By Mike Miles
Survivor benefit vs. life insurance
May 9th, 2013 | Uncategorized
Q. I will be retiring at the end of this year with 37 years and 10 months of service. I am a CSRS employee and will be 57 years old in September. My annual annuity would be $81,958. I will have a little over $200,000 in my Thrift Savings Plan account.
Is it smartest to take the spousal annuity or take out a life insurance policy on myself to sustain my wife once I pass away? My annual annuity will be reduced by around $7,900 a year if I chose the spousal annuity. Which would be the wisest?
A. This isn’t your choice to make. It’s your spouse’s choice. If I were your spouse, I’d favor the full survivor benefit.
Tags: annuity, CSRS, life insurance, retirement, survivor benefit
Divorce and TSP
April 29th, 2013 | Uncategorized
Q. I am about to divorce my husband, who works for the Federal Aviation Administration.
1. Can I keep his health insurance as an individual? Does this cost anything to him? How much will it cost me?
2. How can I be eligible for his life insurance after divorce?
3. Which is more beneficial: Getting a survivor benefit or getting a higher pension?
4. When can he start taking money from his Thrift Savings Plan?
A. You can’t withdraw money from his TSP account. Your divorce settlement will govern how the TSP is divided and distributed and you’ll likely wind up with your share in an IRA in your name. The usual rules for distributions will then apply.
Tags: divorce, health insurance, IRA, life insurance, survivor benefits, TSP, withdrawal
Survivor benefits vs. life insurance
April 2nd, 2013 | Uncategorized
Q. My husband is putting in papers to retire after 40 years in civil service. He wants me to sign a paper saying that I agree not to accept his retirement if he dies before me. He said it would be less costly to get a good life insurance policy. We are both 61 years old and in good health. I have asthma and take medication for cholesterol. I have 21 years with the public school system. I hope to retire in the next year or two. Is it a good idea for me to sign this paper? He doesn’t want to discuss it.
A. Here is a link to a column I wrote for Federal Times a few years ago on the topic: www.variplan.com/uploadedDocuments/1213969385How_pension_max_compares_to_survivor_annuity.pdf.
This is, potentially, a critical question, and the correct answer depends entirely upon your circumstances — your goals, resources and constraints. Unfortunately, the analysis required to answer it correctly is usually complex. The only universal recommendation I can make is that, if you’re in doubt, the safest bet is to elect the maximum CSRS or FERS survivor benefit.
Tags: CSRS, FERS, life insurance, retirement, survivor benefits
12 questions on VERA
March 19th, 2013 | Uncategorized
Q. I am a letter carrier, age 52, started in 1985 and have 28 years of creditable service.
If I understand what I’ve gleaned from the posts here and the Postal Service were to offer me a Voluntary Early Retirement Authority this year,
1. Would I begin my annuity immediately?
2. Would I have no reductions in calculations of my annuity? (average high-3 x 1 percent x 28)
3. Would I receive credit for half of my sick leave and all of my annual leave? (How are these applied?)
4. Would I receive the special retirement supplement beginning at age 56 (my minimum retirement age), and receive it until I reach age 62?
5. Would I be able to continue carrying my current health and life insurance at non-USPS rates? (I couldn’t find how long these could be carried. Until death?)
6. Could I begin receiving Social Security as early as age 62?
7. Any withdrawal from my Thrift Savings Plan prior to age 59½ would be penalized 10 percent as per Internal Revenue Service regulations? (Can I continue to contribute to TSP after retirement?)
8. As a FERS annuitant, is there no limit to what I can earn after separation from the Postal Service as it pertains to my annuity payment?
9. At age 56 (my MRA), the special retirement supplement from Social Security would begin and would be subject to yearly income limits. Would supplement payments be reduced by approximately $1 for every $2 I earned above that year’s Social Security income limit?
10. At age 65, I’d be eligible for Medicare parts A and B? (Would this affect my health insurance coverage through Federal Employees Health Benefits?)
11. Would there be cost-of-living increases at any point for my annuity?
12. Is there a date during the year that maximizes the benefits of retirement?
Did I get this right, and are there any other things I should know before considering a VERA if it is offered?
A. Reg: 1. Yes.
2. Yes.
3. Yes. Half of your unused hours of sick leave would be added to any hours of service that were left over when your annuity was computed. Any additional months created would increase the amount of your annuity. Any unused annual leave would be paid to you in a lump sum at your current hourly rate.
4. Yes.
5. Yes. And those enrollments would continue until your death.
6. Yes.
Mike: 7. You will be subject to the early withdrawal penalty until you reach age 59½ unless you can qualify for one of the exceptions listed on Page 7 of the notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. You may not contribute to the TSP after you retire, but you may transfer eligible balances into the TSP from other retirement accounts such as IRA, 401(k), 403(b), etc.
