Pension – CSRS & FERS

How do the CSRS & FERS programs work for federal employees?

46

#46 – When Can I?, When Should I, TSP Loans

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When can I, When should I, and TSP loans on today’s Fenobabble.

This is Fednobabble.com, where Kevin and Cassie make federal retirement benefits understandable for humans like you. These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

Hi Cassie, are we ready for some more questions? I think so.

OK, let’s look at the first one.

Well, we go to break now.

I’m ready. I’m good. I’m good. I’m all loosened, loosened, loosen up, loosened. Boy, my grammar today.

All right. So first question. So full retirement for me is my MRA at age fifty seven, correct?

What is the missing piece in that question, what’s the missing piece of that question, Cassie?

What’s your year of birth? There you go.

So I’m going to throw up this right here. This is the minimum retirement age. I know.

Just chart overall and the chart that shows you exactly what your minimum retirement age is based on your birth. So obviously, you guys can see, you know, whenever you your birth, is that your minimum retirement age?

And hopefully you remember your year of birth, that would kind of be important, you know. Now, that’s a minor thing, but maybe maybe not. So can you retire? It’s based on that chart. And it’s and I’ll say for the full for a full retirement. Right. There are other types of retirement that you could change some things, but that is for a full retirement full of retirement and first retirement, because you can be Emori with 10 years of service and get a reduced pension.

And that’s not a full retirement because you can either take an immediate pension or you can postpone it, but you’re getting a you’re getting a reduced benefit and so you’re not getting your full pension amount. So it’s not a full retirement spot.

Needless to say, that is the MRA chart. So at least you’ll know your minimum retirement age. If it’s 57, then obviously you have to be born nineteen seventy and after. So look at the chart and figure out if that’s true for you or not. Right.

And just for the fun of it, I’m going to throw this in like law enforcement, air traffic controller, firefighters, they don’t use that.

So one of the things that I have to be careful of as I do these workshops is to say, OK, this is the chart. This is how you figure out when you can retire or not. And if there aren’t any law enforcement, air traffic controllers, FICA fires what we call special provision on the line, I don’t get into the exceptions. So if these people went back and told their special provision buddies, this is how it works, it would be wrong for someone else.

And so, again, it’s important that you understand what is right for you specifically rather than just, oh, this is the rule because there are exceptions to every thing. And when we talk about this, we’re talking about for most people, General.

So, again, just be careful that you don’t pass this on, that this is how it works for everyone, because it isn’t just simply, OK, question number two, talking about the best time to retire your month a day to maximize the benefit. What are your tips?

Oh, that’s a good one. Yeah, I like this one.

So let’s be talking about the best time to retire to maximize the benefit. What are your tips? So I would say obviously for the day, you always want to for first, you always want to go out on the last day of the month. For CSRS employees, it’s either the last day of the month or the first three days of the following month. And that’s going to maximize when your pension begins to accrue, because as long as you go out, say, April 30th, then you can start accruing that benefit made first.

Right, April 15th.

Your benefit is not going to agree until May 1st.

So it doesn’t matter. Yes. You have that month that you retire, your benefits are going to accrue the first of the following month for first employees, for CSRS employees. As long as you go out within that first three days and you can start accruing that pension right away.

And let me throw and let me throw in one more piece with that, if I could.

Is that, for example, and people do this and I see this all the time, and probably you do, too, I’m assuming that where someone says, all right, I put my in fact, I, I think I remember this exact thing happening when you and your husband came to the workshop years ago, someone said, I’m retiring on April twenty eighth. Well, why April twenty eight. Well, because April twenty eighth is a Friday and it’s the last day of the month.

And I said no, April 30th is the last day of the month. They said, well, it’s a Sunday. And I said, I don’t care.

Still, it’s not the last day of work. It is really the last day. Of the month put even if it’s a Friday, Saturday or holiday Sunday, what does it matter? Put the last day of the month still?

That’s right.

And people think, oh, well, it’s you know, I need to go out the last day of the pay period or I just got that question again after so many different water cooler scenarios on what that retirement date should look like. But realistically, for first employees, it should always be the last day of the month. There are one exception to that rule, and we’re not going to get into that right now. Right. But essentially, overall, just blanket just do the last day of the month and you’ll be all right.

I had last week I had someone to ask in a in one of the Fed Pilot webinars.

They asked, so what I heard what you just said, but H.R. told me that has to be the last day of the pay period. And I said, well, they said that because it’s easiest for them to figure things out. It’s not best for you. It’s easiest for them. That’s why they said that, because you should do it on the last day of the month.

So there you go. All right.

What about the best month, Cassie as far as the best month is concerned?

I mean, that depends on what your what your goals are, how many years and months of service you have. When did you start those different things? If you’re really trying to maximize your Annual leave payout, then at the end of the year is going to be best for you, because that way you can accrue all of that Annual leave and get paid out for it and be before you having to use it. And so you don’t lose your two hundred and eight hours that you accrue during a given year.

