#21 – Formulas, 8%, 5%
Kevin
Formulas, eight percent and five percent, all on today’s Fed in a battle, this is Fednobabble, where Kevin and Cassie make federal retirement benefits understandable for humans like you. These two don’t hold back because they answer questions from the Fed pilot workshops and webinars or from questions submitted by you and fednobabble.com.
Cassie
Hi, I’m Cassiepart and welcome to today’s Fednobabble, where we’re talking about formulas eight percent and five percent.
Kevin
Hi, and I’m Kevin Jones. Let’s jump into the questions. The first one is what is the formula for part time, Casy? What is the formula for part time?
Cassie
I don’t laugh at me. And those are crazy things. Right? But listen, this is something that is so complex, OK? Part time service is its own little bird. It’s like postal employees. It’s it’s something that is really dependent on. How long you been a part time employee, how many hours you’ve worked as a part time person. So let’s just use simple numbers here. OK, ok. OK. This is the man that’s good for me, right?
Kevin
That’s good.
Cassie
If somebody has a high three of well, we’ll see if their pension is going to be fifty thousand dollars a year before their part type of factor. OK, and it worked thirty hours their entire career. OK, that seventy five percent of a full time employee. Right. So they’re thousand would be reduced to seventy five percent of that amount.
Kevin
Good. So yeah. So really overall in the in the workshop, the way I explain it is you go through the formula as, as if you’re a full time employee, so you go through the, you know, your, your high three times your years of service, even if it’s part time years of service, you’re still your years of service times, let’s say one percent. Right. And that’s the first formula. And then you get this number and everyone says, OK, that’s my number.
Kevin
But part timers go one step extra and prorate that last number. And so really and correct me if I’m wrong here, but this is what I understand, Cassiepart-timepart-timepart-timepart-timetwenty-five, is that OPM sounds kind of crazy, but OPM goes back through your part time and adds up all the part time hours you had during each pay period to make that preparation. They have to go through all of that to figure that out. Is that is that correct?
Cassie
OK, so if you are you talk about somebody who has like different pieces, a part time service.
Kevin
So if we just took it, made it really, really simple, let’s say, like you said, thirty hours for their whole career was it was always part time. Right. But sometimes it would be thirty to sometimes 35, sometimes 40, sometimes to twenty five. But you know, it’s right around thirty. They’re not going to say, well it’s right around, they’re going to go back and they’re going to count it all up and add it all up together to get to that last number.
Cassie
So it depends on how many hours they’re slotted for, right? Yes. So if somebody is has an agreement with their agency that they’re only supposed to work thirty hours, but then one week they were thirty two hours. Well, sometimes those two hours work out and sometimes they won’t. Depends on the agreement that they may have with their agency. And so that’s where it kind of gets nitty gritty. But what I can tell you is when somebody fills out their retirement paperwork or even before.
Cassie
Right. If they’re looking at their certified summary of service, that really lays out their hours of part time work. And you can do some math there or we can we do this often for our our advisors where we’re really trying to look at that preparation factor and what that looks like for a piece of service, because there are many employees who have broken up part time service. Right. So say that they’re part time, a little bit. You know, then they go full time and then they go back to part time, you know, or they’re just part time for a brief period.
Cassie
This is really common with women employees and I. I don’t mean to be sexist here, but are sexist. Look, you I am I am a woman. Give me a break.
Cassie
No, but for instance, when somebody takes maternity leave and they just go back to a part time service for a couple of years while the little ones are younger. Right. And then a couple of years later, they have another child. And so this is more common to all the time, just is what it is. At any point in your career, you can get what’s called a certified summary of service. And we help employees or we help advisors get that paperwork for employees to make sure that they can get it in and submitted, because that will help really distill down all service that an employee has, whether it’s credible or not credible.
Cassie
It lays it all down and shows them exactly what is full time service, part time service and obviously other types of service as well. But it really you can do the math with that form and determine what that curation factor is overall and see how it’s going to affect your pension.
Kevin
Yeah, and in the end, what you’re what we’re trying to find out is how will it affect your pension? So when we say what is the formula for part time, we can give the basic formula, but that’s not always the correct way that it’s done. And in certain circumstances, especially when it’s part time now, full time, part time, no time, part time. When it goes like that, then the formula is broken up and it’s all over the place and it gets really complicated.
