for and living in a successful retirement.

For starters, it is your responsibility to understand the factors that influence your retirement benefit. Your benefits will be based on your length of service and a computation of your basic pay rates over the “high-3” years of your career. Do you understand what is meant by “basic pay?” If you don’t, those tentative calculations of your future benefits that you’ve been performing might be way off. Basic pay includes locality rates, basic annual pay adjustments, promotions, and step increases. Basic pay does not include most overtime pay, bonuses or cash awards.

Length of service is one of the most important concepts for you to take responsibility for. Have you maintained clear records that document the history of your entire federal career? This means having a copy of all of the SF 50s that show beginning and ending dates of prior service, military service records, and even records of that temporary summer job at a national park while in college. If you don’t have all that, then you should review your Official Personnel Folder (which could be in paper form, electronic form, or both) to be sure that this documentation exists. It is probably a good idea to ask for copies of documentation that you have not maintained in your own “personal” personnel folder. Do you have any questions about whether or not past service that you have performed is creditable towards your retirement?

In addition to maintaining records of the dates of past service, it is also critical to understand the benefit of paying a deposit into the retirement fund for service where no retirement deductions were withheld or where the deductions were withheld and later refunded to you. The rules relating to paying service credit deposits can be complicated. Generally, if you request an estimated retirement computation from your agency’s personnel office, you will be informed about unpaid deposits and their effect on your retirement benefit. Some deposits can be expensive because of the accumulated interest that is due. And these payments must be received and recorded before you retire—in some cases involving a processing time of many months. This is why it is recommended that you start this process long before actually retiring.

Have you considered the election of a survivor benefit? If you are married, this is a mandatory consideration. There are survivor benefit considerations for your basic retirement benefit, Social Security, and the Thrift Savings Plan. In addition, make sure you keep your beneficiary designations up to date, even after you retire.

What about continuation of life insurance and health benefits? Do you know what is meant by the “five-year test?” Do you know the benefit of maintaining federal health and life insurance in retirement? Is your spouse dependent on you for health insurance? Do you understand what is required to make sure he or she can continue this valuable benefit in the event you die first? How about long-term care insurance and dental/vision insurance? They don’t carry the same types of restrictions on continuation into retirement as health and life insurance. But have you factored their potential costs and benefits into your financial plans? Even if you don’t have such insurance now, might you want to take it out in the future?

Finally, what about Social Security? Have you reviewed their record of your past earnings? It’s on your benefits summary statement, which in most cases you now have to get by setting up an online account. If there is a discrepancy, it is your responsibility to report and provide proof to correct it. Making these corrections can affect the amount of your future benefit. Are you entitled to more than one benefit? Social Security pays benefits to workers and their dependents. This can include a current spouse, a former spouse, dependent children and in some cases, dependent parents. Have you considered when you will apply for Social Security benefits and the effect your age has on the amount of the benefit you will receive? Do you understand the potential reductions to Social Security and how they work?

Bear these questions and considerations in mind as you walk through the steps described below.

Understand When Not to Retire

A decision on when to retire can be guided in part by some common-sense principles regarding when you should not retire.

First, don’t retire on an impulse, for example, when you’re angry at someone or fed up with the job. In all likelihood, you’ll live to regret it. It’s far better to retire to something than to retire to get away from something.

Second, don’t retire unless you are sure that you have been given credit for all your years of federal service — both civilian and military, if applicable. Don’t neglect to include bits of creditable civilian service such as from employment when in high school or college.

Third, don’t retire if you haven’t evaluated your future financial needs and probable income to verify that you’ll be able to maintain your standard of living. Having to cut corner after corner in retirement can take the shine off those...

Erscheint lt. Verlag	10.7.2020
Sprache	englisch
Themenwelt	Sozialwissenschaften ► Pädagogik
ISBN-10	1-0983-0110-2 / 1098301102
ISBN-13	978-1-0983-0110-1 / 9781098301101

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