Ask The Experts: Retirement

By Reg Jones

CSRS annuity, other income and taxes

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Q. I plan to retire this year and start my own business. I am CSRS Offset and 55 years old. How will any income I make from my business affect my pension and taxes?

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12 questions on VERA

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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?

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Medicare Part B premium

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Q. I am going to retire Jan. 1, 2014, and I realize that my modified adjusted gross income will cause my Medicare Part B premium to at least double. But once I retire, my income will go down. Does the Medicare Part B premium get adjusted annually? Or is it set for life as of your retirement date?

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VSIP and Social Security

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Q. I am a FERS employee with 23+ years of federal service and 62 years old. My agency is offering Voluntary Separation Incentive Pay to eligible employees, including those who are retirement-eligible. Would the incentive reduce the amount of Social Security I can draw this year?

A. VSIPs are considered earned income. To find out if accepting one would affect your Social Security benefit, go to www.socialsecurity.gov/retire2/rule.htm and see how the “first year rule” would apply to your situation.

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First-year rule

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Q. In 2012, what were the limitations for self-employment income for the first year of retirement, which was also the first year I received Social Security benefits?

A. You’ll find what you’re looking for at www.socialsecurity.gov/retire2/rule.htm.

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High-3 and pretax FEHB premiums

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Q. I was just told by my human resources specialist that when pretax Federal Employees Health Benefits premiums reduce my taxable income, they also reduce my salary for the computation of high-3 average salary for retirement. Is this true? It doesn’t sound right to me, and I’ve never heard such a thing.

A. You haven’t heard such a thing because it isn’t true. Your high-3 is based on your highest average pay rates during any three consecutive years before any deductions are taken from that pay.

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Special retirement supplement

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Q. I am a FERS retiree who was RIF’d into retirement in October 2009 with 27 years of service. I reached my minimum retirement age of 56 on Jan 4. I understand I will receive the special retirement supplement for first year regardless of my employment income. Will that continue for the 12 calendar months from February through January 2014? Or is it only until Dec. 31, which would be 11 months?

After that first year, I understand that the Office of Personnel Management will evaluate my previous year’s income (I assume total 2013) and then cut off my supplement or at least adjust it based on how much over the $14,160 earnings limit I made. I will have made more than three times the $14,160, so I assume, in my case, they will cut me off. Will they cut me off for 12 months and evaluate me again on Jan. 1, 2015, looking at my 2014 income? Or will they look at each month of 2014 to see if I exceed the prorated allowable income during 2014?

A. Start your search for answers at www.socialsecurity.gov/retire2/rule.htm.

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Combine Postal, reserve service?

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Q. I am a postal employee looking to continue my service with the Army Reserve. Child care cost is about to pass my income level with the Postal Service. With my wife as the main bread winner, we are considering having me separate from the Postal Service to be a homemaker. I have 15 years with the Postal Service and some military time. If I enter the Army Reserve, could I combine my Postal Service years with the reserve retirement?

A. No, you can’t. There is no provision in law that would permit you to get credit for your civilian service. In order not to lose the benefit you have already accrued as a Postal Service employee, you might want to leave your retirement contributions in the retirement fund when you resign. Then, at age 62, you could apply for a deferred retirement.

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Military and federal retirement

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Q. I just started getting my military retirement (at age 60) and I am receiving a federal disability retirement. Does the military income from the retirement offset the federal retirement amount?

A. No.

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Military buyback

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Q. I am 47 years old and worked for the post office for three years. During that time, I bought back my military service time of eight years. Am I eligible to someday get that retirement for the 11 years? If not, will I be reimbursed what it cost to buy back my time? Is the Thrift Savings Plan a separate entity, and when can I start receiving that? I’m currently working away from the federal realm.

A. Reg: No, you wouldn’t be eligible for an annuity because you didn’t have at least five years of actual civilian service. If you are planning to return to government service, you could pick up where you left off. Then the earliest you could retire would be when you reach your minimum retirement age. In your case, that would be 56 and two months. If you don’t plan on returning, you can ask for a refund of your retirement contributions, including the deposit you made to get credit for your active-duty service.

To do that, go to www.opm.gov, click on Find Form(s), and download a copy of Standard Form 3106, Application for Refund of Retirement Deductions.

Mike: The TSP is yours to maintain and manage for as long as you like. You may withdraw money from it whenever you are ready, but there are limits to how frequently you can withdraw your money. You are always free to withdraw all of your money in a lump sum, whenever you like. Your withdrawals will be taxed as ordinary income and may be subject to the Internal Revenue Service early withdrawal penalty until you reach age 59½.

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Social Security earnings limit

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Q. I know that the Social Security supplement is reduced for any earnings above $14,640 (in fiscal year 2012). If I retire under FERS at my minimum retirement age but my wife keeps working at her job, will her earnings count toward that $14,640? Also, would distributions from my Thrift Savings Plan count toward it?

A. Reg: The Social Security earnings limit applies only to your own earnings from wages and self-employment, not anything else.

Mike: Your TSP distributions do not count as earned income.

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Unused sick leave

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Q. I am under CSRS.  If I retire Dec. 29 and receive payment for unused sick leave, will the payment be considered income in 2012 or 2013?

A. Sick leave has no cash value. It can only be added to your actual service and used in the computation of your annuity.

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VSIP and annual leave cash-out

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Q. My agency is contemplating a buyout but wants everyone off the books by Dec. 31. I would think it would be beneficial to retire on a date that would roll any buyout payment and any annual leave lump sum into the following tax year, when income would be lower. Am I correct that retiring on Dec. 29 would place me on the annuity role in January, and my Voluntary Separation Incentive Payment buyout and annual leave lump sum would be 2013 income?

