Ask The Experts: Money Matters

By Mike Miles

Annual leave

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Q. I have 38 years with the federal government. I have 240 hours of stored leave and, if I save my annual leave this year, I will have 208 hours of annual leave. This equates to 448 hours times my base pay, which is $33.92 for $15,196.

When I retire at the end of this year, can I roll my lump-sum payment over to my Thrift Savings Plan account before taxes?

A. No.

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Annuity calculation and TSP collection

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Q. I have a two-part question. I am a federal firefighter and, as of December, I will have 25 years and 10 months on the job and I am 50 years old. What is the salary they will be basing my retirement on: base pay or actual pay? When can I collect my Thrift Savings Plan? I would like to receive checks like a retirement.

A. Mike: You may begin withdrawing your TSP balance, or use it to buy an immediate annuity, as soon as you are separated from service.

Reg: Your annuity will be calculated using your basic pay. To see what’s included and excluded from basic pay, go to www.opm.gov/retirement-services/publications-forms/csrsfers-handbook/c030.pdf and scroll to Section 30A1.1-2.

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Buyback, Social Security, high-3 and TSP

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Q. I have 33 years in and am under CSRS. I will be 60 years old in May. I served less than two years in the Army in my 20s. I am a WG-8 making almost $25 an hour. I receive correspondence statements from Social Security that if I retire at age 62, I would be eligible for approximately $300 based on a second job 12 years ago and jobs before joining the government in the 1980s.

1. Should I buy back the time I have in the Army?

2. Will the buyback help increase my Social Security? Or will the money from Social Security lower my pension?

3. Should I get a part-time job to increase my Social Security benefit? I know I am not eligible for disability based on not having 40 quarters, but will the small amount of time I have paid into Social Security help or hurt me when I want to retire at 62?

4. Is there anything current on whether the top three years will be changed to top five? And, if it gets changed, should I retire before it is implemented?

5. Are there any ways to increase my pension other than saving with the Thrift Savings Plan or getting a second job (see above question)? I have reservations with TSP because of the taxes. I have money in it but am not saving. My understanding is I can’t touch it without penalty until age 62. Is this correct?

A. Mike: You’ll have access to your TSP money, without any early withdrawal penalty, as soon as you retire from federal service.

Reg: Because you were first employed before Oct. 1, 1982, you’ll get credit for your active-duty service in determining your eligibility to retire and in your annuity computation. If you aren’t eligible for a Social Security benefit at age 62, your annuity won’t be affected. The Office of Personnel Management only checks once, at age 62, if you are already retired, or when you retire if it’s at age 62 or later.

If you take a job after retirement and earn enough credits to be eligible for a Social Security benefit, it will be affected by the windfall elimination provision. The WEP reduces the Social Security benefit of anyone who receives an annuity from a retirement system where he didn’t pay Social Security taxes, such as CSRS, and has fewer than 30 years of substantial earnings under Social Security.

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Laid off — Leave money in TSP?

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Q. My husband was a temporary federal employee for the Defense Department for five years. He was laid off in August. He had two years of military service, which he bought that time back, so in essence he has seven years of federal service. He is 60 years old. He put 10 percent of his salary in the Thrift Savings Plan. Should he leave that money in TSP or put it in another vehicle?

Also, when he reaches retirement age (62), will he receive a pension for the seven years of federal service? He left DoD with a sick leave balance — his annual leave he was paid for. Is it true, if he receives another government position within three years, his remaining sick leave will carry over.

A. Mike: He should leave his money in the TSP for as long as possible, and manage it there. Its costs and investment options are superior to those he’ll find anywhere else.

Reg: He would be eligible for an annuity at age 62 if he had five years of full-time service from which retirement deductions were taken and he didn’t take a refund of those deductions when he left. The unused sick leave he had to his credit when he left wouldn’t be included when his annuity was computed. On the other hand, if he returned to work for the federal government, his sick leave would be restored.

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TSP calculator

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Q. I’ve been doing some estimates for retirement with the TSP calculator. I plan on leaving my money in G Fund after retirement, and for interest, I’ve been putting 3 percent. Is that a conservative enough amount?

A. The calculator is unrealistic in that:

1. It assumes that a constant rate of investment return will be earned each and every year, like clockwork;

2. You can predict what this rate will be;

3. You know how long you’re going to live;

4. Inflation isn’t a factor.

Each of these assumptions is absurd. I think that the calculator is, at best, of little use, and, at worst, dangerous. You’ll find an article I wrote on the subject here: http://www.variplan.com/uploadedDocuments/1282316219Use_TSP_calculators_at_your_own_risk.pdf.

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TSP-annuity basics

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Q: I saw the following comment in response to the question regarding the Thrift Savings Plan annuity rate being 3.625 percent: “The annuity rate is used to determine, at the time of purchase, the size of the payment you’ll receive in exchange for the annuity purchase price.”

My question is surrounding the phrase “annuity purchase price.” Are you telling us that after all the years of contributing our own, hard-earned money into the TSP to secure a better retirement life for ourselves and our families, that we have to buy back that money from the TSP in order to use it in lieu of a steady income?

A: It’s not a secret that the TSP is a retirement savings and investment account. You’re free to use the money for anything you’d like, including using it to purchase an annuity from an insurance company. This is not mandatory, however, and you may simply withdraw your funds to spend as you see fit.

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More on TSP annuity rates

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Q: I was reading a question submitted to you about the Thrift Savings Plan annuity rate being 3.625 percent. What does this rate have to with withdrawing from our accounts in retirement in the form of an annuity? If I have $200,000 in my account and buy an annuity with it, once it is purchased I get the monthly amount for the rest of my life, Right? I don’t understand what this annuity rate is for.

A: The annuity rate is used to determine, at the time of purchase, the size of the payment you’ll receive in exchange for the annuity purchase price.

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