And you can you can get paid out for those. So it depends on what are your goals. If you’re not concerned about your Annual leave payout or that check, then you know, it can depend on are you still making deposits or deposits? You know, and do you have a TSP loan that you want to pay off prior to retirement? So that way you’re not having to do that within 90 days. Yeah. Are you going to what are you going to be doing after retirement?

Like, you got to have something to retire to. You hope you don’t have anything to go to, then, you know, you might want to push that out a little bit or plan out a little bit differently for a year or two or a certain month that you say, OK, well, you know, springtime is this month and I get to do some gardening and I want to take a couple of months off and focus on, you know, just being able to enjoy the weather before I do this other thing.

And so that will depend on what your personal goals are for that. And then the same with the year. I think it depends on eligibility and and personal goals. Yeah.

You know, Cassie, you bring up December thirty first. There’s a popular one in and December 31st is a popular one. But I’ve done some calculations to check it. And in some circumstances and in fact, one particular one that I did, just to make sure the person, because of the taxes that they would incur, they would have lost ten thousand dollars just by retiring on December 31st, because in the case that I was looking at, it puts them into a higher tax bracket for the net for that year when they retire because of the extra money that they get.

And so they missed out on ten thousand dollars cash that they could have had had. They planned it differently. And in fact, there are there are some circumstances where you can actually bump yourself up into the next tax bracket two years in a row. So I really think that when someone should retire should be strategic and not just say, hey, I think I should retire. You know, this sounds good. I mean, if you don’t care about money, then that’s fine, really.

If your mental health you just got to get out, then great. But if you are watching your money you want to maximize your money, then it should be a strategic thing.

It should be. And I can’t answer that, though, and I don’t think Kevin can either, because we don’t know the rest of your scenario. Yeah. And what that means for you and what your goals are and what you’re trying to accomplish. I mean, if you could lose ten thousand dollars. Well, you know, are you going to. How are you. Offset that or or how can we strategize that that date differently to where that person can maybe earn five thousand instead of being the opposite?

So we really have to find out what is that going to look like for somebody? And and there’s so many different factors that go into it for what that date looks like, that I think somebody really needs, like you said, be so tragic about it, not just, you know, put it in a hat, pick a couple of dates, put them in Atlanta. Oh, this is the day I’m going to retire. That’s good. Not a good idea.

No. OK, good.

Last question here. If you don’t pay off your TSP loan when you retire, is it added to your income and could it put you into a higher tax bracket? Speaking of the devil there, are there other penalties? So you’ve got a TSP loan outstanding. You’re paying toward it, but then you retire and you haven’t paid it all off. What happens then? Cassie.

So if somebody has a TSP loan that they haven’t paid off and they retire, they have 90 days to pay it off. If they don’t pay it off within those 90 days, then the TSP will report those that balance, whatever that amount is to the IRS as a taxable income.

So could it push you into a higher tax bracket?

You bet.

Absolutely. How good are there other penalties if you’re under 59 and a half? Yes. You will incur an extra 10 percent for that early withdrawal penalty as well on top of the higher tax bracket or whatever other things are possible with that. So it’s very important to think about these things. When you’re looking at retirement, do you have a loan? How much is owed? How are you going to pay it off? Is it important to you to have it paid off or is it going to benefit you?

You know, that’s something that you’re going to need to to talk to a financial planner or a tax adviser about as far as strategizing this TSP loan with the rest of it. I prefer a financial adviser because they typically have experience in tax planning. And even if they’re not a tax preparer, they can at least give you some good insight there. And and look at the bigger financial picture for you, rather than a tax adviser who is just going to look at the tax consequences, whether they’re good or bad.

A financial adviser is going to take in the big picture. If you don’t have one of those, then please let us know. Go to Fednobabble.com and let us know. We’ll hook you up with somebody in our trusted network. And it’s one person where we just give them your contact information. So that way you can ask them these questions. They’re going to prepare a benefits report for you. No cost, no obligation on all of that. So that way they can see where you starting at first and get that get that foundation before they can give you extra advice.

Yes.

And please, I know you have questions about your retirement. Everyone has questions about their retirement. And we we cover pretty much three questions every show, every episode. We don’t cover them all. We have a list of questions out the wazoo to answer.

You can wait around if you want and just wait and watch all these, which is just great. Or you can go get your questions answered and it doesn’t cost you anything. So again, go to Fednobabble.com and just go get your questions answered so you know what you’re doing. And of course, as always, if you would please like subscribe, share, share this with your coworkers, because they need to understand the things that you’re learning just as much as you do.

Thanks for being here.

And we will see you next episode

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.

 

44

#44 – Pension Delay, Earnings Test, Double Taxes

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Pension delay, Earnings Test and Double Taxes on today’s Fenobabble

This is Fednobabble.com, where Kevin and Cassie make federal retirement benefits understandable for humans like you. These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

OK. Hey, Cassie, we’ve got more questions from the from the workshops, and these are good ones. Are you ready? Here’s the first one. How long after I retire?

