Ask The Experts: Retirement

By Reg Jones

Basic Life insurance

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Q. I have recently read an article that stated the following: The survivor of an individual who meets the definition of a FERS annuitant is not eligible for the FERS Basic Employee Death Benefit (BEDB), the BEDB is a lump sum payment made to the spouse of an individual who dies while still in federal service. This individual has not filed an application for retirement and has not separated from federal service.
So, does this mean as a retired annuitant, a spouse who was provided a spousal benefit cannot get any benefit for carrying the Basic Life into retirement? Read the rest of this entry »

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Life insurance after 65

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Q. I just turned 65 in January, and I got a notice that no more premiums would be taken out of my check. Do I still have life insurance? Is it paid up, and if so, how much is it? Read the rest of this entry »

VSIP and insurance for retirement

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Q. I am a CSRS employee, 55 years old with 31 years of service. If I receive a voluntary separation incentive payment, is it reduced by six weeks of severance pay I received in 1997? Would my spouse be able to keep FEHB family plan if I die? When I use the advanced retirement calculator it shows 75 percent reduction for basic insurance. Is that automatic? And does FEGLI pay out the same death benefit as currently indicated in my Employee Benefit Information System? Read the rest of this entry »

Life insurance

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Q. I have been retired from CSRS since 2004 with 34 years of service. It is my understanding that I have $25,000 in life insurance to be paid to my beneficiary when I die. That will most likely be my wife. How should she go about claiming the life insurance?

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Life insurance

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Q. How much are the normal life insurance rates for FERS employees? And what are the various amounts that are offered?

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Retiring now

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Q. I am 64 years old with 28 years in the post office, all FERS. I would like to retire in March. How long will it take for my Social Security checks, my Thrift Savings Plan account and my Postal Service pension checks to begin? I would like to continue my current health plan and apply for Medicare ASAP. I would also like to keep my current life insurance plans.

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Deferred annuity

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Q. I am a 60 percent disabled veteran, so I earn a disability income. When I started work at the Postal Service, I bought my military time back so it would count toward retirement, so my service date is Sept. 1, 2001 (actually started in 2006). I am 46 years old now and I am looking to leave the USPS within three to four years. What options do I have for retirement? Could you explain deferred annuity and any other options available to me?

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Applying for retirement

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Q. Do I have to be on active federal service to apply for retirement?  In other words, can I resign from my current GS job, not work and check the “retired scene” for a month or two (i.e. take a break), then apply for retirement if I so desire, but keep the option not to retire and apply instead for another job if I find not working to be boring?

And if my decision is to go ahead and retire, are there special requirements? How do I apply for retirement if/when I am not on current register?

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Life insurance

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Q. I have been enrolled in Federal Employees’ Group Life Insurance since 1983 and plan on retiring this year. In 2010, I added life insurance coverage for my spouse. Does the five-year rule apply for eligibility upon my retirement?

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Survivor benefits

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Q. I have been employed with the Postal Service for 26 years. I am 64 years old and am eligible for retirement. I would like to work for another year. I have some health issues. If I should die while I am still working, would I lose all that I have paid in to my retirement, or would my wife get my retirement benefits? If so, how much? Or would she only get my life insurance benefit?

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Alternative annuity

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Q. I have some questions regarding retirement under FERS:

1. They used to allow lump-sum withdrawal of your own contributions to your retirement so you could transfer to your own IRA. Is that still an option, or has that since been rescinded?

2. My wife and I are contemplating not taking survivor benefits because she will get my Thrift Savings Plan and Social Security payments. Also, I have provided enough life insurance to cover her income. The question was raised that she would then not be eligible for my Federal Employees Health Benefits for medical if I was deceased. What is the rule concerning that issue?

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Survivor benefits

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Q. My uncle passed away, leaving my aunt who just turned 98 in need of full-time care. I have been paying her bills and her caregiver. I mistakenly thought the income he received was Social Security, but found out that it was his federal pension. He received this payment of approximately $1,400 per month direct deposited into their account until May following his death. They took back the March-May payments, then stopped any further payments.

It has recently been brought to my attention that my aunt should have retained a portion or all of his pension as his widow. Her only income is $575 per month Social Security. I am wondering if she was not accurately listed as his spouse or if we missed some paperwork following his death.

My aunt lives in Oregon, and I am in Tennessee. Her caregiver is awesome, but she does not always send us everything.

We finally completed the Federal Employees’ Group Life Insurance paperwork and are waiting for a small death benefit but need to determine if she was supposed to be getting his pension. She is nearing the end of her resources, and we are trying to be sure we have done all we can.

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Benefits of leaving at 15 years before MRA

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Q. Are there any benefits available if one leaves federal service early — 15+ years but two years shy of their minimum retirement age?

