By Reg Jones
Q. I retired in 2009 with 37½ years under CSRS. I had no break in service. I started in 1973. I worked part time for a period while a federal employee and I had a job (short time) before federal employment.
After retirement, I went to work full time (private) and have been paying into Social Security. I got a statement from Social Security last year that shows that if I keep working at my current salary, I will collect about $680 a month at age 62 or about $1,200 a month at age 66.
I don’t believe I fall into the offset category but would like to know how/if I will be affected in both my CSRS monthly pension and Social Security.
November 21st, 2013 | annuity reduction Benefits Creditable service: CSRS CSRS annuity computation CSRS Offset EMPLOYMENT Government pension offset PAY Re-employment RETIREMENT SOCIAL SECURITY spouse benefits SURVIVOR BENEFITS Windfall elimination provision
Q. I am a CSRS Offset employee. I had seven years and 10 months of CSRS service when I left and took my funds out. I returned as CSRS Offset after a 15-month break, did not make a redeposit and now have an additional 26 years of service.
I am looking at retiring in 4½ years at age 60. In addition, I am divorced (married 28 years and one month, not remarried). My ex-husband has always made substantially more. Based on the scenario stated, I am of the opinion that:
1. The windfall elimination provision will not apply since I will have 30½ years of paying into Social Security.
2. The government pension offset does not apply since I am CSRS Offset, and
3. I can collect Social Security based upon my spouse’s earnings since his income was substantially more than mine.
I need to know whether these assumptions are correct, and whether there are any other “offsets” as it will make the difference on whether or not I can afford to retire or need to keep working until full (Social Security) retirement age.
Q. I have 26 years of federal employment with age. 26 x 1.1 = 28.6. How is this treated for retirement? Will the Postal Service drop 0.6? Or how do I calculate the remainder? What must I do to reach a whole number?
November 20th, 2013 | annuity reduction Coverage after retirement Creditable service: CSRS CSRS annuity computation EMPLOYMENT HEALTH INSURANCE Military service deposits PAY Postal Service RETIREMENT self and family SOCIAL SECURITY spouse benefits
Q. I have 31 years with the Postal Service, four years military. Started with USPS in March 1982. Also a disabled vet.
I am confused with the payback issue regarding my military service from 1974 to 1978. I opted not to pay back and, according to everything I am reading, if I do not qualify for Social Security at 62, there will not be a deduction in annual annuity.
However, I note that in the CSRS and FERS Handbook, it states the following:
“If nondeduction service was performed before Oct. 1, 1982, and deposit is not made, the basic annual annuity is reduced by 10 percent of deposit plus interest owed.”
I do not have enough credits to qualify for Social Security, thus I’m not sure if this applies to me.
Also, I would like to use the Veterans Affairs Department when I retire. However, I am not sure how to provide health insurance to my spouse. Should I keep my present insurance that covers her, or are there other options?
Q. I am in CSRS offset, and I am eligible to retire now. I turned 66 on April 8. I started collecting Social Security benefits as of Jan. 1 and continue to work. How will my retirement calculation change when I retire? Most, but not all, of the Social Security benefits were earned while I was under CSRS offset. I copied the following excerpt from “Ask the Experts”: “In the year you reached your full retirement age, it would be reduced by $1 out of every $3 you earned. After that, there wouldn’t be any reduction.”
I don’t understand what will be reduced from my Social Security or my retirement when I retire?
November 19th, 2013 | annuity reduction Benefits Creditable service: CSRS Creditable service: FERS CSRS annuity computation EMPLOYMENT FERS annuity computation Government pension offset PAY Postal Service RETIREMENT SOCIAL SECURITY spouse benefits SURVIVOR BENEFITS
Q. I am a retired Postal Service FERS employee. I took the early-out in February with reduced pension. I am going to marry a Postal Service CSRS employee retired on postal disability. He has little Social Security time, which he is not collecting. We would like to know if one of us will lose our postal pension. If so, how much and why?
Q. I have worked with the understanding that I would enjoy a CSRS retirement. When I turned in a request for retirement computation, I found out that I was a CSRS Offset employee, and they began removing Social Security payments from my paycheck. I am over 55 and have worked over 30 years with the same federal company. I had a break in service to have a baby (that was back when the Family Medical Leave Act did not exist, and I had to quit and return to work as a temp for a year and then be made permanent again.
