By Reg Jones
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?
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.
November 25th, 2013 | LIFE INSURANCE
Q. How do I reduce my life insurance? I’m retired. Whom do I contact?
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.
November 18th, 2013 | annuity reduction Benefits CSRS annuity computation FEHBP FERS annuity computation Government pension offset HEALTH INSURANCE LIFE INSURANCE Military service deposits PAY RETIREMENT Retirement date SOCIAL SECURITY substantial earnings Tricare Windfall elimination provision
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.
Q. My husband worked for the federal government in the agriculture division. He retired in 1985. He is now 83 years old and wants to know if he still has life insurance. He was told that the benefits would decrease until age 70 and then he would have $7,000 benefit for life. Is this true?
Q. I was a tenured foreign service officer. I have nine years of creditable service. I voluntarily left the Foreign Commercial Service after multiple posts. I left in August 2010 with excellent reviews and under great conditions and awards. I was 54 when I left the service to join a private company. I am now 58.
I would like to apply for retirement benefits to qualify for Federal Employees Health Benefits for myself and to gain any other benefits from the pension. Can you help me to understand what I may be eligible for and when I could apply?
November 8th, 2013 | Creditable service: FERS Deferred retirement FEHBP FERS annuity computation HEALTH INSURANCE LIFE INSURANCE MRA + 10 Postponed retirement Premiums Re-enrollment RETIREMENT Tricare
Q. I turn 60 on Jan. 1, 2015. I am a FERS employee who will have 20 years creditable service in January of 2014. If I retire Dec. 13, 2014 (the end of a pay period) do I understand correctly that my Federal Employees Health Benefits and Federal Employees Group Life Insurance coverage will be extended for 31 days at no cost to me?
I plan on postponing my annuity receipt until Jan. 1 (when I turn 60) to avoid the under-62 penalty. Also, do I understand correctly that since my postponed annuity date will be Jan. 1 that my first annuity payment will not be until February?
I am also an Air Force Reserve enlisted ART employee, so I have to leave at 60, but because of the changes to Reserve retired pay eligibility based on active duty orders, I qualify for Reserve Retirement pay earlier than 60. But as you know, if I retired when I was eligible, I would not be able to enroll in Tricare for retirees (except the plan for “gray area,” which involves paying the entire monthly premium).
Q. My son-in-law is in his early 40s and is thinking about resigning after working full time for approximately 13 years. Is he entitled to any benefits such as health insurance, or partial retirement pay? Would the above answer in any way be altered if he continued to work part time?
Q. I retired from the Department of Transportation (Federal Aviation Administration) about seven years ago. I retired under CSRS Offset with about 35 years of service. I will be turning 62 in a few months and have applied for my Social Security benefits. I selected some Federal Employees Group Life Insurance coverage, so I am still enrolled. Since my CSRS benefits will be reduced at age 62, can I make changes to my FEGLI coverage to increase my survivor benefits?
Q. I am 47 years old with 20 years in the Postal Service and am planning on separating soon. Will I be eligible to keep with my current insurance? How/where do I find how much more my premium will be? Will I get my 400+ hours of annual leave in a lump sum? How long does that take to process? (I can stay employed longer if the lump sum would still be applied to this year’s income for tax purposes.) Would I be eligible for any pension at age 59½? Would my seven months of unused sick leave count toward it?
Q. I work for the Postal Service with 29 years as of Aug. 4, and 10½ with civil service for the Navy. I am 59 years old, a postmaster EAS-11 office which is on the downsize or closure list. I do not want to transfer or have to drive 50 miles to another office. If I am forced to retire under discontinued service retirement, does my insurance that I already have continue?
Q. I have been with the Postal Service for 24 years, and I have an action for removal for nonperformance looming over me and a pending disability retirement application with the Office of Personnel Management. If I get terminated before OPM makes its decision, will that guarantee approval of disability retirement? What about insurance? If I get terminated, can I make some kind of arrangements to keep my health and life insurance? I must keep my health insurance with this medical condition and my family. I also need to hold on to my life insurance since my history is blotted.
Q. I have been a federal employee for one year. However, I am 60 years old. If I stay with the federal government for five years, will I be able to receive retirement pay? I have also served in and retired from the military.
September 29th, 2013 | COLA Creditable service: FERS Deferred retirement DOWNSIZING Early retirement EMPLOYMENT FERS annuity computation HEALTH INSURANCE law enforcement LIFE INSURANCE Minimum retirement age Reductions in force RETIREMENT SOCIAL SECURITY Special retirement supplement
In my last two columns, I described the procedures agencies are required to use when they conduct a reduction in force. In this column, I’ll focus on the options available to employees who are eligible to retire when facing a RIF.