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Law enforcement retirement

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Q. I am a 43-year-old FERS employee who just completed my 20th year in a covered law enforcement position. I understand the 25 at any age/20 at age 50+ rules. I also understand that I may transition to a nonlaw enforcement position for the next five years and retire at age 48, or simply continue working until age 48 and retire with 25 years of law enforcement. However, at this point (age 43 with 20 years), if I retire and apply for deferred benefits, will those benefits be available when I turn 50, as 50 is the minimum retirement age with my completed 20 years of LE service? If it is not age 50, what is the earliest age that I could apply for the deferred benefits? If it is later than age 50, can you please explain why? I am interested in resigning from my federal law enforcement career now that I have completed 20 years, but I want to sacrifice as few benefits as possible.

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Life insurance while on disability retirement

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Q. I’ve been on disability retirement for seven years. My husband lost his life insurance benefit at his company (private industry). Can I get him life insurance through the government even though I left with only my own policy?

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FEGLI at retirement

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Q. I am a CSRS Postal Service employee, and I understand that to carry Federal Employees’ Group Life Insurance coverage into retirement, I must be enrolled for five years prior to retirement. I am enrolled in the basic coverage, as well as Option B. I am considering eliminating the Option B coverage but do not want to do anything that may have an adverse effect upon retirement. If I eliminate the Option B coverage but retain the Basic coverage, will I be allowed to choose any optional coverage at the time of my retirement, or must I be enrolled in the specific optional coverage for five years to carry it into retirement?

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FERS retirement options

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Q. I am looking at retiring in September 2014 at age 57 years and five months. I will have 34 years in FERS and a little less than a year of sick leave to convert. I have $359,000 in my Thrift Savings Plan account. I am single, never married. What are my best options? I am located in an isolated area and am unable to attend any retirement seminars, especially now with the budget issues.

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Reducing life insurance

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Q. How do I reduce my life insurance? I’m retired. Whom do I contact?

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Deferred annuity and SRS

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Q. I am more than 58 years old and voluntarily resigning from my position with the Veterans Affairs Department. I have 20 years of creditable FERS service and plan to postpone the start of my annuity and my retirement until my 60th birthday. I plan to submit the Form 92-19 two months prior to my 60th birthday, which will be in October 2014. In the interim, I will be obtaining my health insurance through my spouse, but I have plans to regain our family health/life insurance (held less than five years) at the same time I start my annuity, which will be without age reduction because I have 20 years and will be 60 at that time. I am confused about my eligibility for the special retirement supplement between age 60 and 62. I do not think it will be retirement at MRA +10 at that time, but I may be wrong. Please explain what category my postponed annuity/retirement situation falls under.

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Avoid these mistakes when planning to retire

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It’s easy to make mistakes when you are planning to retire. Some of the biggest mistakes apply to all employees; a few apply only to CSRS or FERS retirees. All can be costly. Here they are and what you can do to avoid them:

Retiring on the spur of the moment. It can be disastrous, for two reasons. First, if you hand in your retirement application at the last minute, it may contain errors that delay processing or even cause it to be rejected. Second, decisions made in haste often come back to bite you. Once committed to a course of action, it’s hard to undo it if you change your mind. If you do change your mind before you actually retire, you won’t be able to withdraw your application if your job has been abolished or it’s been offered to someone else. If you’ve already retired and want to cancel your retirement, your agency has no obligation to bring you back on board.

Confusing a salesperson with an adviser. The two are not the same. Actually, they’re opposites. One is paid to convince you to buy what they have to sell; the other is paid a fee to conduct analysis and provide you with decision support. One is your ally. The other is your adversary. Why would you trust an adversary for advice? Be skeptical of any source of “advice” that might be influenced by a conflict of interest. This is single mistake probably costs the American public more than any other when it comes to financial decision making.

Losing your health or life insurance. Make sure you are enrolled in the Federal Employees Health Benefits or Federal Employees’ Group Life Insurance programs for the five consecutive years before you retire. If you aren’t, with few exceptions, you won’t be able to carry that coverage into retirement. Here are the exceptions: you are covered by your spouse’s FEHB policy; you have been covered by Tricare of CHAMPVA, enroll in the FEHB program before retiring and the total equals five years; you enrolled in the FEHB at your first opportunity and retire in less than five years; or you accept an early retirement offer and were enrolled before the latest offer of early retirement was made by your agency.

Before you retire, check with your personnel office to be sure that you’ve met either the five-year rule or one of its exceptions.

Not getting credit for active-duty service in the military. If you served on active duty in the military, you can get credit for that time in determining your years of civilian service and have it used in the computation of your annuity. If you are a FERS employee, you’ll have to make a deposit to get credit for that time. If you are a CSRS employee, the rules differ depending on when you were first hired. If it was before Oct. 1, 1982, you will only have to make a deposit if you retire and are eligible for a Social Security benefit at age 62 (or when you retire, if it’s after age 62). If you were hired on or after that date, you’ll get credit for that time only if you make a deposit for that service. Whether you are a CSRS or FERS employee, if you’ll be eligible for or receiving military retired pay, in most cases you’ll have to waive that pay when you retire from your civilian job. You won’t have to do that if you are eligible for or receiving reserve retired pay.