Cassie
And we can lay out the formula. Right. It’s your pension times, whatever factor there is. Yep. And that’s the bottom line. But without that knowing what that preparation factor is for an employee, we cannot determine what that looks like for them, right?
Kevin
Yeah. Right. Yeah.
Kevin
And that’s and again, that’s why federal employees have such a hard time. Well, I had part time here and here and. OK, what what will it really be? That’s I think that’s one of the beautiful things about your report, Cassie, is that federal employees don’t have to figure it out. They just get the report and know what it is. And, you know, I’ll say this not only not only what it is because of your report, but if you’re to go to H.R., they may or may not have had your part time.
Kevin
If you were at a different agency, they may or may not know what that is. And they may or may not give you the right numbers. But you know what they are or the federal employee knows what they are and so they can give them. So your report will have that all in there?
Cassie
Well, if the federal employee does, right, I haven’t forgotten, I guess.
Cassie
Well, and here’s most of the time when there is a part time service, then if an employee does not know their probation factor or does not have their certified summary of service or a benefit statement that lists it, then we are automatically referring back to that certified summary of service for an employee to fill out because we can’t get an accurate pension number if they’ve had part time service without knowing what the probation after is. And that’s what we’re trying to accomplish, is making sure that people have solid information so they can work on whatever financial plan they’re looking at with the with the advisor.
Cassie
So our ultimate goal is to make sure that the employee has the best, solid, most up to date information for their benefits. And part of that is knowing that proration factor, if they’ve had part time service. And so if you’re an employee that’s had part time service and you haven’t done a certified summary of service, do it or finding out if your agency knows what that is.
Kevin
Yeah, most officers yeah, I would say even most H.R. people don’t even know what that is or that they can even do it. I’ve heard that there’s so much pushback from employees saying I want to go do this. In the end, he says, no, you can’t until you retire. But that’s not true, that you can go get that now and everyone should go get that. No, not tomorrow. Today.
Cassie
Right, and that it says it right in the instructions that put boggles my mind. Yeah. Yes, these forms are included in the retirement paperwork package. However, in the instructions, it says that if you need to clarify your service, that you’re able to submit an ID. And we simply said that back to the adviser and let them know, hey, this is where it says it. Please let the employee know and point this out to their H.R. department that they can submit this form to certify their service.
Cassie
That’s what it’s for. So if you can do that way before retirement, that is.
Kevin
Yep, absolutely. Well, that that question just took 10 minutes of our time. That’s OK. But we got into other subjects at the same time. Right. And it’s interesting that the small question like this, there isn’t an easy answer. It it depends, of course. Right. All right. Question number two, if I retire at sixty seven, will my Social Security still increase eight percent a year or do I have to be working? I guess there should be a question mark at the end that I did not put that there.
Kevin
But there but there is a question mark, right? We just type of whatever, but at six or seven. So I assume that this person hit their full retirement age at sixty seven and they’re wondering if I hit my full retirement age, does it still increase at eight percent a year or do you have to be working. And that’s a little bit more complicated.
Cassie
It is. The short answer is yes. It increases by eight percent.
Cassie
OK.
However, you also still have to be working to a certain degree or earn a certain amount if it’s going to be the full eight percent because it’s based on your earnings. Right. I think you said that right.
That’s a lot. And really, I would say go to your Social Security office and ask them specifically about your situation.
Kevin
Yeah. And also, I’ll throw in there that you have to not be drawing Social Security, so. Right.
Kevin
You can’t draw your social. As soon as you draw your Social Security, it’s locked in that amount for the most part. Right. And it’s not increasing by eight percent a year anymore. So as long as, you know, if you retire and I’ll add in there and are not drawing Social Security at sixty seven, does it continue at eight percent? Pretty much, yes. But again, you know, you have to you have to go check it out.
Cassie
And I want to make sure that we’re clear on what this eight percent is increasing by, OK, this is the eight percent of that or retirement age amount. OK, so. Right. And don’t expect it to be eight percent of your salary or some other weird number. It is eight percent of that full retirement amount at the time. So if you’re sixty seven and you have three thousand dollars coming in or estimated in your Social Security statement that it’s eight percent of that.