Tags: 401(k), 403(b), age, annual leave, annuity, catch-up contributions, cost-of-living adjustment, early withdrawal penalty, FERS, health insurance, income, IRA, IRS, life insurance, lump-sum, Medicare, Minimum Retirement Age, Postal Service, sick leave, Social Security, Special Retirement Supplement, TSP, VERA
Annuity vs. life insurance
December 3rd, 2012 | Uncategorized
Q. My husband and I are both retiring soon, he under FERS and me under CSRS. His income will be made up mostly of Social Security, while mine will be mostly CSRS. A full annuity for him would cost $425 a month. Does it make sense to elect this annuity given the cost? Would a term life insurance policy be a better alternative? I need to put the paperwork in this week.
A. There is no universal answer to this question, but if in doubt, the safe bet is to elect the full survivor benefit for your spouse. To answer this question properly would take a full-blown financial analysis, but you’ve waited too long for that to happen before your deadline, so you’ll have to “spin the wheel.”
Tags: annuity, CSRS, FERS, income, life insurance, retirement, Social Security, survivor benefit
Withdrawing TSP
July 2nd, 2012 | Uncategorized
Q. I am 59 years old and will have 38 years civil service (FERS) in October. I hope to work until age 62. We went to a financial adviser when my husband retired two years ago, and he invested his 403 in an insurance fund and another fund recommended by this adviser. It has earned around 5 percent. The adviser now wants me to withdraw most of my Thrift Savings Plan at 59½ and invest with him. I know 5 percent is pretty good, but it will be locked in for several years. He also recommended I purchase whole life instead of survivor benefit through the government. We use the Federal Employees Health Benefits plan as primary and Tricare secondary, as my husband is retired military. I am hesitant to withdraw (roll over) all of my TSP and don’t feel I need SPB or whole life as my husband has two retirements, Social Security and investments. He will also receive the money I have in the TSP, should I predecease him (he is four years older and has had two heart attacks). I have checked this adviser on finra.org and he has several certifications, has been CEO of the company since 1982. Is this sound advice, or is he lining his own pockets?
A. Certifications don’t mean much and guarantee nothing. He gets paid by other people to sell stuff to you. His success is, at least in part, determined by how much of your money he can extract for the benefit of himself and others. Why would you take important financial advice from a salesman?
Tags: FEHB, FERS, life insurance, rollover, Social Security, TSP withdrawal
TSP annuity and life insurance
June 7th, 2012 | Uncategorized
Q. I will be retiring this year. Do you think the Thrift Savings Plan annuity has a fair return? The life insurance has me puzzled. It is very expensive. Is there a better way to get this much coverage?
A. I wouldn’t lock in a TSP annuity at today’s historically low rates of return. You should shop the individual life insurance market for guaranteed level term insurance and compare the rates with Federal Employees Group Life Insurance.
Tags: annuity, coverage, FEGLI, life insurance, TSP
Benefits of continued FEGLI coverage
August 2nd, 2010 | Uncategorized
Q: I am 57 years old and plan to retire in two years. I have basic Federal Employees Group Life Insurance plus two times optional coverage. My total annual premium is nearly $1,900 for roughly $400,000 of insurance. Equivalent coverage in the open market is considerably cheaper. Is there any advantage to retaining my FEGLI coverage as I approach retirement?
A: The major benefit, assuming that you are insurable at more attractive rates on the retail market, is that if you retire with basic FEGLI coverage, you can, once you reach age 65, retain 25 percent of that coverage, at no charge, for life.
Tags: Federal Employees Group Life Insurance, FEGLI, life insurance, retirement
Life insurance vs. survivor benefit
May 5th, 2010 | Uncategorized
Q: A co-worker is trying to convince me that taking an annuity without survivor benefit is more cost-effective than with the survivor benefit. He says it is better to take the full benefit and buy an insurance policy to protect my wife when I die. Besides the health insurance aspect of that decision, I argue that the survivor benefit is the better choice. I believe you wrote an article on why it is better to take the survivor annuity. Would you please repeat that advice and would you also point to where I may find more information on this question?
A: Better for who? Better for your life insurance agent, definitely. And you can probably enjoy a little more spending cash while you’re alive, but I doubt that, with the proper understanding, your spouse would choose this option. You can visit http://www.variplan.com, click on the link to “Who We Are,” then click on the “Archive” link at the top. Type “pension max” into the search window and you’ll find several pieces I have written on the topic.
Tags: life insurance, survivor benefit