A. Yes.

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Unused sick leave

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Q. I will have 20 years of service on Oct. 26. I have more than 1,300 hours of sick leave saved up. We were told that I could use half of my sick leave and retire early with 20 years of computed service. Now that I am in that window, I am told that I cannot retire with 20 years of service until Oct. 26 to receive the 20-year mark. What happens to the sick leave? Do I lose it, or do they use it to add to my retirement income?

A. Unused sick leave can’t be used to meet the age and service requirements to retire. Instead, once you meet the age and service requirements, unused sick leave will be added to your actual service and used in the computation of your annuity. Because you are a FERS employee, if you retire before Jan. 1, 2014, you’ll only be given credit for half of your sick leave.

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SRS and part-time work

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Q. I’m a Defense Department employee under FERS. I have about five years before I can retire. I would like to apply for special pay or Social Security when I retire. Would that affect my being able to work part time, or would I have a limit placed on my income?

A. If by special pay you mean the special retirement supplement, you don’t have to apply for it. It will automatically be added to your annuity when it is finalized. Moving on, both the SRS and the Social Security benefit are subject to the Social Security earnings limit. If you have earnings from wages or self-employment that exceed the limit, your benefit will be reduced or suspended. In 2012, that limit is $14,160 for anyone under the year in which they reach full Social Security retirement age.

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High-3 and law enforcement

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Q. I will be retiring next week from federal law enforcement. I live and work in the San Francisco area. I was initially provided with a calculation based on an average high-3 salary of $145,250 and was told I would receive a net of $6,050 per month. However, when I visited Employee Express this morning, I saw that the agency is now listing my high-3 average as $116,000 and my expected net monthly annuity payment would be around $5,000. I pulled my W-2s for the past three years and confirmed that my top average 3-year salary is $145,250. I’m awaiting a response from my employer to determine why they are now listing my high-3 average $29,250 lower than originally reported to me. I receive 25 percent availability pay as well as my base pay and locality pay. It’s my understanding that all three of these factor into my retirement annuity.

A. The amount of a high-3 is based on three consecutive years of average pay from which retirement contributions were deducted. Any pay you received from which retirement contributions weren’t taken won’t be included. You’ll need to check with your payroll office to find out if there’s a difference between your gross income and your retirement deductions.

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Annuity calculation

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Q. I have been working with the federal government for eight years. I am vested in a retirement program. I earn $69,000 a year. How much will my retirement income be after I retire?

A. FERS employees can retire when they meet one of the following age and service combination: age 62 with five years of service; 60 with 20; at their minimum retirement age with 30; and at their MRA+10 (at least 10 years of service but fewer than 30) with a reduction of 5 percent for every year they are under age 62. MRAs range from 55 to 57, depending on your year of birth.

Now I’ll give you the formula and you can use the above options plus estimates of your highest three years of average salary and length of service to come up with some possible outcomes: 0.01 x high-3 x years and full months of service (use 0.011 if you retire at age 62 with at least 20 years of service). Obviously, the further you are from retirement, the less reliable the outcome.

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FERS disability retirement

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Q. I have 23 years and 11 months in the Postal Service. I am going to be 60 on June 26. I have not been able to work since June 21, 2011, and have been on leave without pay. I applied for Social Security disability and was turned down. My assessment was inconclusive, leaving out the reason for my disability. So I have a lawyer  who states I have and excellent case, which he says may not be resolved until the beginning of 2013. About a month ago, I put in for early retirement due to financial hardship. Later, I was informed by the Office of Personnel Management that my disability retirement was approved. So I contacted the agency and reverted to my disability request, which was approved. I was told I am entitled to the supplemental income even if it’s disability retirement down the line if I received Social Security disability. Is the supplemental income terminated because I have to turn over Social Security benefits to OPM until I am 62?

A. I think you misunderstand how FERS disability retirement works. During the first 12 months, you’ll receive 60 percent of your high-3 average pay minus 100 percent of any Social Security disability benefit. After that, up to age 62, you’ll receive 40 percent of your high-3 minus 60 percent of any Social Security disability benefit. At age 62, your disability annuity would be converted to a regular annuity. Disability annuitants are never entitled to receive the special retirement supplement.

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Negotiating payscale

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Q. I am active Army with a terminal leave date of July 1. I am considering a GS-13 position with a start date of July 1 (I plan to work during terminal leave), but I have to negotiate a step increase. However, I’m being told I can’t use my leave and earnings statement as justification for my current pay. Is that the case? If so, why?

A. Your leave and earnings statement is simply a one-month snapshot. In addition, it may be difficult for the folks you are negotiating with to separate the income that represents your job-based earnings from any allowances and differentials that don’t. You’ll need to ask them what they really need to have and then educate them.

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Special retirement supplement

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Q. I am eligible to retire at age 57 with eight years of CSRS, followed by approximately 24½ years of FERS service. I had employment in the private sector prior to my Postal Service career. The last printout I received from Social Security indicates “at age 62, you will earn approximately $…”   This figure includes those years in private sector. How do I accurately figure the special supplement figure that I can anticipate receiving, since that is based solely on FERS employment years?

Also, I am trying to determine what income I will have for the months immediately following retirement.  How many months can I anticipate receiving the “interim” annuity check from the Office of Personnel Management? How far behind is OPM?

A. You can estimate the amount of the special retirement supplement by using the following formula:

Social Security benefit estimate x total years of FERS service rounded up to the next higher year divided by 40. To answer your last questions would call for powers that I don’t possess. However, word has it that interim payments are being made more swiftly now.

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