If you have the right combination of age and service, you’ll be able to retire on an immediate annuity, even if you aren’t directly targeted by a RIF. Here are the rules, which are different for personnel under the Civil Service Retirement System and the Federal Employees Retirement System.
The immediate retirement rules are different for special category employees, such as law enforcement officers, firefighters and air traffic controllers. If you are covered by CSRS, you can retire at age 50 with 20 years of service; if you are covered by FERS, you can retire at age 50 with 20 years of service or at any age with 25.
If you aren’t eligible for immediate retirement, a general RIF notice won’t qualify you for early retirement. You’ll need a specific notice, which must identify your position as one that will be affected and that you will be separated from it on a specific date.
Rather than issue specific RIF notices, your agency may first authorize early retirements under Voluntary Early Retirement Authority or encourage retirements by offering buyouts to employees occupying certain positions under the Voluntary Separation Incentive Program.
Note: If offered a VSIP, you don’t need to be eligible to retire. You only need to be willing to leave and do so.
Whether offered a VERA, a VSIP or both, you’ll be eligible for early retirement if you meet the age and service requirements, which are the same for CSRS and FERS.
Special retirement supplement
If you are a FERS retiree, you’ll receive a special retirement supplement if you retire after your MRA with 30 years of service, at age 60 with 20 years, or on early voluntary or involuntary retirement beginning at your MRA. If you are a special category retiree, you will receive the SRS regardless of your age.
The SRS approximates the amount of the Social Security benefit you earned while covered by FERS. It is paid until age 62 when you become eligible for a Social Security benefit. The amount you receive in your SRS is fixed. It won’t be increased by any cost-of-living adjustments while you are receiving it. However, it will be reduced or suspended if you’ve reached your MRA and have earnings from wages or self-employment that exceed the annual Social Security earnings limit. In 2013, that limit is $15,120.
COLAs on retirement annuities
The rules governing COLAs for CSRS and FERS retirees are different. If you are a CSRS retiree, you are entitled to receive them annually regardless of the age at which you retire. The same is true if you are a special category retiree under FERS. On the other hand, if you are a regular FERS retiree, you won’t receive one until you reach age 62.
FYI: When the consumer price index is 2 percent or less, FERS retirees receive the same COLA as their CSRS counterparts. However, between 2 and 3 percent, they receive 2 percent, and at 3 percent or more, they receive the CPI minus 1 percent.
Even if you aren’t eligible to retire now, you may still be able to receive an annuity later on. For example, if you had at least five years of service when you left, you could apply for a deferred retirement at age 62. If you were a FERS employee who had 20 or more years of service, you could apply at age 60. In either case, your annuity would be based on your years of service and highest three years of average basic pay on the day you left. Note: FERS employees applying for a deferred retirement aren’t eligible for the special retirement supplement.
Health and life insurance
You must be covered under the Federal Employees Health Benefits program and/or the Federal Employees’ Group Life Insurance program for the five consecutive years immediately preceding your retirement (or from your first opportunity to enroll) to carry that coverage into retirement. (Coverage under Tricare also counts toward the five-year requirement, as long as you were enrolled in the FEHB program when you retired.)
Fortunately, the Office of Personnel Management has some flexibility. If you haven’t met the requirement to continue your coverage but are currently enrolled, you may be eligible for a pre-approved waiver.
A final note: If you are a FERS employee who is eligible to carry your FEHB or FEGLI coverage into retirement but you postpone the receipt of your annuity to a later date, you can re-enroll in those programs when your annuity begins. On the other hand, if you leave government and apply for a deferred annuity, you can’t re-enroll in either program.
Q. My son, who was a National Security Agency employee, died 13 months after he retired. What are the benefits for his family, which consists of mother, and two brothers? My son was 56 years old.
Q. I had always believed, when you retired, your choice of taking the survivor benefit or not taking it was irrevocable. Now, I am told that if you chose the survivor benefit and your spouse died, you could reverse your option and collect your full annuity. Which is true? My thought was not to take the survivor Benefit and buy a life insurance policy with the savings. I work for the Postal Service.
September 17th, 2013 | LIFE INSURANCE
Q. As a federal retiree, do I have the option to change or reduce Federal Employees’ Group Life Insurance Option C coverage in the next open season? After age 65, I do not need as much coverage and the rates jump by a large percentage.
Q. I am 55 and was recently hired as a DoDEA teacher. How many years do I need to work to be eligible to keep all of my insurance benefits?
Q. I am a 66-year-old federal employee with 24 years of service whose office is offering buyouts to fix furlough woes we are experiencing. I am healthy and, while I would love to be able to retire, I am uncertain. We are being told if we take the buyout, we can get unemployment benefits and COBRA coverage under the Federal Employees Health Benefits plan. Would this be a smart move for me?