Cassie
Three thousand dollars. Right.
Kevin
And that amount, that amount is called the PIA, the primary insurance amount. And really everything is based off of that number right there, more or less whatever that is like this. That is the benchmark number for every I’ll say I don’t want to say federal employee, because, again, this is a federal work. I’m just a American worker benefit.
Cassie
Exactly. And so this is an eight percent on that amount. So if your income increases, obviously, that amounts going to increase. And so the eight percent is going to be based on that larger amount. But so I wanted to make sure that we’re clear on what that eight percent meant. Good. Yes, absolutely.
Thank you. I think we could make it.
Kevin
Yeah. It’s hard it’s hard to give somewhat simple explanations without diving into detail, actually. And because I think on each of these, we can spend another 20 minutes on every each one of these going a little bit deeper. And then if you’re in this situation, it could also be this. But these are the basic answers to these questions. OK, next question. How do I determine what the five percent is in my TSP? So I’m assuming this person is a FERS employee wanting to contribute five percent to get the five percent match.
Cassie
Right. And so that five percent is. Based on their annual salary amount. OK. So if the if they’re making one hundred thousand dollars a year, that it’s going to be five thousand dollars because that’s five percent of a hundred thousand dollars. Great. So it is based on that annual salary before taxes. Gross. Whatever that amount shows on your pay stub or LES, it’s five percent of that amount.
Cassie
That’s not always easy to determine now.
Kevin
OK, I’ve got a question for you, because I’m I get to be in front of federal employees and talk to them about their benefits. Personally, I have never been inside to look at someone’s TSP. Right, because I’m I’m up in front of them teaching, having helped federal employees in the past and working with advisers right now. You’ve been in TSP before and and I’ve seen that. Is there some type of I don’t know, does it show or does it indicate in there where they, you know, what the full amount is and then you can do this much TSP or what five percent is?
Kevin
Or do they have to do federal employees have to figure that out themselves?
Kevin
What the five percent is now, they can choose a specific dollar amount or a percentage amount. And so if they want to just five percent of their income, then they can elect to do that inside TSP dot gov. They simply have to log in to their TSP account and, you know, look at their contribution amount and select to contribute a certain percentage. So my husband is a federal employees duty and he likes to contribute 15 percent to his TSP.
Cassie
So it’s strictly based on that percentage, though he doesn’t have a he didn’t have to do the math to figure out what it is because. Right. It’s not a math whiz like that.
Cassie
I don’t get me wrong.
Cassie
I love my husband. He works great with his hands. He’s a mechanic type, you know, get in there and fix it kind of guy. So I don’t mean him any disrespect. Right. Of course himself, of course.
Kevin
But but many people are not math whizzes. And honestly, what is what is it based off of their confusion that they can just go in and it’s set at five percent and be done or 15 percent and be done?
Cassie
And I think that’s huge for special provision employees as well, because they’re on their paystub, doesn’t show their actual pay amount because they have that a low hourly pay that is also included that extra twenty five percent bump, and that’s not shown in their pay on their pay stub. And so if they want to contribute a certain amount or a certain percentage, I should say, then they they really need to go into TSP and just select a certain percentage because you have to do that backwards math to really find out what their pay is and find out what that five percent is based on.
Kevin
Right.
Kevin
A little bit more confusing, which is which is one another reason why working with an advisor is so preferable and getting your report again found a bubble dot com. You can get Cassie’s report, but go I mean. Oh my goodness. To have to have to go through all those calculations. Not you don’t have to I mean, it can all be done for you at you know, there is easy one, I promise. Yeah, yes, yes, yes, yes.
So good.
Kevin
That’s the last question there. So everyone, if you would please like subscribe, follow and share Fednobabble with your friends because your co-workers need to understand this, too. They need to learn this stuff before they retire. Cassie, any last words of wisdom? Take action on your retirement.
Cassie
Don’t let these benefits bog you down. Don’t don’t think that they’re going to work best for you when you plan them at retirement, start looking at them, start looking into them now and really understand them now. So that way you have the best financial success moving forward. Great. Thanks, Cassie.
To get Cassie’s comprehensive report on your federal retirement benefits at no cost, no obligation and no sales pitch, go to fednobabble.Com while you’re there. Submit a question for them to answer on the show.