I did not know if I am expected to pay 30 years of back Social Security. Some say that CSRS should move my contributions to SS, and some say they will not. I have 17 quarters of SS. I plan on working another five years. When I plan on retiring, I will have paid in 39.25 quarters and be 60 years old. There will be six years of payments to SS upon retirement.
I have a great fear of retiring at 60 and then, on the magic becoming of 62 years old, and huge wrench will be thrown in the works and I will have a reduced annuity from the CSRS and no annuity from Social Security. What type of proactive actions should I be taking now to resolve my anxiety?
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.
When it comes to retirement, planning is everything.
If possible, it should begin at least one year ahead of the date you have set to retire. However, events can conspire to force a quick retirement decision, such as the offer of a “buyout” or a RIF. In those cases, use whatever time you have to plan ahead. Even a little time, wisely spent, can produce a big payoff.
Here’s a checklist for you to follow:
* Sign up for a preretirement counseling seminar at your agency. If your organization doesn’t have one at a convenient time (or offer one at all), consider enrolling in one offered by an outside firm. In some cases, your agency will pay for the course.
* Set up a meeting with an agency benefits counselor to go through your Official Personnel Folder and make sure it includes complete documentation of all of your federal employment (including any military service), the effective dates of each adjustment to your pay, and records of your health benefits and life insurance coverage, plus any designations of beneficiaries you may have filed.
* Verify when you will be eligible to retire and whether you will be able to carry your health and life insurance into retirement.
* Ask for an estimate of your retirement annuity. If you owe any deposits or redeposits to the retirement system, find out the effect on your annuity of making or not making them. If you decide that it’s worth it to make a deposit or redeposit, ask your counselor to show you how to do that.
* Ask for two copies of the necessary retirement forms. Fill one out for your benefits counselor and one for yourself. Your benefits counselor will review the forms and contact you to clear up any questions or problems that may arise.
Once the paperwork is done and you’ve confirmed your retirement date, you can relax.
Q. I am 55 years old and have 18 years of active duty and 13 years of Army Reserve duty for a total of 31 retirement years in the Army Reserve.
I am eligible to collect my Army Reserve pension in January. This is based on the Defense Authorization Act of January 2008, which allows a 90-day reduction of age from age 60 — for every 90 days of active duty in the support of the war on terror. I have met that threshold.
I would like to go to work for the federal government with a projected start date of February 2014.
I will have already retired from the Army Reserve and have started to receive my Reserve pension.
1. Am I eligible to purchase that 18 years of active duty into a civil service pension for credit?
2. Can I still draw my Reserve retirements and still receive a civil service retirement when eligible?
3. It’s my understanding that it takes five years to get vested into the civil service pension systems. What would be the earliest age I could retire? Age 60?
Then, would I have a cumulative total of 23 years, assuming I was able to purchase this through buyback?
Q. I have 22 years of military service and am a civil service employee. When I retire, would it be advantageous to buy my military time back to get a better retirement?
Q. If my estimate states I will have six months and 16 days of sick leave when I retire in March, will I lose those 16 days? I was under the impression that your sick leave was figured in 30-day increments.
Q. I am a CSRS re-employed annuitant. I retired in December 2007 with three months of sick leave, which was counted as time in service. I plan on retiring again with five additional years in service in December.
My human resources department told me the sick leave should have been given back to me when I returned to work. It wasn’t, and my payroll department is trying to get it back. Should I get it back, since the sick leave was considered time in service for me?
Q. A federal employee under CSRS becomes eligible to retire with 30 years of employment in December. Also, that same individual earns a step increase in late December. If that individual decides to retire in January 2014, will the 1 percent pay raise for federal workers be calculated in his/her retirement salary along with the higher salary? If yes, please explain.
Q. If I go in a nursing home, does my wife retain rights to my CSRS annuity, or are they relinquished to the nursing home?
Q. I am a CSRS employee, age 57, and don’t have enough credits to qualify for Social Security and never will. I have 4½ years in Air Force and 34 years of federal service. I have not bought my military time back. If I retire this year, how many years would my annuity be based on, 34 or 38½ years?