Check with your personnel office to make sure that any active-duty service is recorded in your Official Personnel Folder and find out if a deposit will be required to get credit for that time.

Getting caught by “Catch-62.” If you are a CSRS employee who served on active duty in the armed forces after Dec. 31, 1956, and haven’t made a deposit for that time, you could be in for a rude awakening. If you retire and are eligible for a Social Security benefit at age 62 (or when you retire if it’s after age 62), your annuity will be reduced by 2 percent for each of those years of military service for which you haven’t made a deposit.

Determine whether you’ll be eligible for a Social Security benefit at either of those points in time. If you will, you may want to make a deposit for that time. If you won’t, don’t waste your money. Your CSRS annuity won’t be affected.

Rolling over Thrift Savings Plan assets. This mistake is usually caused by either trusting the wrong source for advice or failing to think “outside the box” a little when it comes to planning for your cash flow needs. Financial salespeople generally have to gain custody of your assets in order to be paid their commissions or fees, so naturally, their advice always includes rolling over any significant TSP sums into an IRA or other investment vehicle with higher costs. This is a formula for diminished investment performance. If the reason for leaving the TSP isn’t to enrich a financial salesperson, it’s often to gain more freedom in withdrawing TSP assets. While this is sometimes a valid reason to leave, it can often be dealt with through a combination of a lump-sum withdrawal or a series of fixed monthly distributions that will create and maintain a slush fund outside the TSP that is sufficient to meet your cash flow needs.

Focusing on wealth instead of cash flow. Speaking of cash flow, this mistake is propagated by financial professionals and journalists all the time. Much of what you’ll read and hear from financial and investment experts is aimed at maximizing economic wealth — basically your net worth. The mistake is in assuming this is your retirement goal. It’s probably not. And managing to this goal can cause serious problems for you in retirement. Paying off a fixed-rate, low-interest-rate mortgage is an example. It is often proposed that saving the interest over 10, 20 or 30 years will dramatically increase your net worth. While the validity of this proposal will vary from case to case, and is certainly debatable, it also completely misses the point that your retirement standard of living is not dependent upon your net worth but rather on your ability to generate cash flow. Having massive amounts of equity in a piece of real estate is of little use to you in making a car payment or paying for a cruise if you can’t sell the property or borrow against the equity on attractive terms.

Getting hit by the windfall elimination provision. If you are a CSRS retiree who will be eligible for a Social Security benefit, it may be reduced by the windfall elimination provision. That will happen if you have fewer than 30 years of “substantial earnings” under Social Security. The difference between the amount needed to earn four credits under Social Security and the amount considered to be substantial earnings is significant. In 2013, you would only need to earn $4,640 to get four credits; however, you would have to earn $21,075 for it to be considered substantial. (Since the Social Security Administration doesn’t know which retirement system you are in, if you are a CSRS employee, any estimate of future Social Security benefits they give you will very likely be wrong, often very wrong.)

If you’ll be affected by the WEP, know in advance how much less your Social Security benefit will be. You can get started by reading the Social Security Administration’s publication at ssa.gov/pubs/EN-05-10045.pdf.

Getting hit by the government pension offset. If you will be receiving a CSRS annuity, any spousal Social Security benefit you may be entitled to will be reduced or eliminated by the government pension offset. The GPO will reduce those Social Security benefits by $2 for every $3 you get in your CSRS annuity.

If you’ll be affected by the GPO, you need to find out how great the impact will be. That’s because it isn’t uncommon for the GPO to wipe out those benefits. You can learn more at ssa.gov/pubs/EN-05-10007.pdf.

Relying on emotion instead of reason. This mistake is so common, it’s the norm. It also has the potential to cause disaster. There have been books written about this mistake and how to avoid it, yet the behavior continues to be rampant. If you’re going to get the most of what you want from what you have, you need to realize that markets have evolved to take advantage of your fear and greed, which are amazingly predictable, and turn them against you. The investment markets aren’t fair; they’re like poker games, and trust me, you’re not the best player in the game. If you want to survive and, better yet, enjoy the game, you need to rely on a strategy that acknowledges the odds you face, accepts them and uses reason to turn them to your favor.

Failing to account for inflation. Inflation is a pervasive threat to any retirement plan. Not so much inflation in general, but differential rates of inflation among the various incomes and outflows that affect your plan. Your expenses will inflate, over time, at varying rates, while your income may or may not keep pace with that inflation. CSRS annuity and Social Security income increase with the Consumer Price Index (for now), FERS annuity income increases less than the rate of inflation, and many other pension and annuity income streams either don’t increase at all or increase at a fixed rate. Differences in these inflation rates can have a profound impact on your financial picture in retirement and failing to properly account and plan for this impact can leave you without the resources you’ll need to live the life you’ve been expecting years, or decades, down the road.