October 30th, 2013 | Benefits COLA Creditable service: CSRS Creditable service: FERS CSRS annuity computation Disability retirement FERS annuity computation PAY RETIREMENT SOCIAL SECURITY spouse benefits SURVIVOR BENEFITS
Every fall, readers ask me what the cost-of-living adjustment will be for CSRS and FERS retirees and Social Security beneficiaries. And they want to know where the numbers come from, who is eligible for a COLA, when are they effective, if they are prorated, and why they are sometimes different for CSRS and FERS retirees.
Because of the government shutdown, it took a little longer than usual to find out that the what the 2014 COLA will be. It’s 1.5 percent. Not great, but better than a poke in the eye with a sharp stick.
Where do the numbers come from? COLAs are a byproduct of data collected by the Bureau of Labor Statistics, which it uses to produce the Consumer Price Index for Urban Consumers. The CPI-U covers about 87 percent of the population. However, to more closely match the spending patterns of federal beneficiaries, BLS uses a subset made up of Urban Wage Earners and Clerical Workers — the CPI-W.
The CPI-W is based on the spending patterns of households where more than half of the income comes from clerical or wage occupations and where at least one of the household’s earners has been employed for at least 37 weeks during the previous 12 months. The COLA amount is determined by the difference in the CPI-W from one year to the next. The arithmetical mean of the CPI-W for the third quarter of the current year — July, August and September — is compared with the arithmetical mean from the base quarter in the previous year.
Who is eligible for a COLA? If you are a CSRS retiree, when you’ve been on the annuity roll long enough, you’ll receive a COLA regardless of your age. With certain exceptions, if you are a FERS retiree, you won’t receive your first COLA until you reach age 62. If you are a FERS employee who retired under the special provisions for law enforcement officers, firefighters or air traffic controllers, you’ll begin receiving your COLA regardless of your age. The same is true for military reserve technicians whose separation from technician service resulted from a loss of military membership or rank because they became disabled after reaching age 50 and completing 25 years of service. Also entitled to non-age-restricted COLAs are survivor spouses, former spouses and insurable interest survivor annuitants.
COLAs are effective Dec. 1 of the year in which a retiree, survivor or Social Security beneficiary becomes eligible. The increases are reflected in the January payments.
When and how are COLAs prorated? For those of you who are eligible and have been retired for an entire year, you’ll receive the full amount of the COLA. If you’ve been retired for less than a year, it will be prorated. The proration will be based on the number of months that have elapsed between the date your annuity began and the effective date of the first COLA after that date. For example, if you retired after Nov. 30, 2012, (FERS) or Dec. 3, 2012, (CSRS), your 2014 COLA would be reduced by 1/12th for each month that you were still employed.
Why are COLAs different for CSRS and FERS retirees? While the 2014 COLA will be the same for CSRS and FERS retirees, it isn’t always that way. That’s because the FERS law states that if the CPI/W increases by 3 percent or more in any year, FERS-covered retirees and survivors will receive 1 percent less than that number. That happened in 2012, when CSRS retirees received 3.6 percent and FERS retirees 2.6 percent. If the CPI/W increases by 2 percent to 3 percent, the adjustment will be 2 percent. If the CPI/W increases by less than 2 percent, the adjustment will equal the CPI/W. That is happening this year.
Q. My husband is 63 and wants to retire Jan. 3, 2014. He has only 29 credits for Social Security, so he is not eligible for benefits. He started his CSRS career before October 1982. He stated paying into CSRS in February 1977. He was in Air Force for four years from 1972 to 1976. Does he have to pay back his military deposit? From what I have been reading, he doesn’t need to pay his military deposit since he is 63 and not eligible for Social Security benefits.
Q. I’m a CSRS employee who planned on retiring either Nov. 30 or Dec. 28. I know we are supposed to get a 1 percent raise Jan. 1. Would it make sense to retire Jan. 3 to get the 1 percent raise?
Q. I am eligible for the Voluntary Separation Incentive Pay and plan on taking it. However, I recently finished buying back my military time, to put toward my federal retirement. Would I have been able to calculate my military service into my VSIP if I did not buy it back? If so, did I just waste my money by buying back my military service, and is there anyway to get that money back?