Well, I. Will it be before I receive a pension check? How long is it now? Cassie, especially with coronavirus. Right. Because there have been some delays. So how long is it taking people to get their pension check?

Well, it depends big holes. But one of the biggest factors is your retirement package.

Did you turn in a healthy retirement package when you retired?

Are you saying you can turn in a sick one? Well, yes. Yes. And the OPM doctors, they check it up and they say, no, this is it, right? It’s got a cold.

It’s got to go back and they quarantine it. That’s right. It’s got coronavirus right now.

But there are so many things like on the retirement package, for instance, for divorced employees, folks that owe their former spouse a part of their pension or a part of their spousal benefits if they’ve never sent in a divorce decree and then they finally send it in with their retirement package, that can delay the process because that goes into separate file than the regular, you know, straightforward ones. Are you retiring under MRA+10 scenario where you have a reduced pension amount?

How do you have any deposits or deposits that are owed or, you know, are you coming from OWCP and are now collecting or trying to collect your pension? There are so many different factors that I simply don’t know what this person that I can’t say that it’s going to be six months or nine months. What I can tell you is that it can take anywhere from three to 12 months to receive a full pension check. Typically, you receive your Annual leave payout when you separate from service within two weeks to 30 days.

If you’ve got a really great H.R. department that you can receive it with your final paycheck. But as far as your pension is concerned, you can receive what they call intermittent or interim internal check. Yeah, yeah.

Which is just a portion of what your full pension check should be. And that could be anywhere from 30 percent to 60 percent of your full pension amount. And you can receive that for a few months before you start actually receiving the full pension check. So are you talking about the interim check here or are we talking about the full pension right now?

Because there are those two checks. So if you’re and and I think that’s a lot what people don’t understand is how long will I get my check?

Well, do you mean your partial check, which is your interim check or the full check? Wait, there’s a difference. Yeah, there is. And and what I tell people in the workshops is that it could take up to a full year.

So just expect a full year and if it’s before that, be pleasantly surprised. But some people think, well, you know, if there are issues, then if I turn it in earlier, then all those issues will be cut and I’ll get my check, my full check earlier. Right. Well, what people don’t understand. Yeah, people don’t understand that they that H.R. doesn’t even send in your paperwork to OPM until you’ve already retired. You have to walk out the door and then they send it to OPM.

So you could you could turn it in a year early. Some agencies will let you. But let’s let’s pretend you put it in a year early. It’s not going to OPM any faster than the person who turned it in the day that they retire. So. Right. That’s a yeah. That’s it’s a good question.

One that you need to I don’t know that you can ever really know until it actually happens. But you’re right, the cleaner, the retirement paperwork that goes in, the faster you’re going to get your full pension check. Now, Cassie, you’ve seen a lot of retirement packets. You’ve seen a lot of retirement applications filled out. How many are are clean?

Zero. Let that sink in, everyone.

I have not run the run across any retirement application that has been completely clean as far as the information that’s on it or what have you, because there’s so many different pieces that people don’t realize that there’s additional forms that you have to include as well with your retirement application. If you’re married, you’ve got to have your marriage certificate. And if you’ve had any military service, you need to 14. An SF-50 is always good to include with your retirement package, but it’s not necessary.

If you’ve done paperwork for your divorce decree, then you simply don’t need it when you are turning in your application. There’s also I’m trying to think what the older stuff, the one for the FEGLI insurance I can’t think about right now.

I think it’s the 2023 where, you know, the FEGLI insurance questionnaire. You’ve got to figure out what elections you’re going to be meeting in and determining that and including that with your retirement application package. And I think there’s a lot of work that can be done with employees. You know, years before retirement, if you have had any military service, you know, make a deposit if you can. If you’re retired, find out a retired military, find out if it’s worth it or advantageous for your financial situation to make a military deposit.

If you have any other deposits that are owed on your service, find out and make those, you know, make those deposits or redeposits. So that way you’re not trying to figure it out at retirement.

Right. If you do a there is a place where you can sign in your divorce decree. If you owe your former spouse any part of your pension or portion of your surviving spouse benefit, you can fill it in and turn it in years before retirement. So that way, OPM already has done that. Their pre work where they can say, OK, this is what it is for this employee at retirement, and then they’ll just simply wait for your retirement package to come in.

Yeah. So there’s a number of different things that I think employees just simply are unaware of that they can do prior to retirement. So that way they at retirement, they don’t have to worry about these things.

I think the numbers zero, though, is is quite telling that that no one really turns in paperwork, application, paperwork that’s clean, that’s one hundred percent clean.

And it would make sense because if it does go in clean, then you’re going to get that interim check faster.

So it’s kind of important and opens faster as well.

Oh, I’m sorry. Full pension check your full pension check faster. And so that’s really another another piece of this whole thing. So, again, if you go to Fednobabble.com and sign up, we will put you in touch with a financial professional and our trusted network. And they and Cassie can go over that retirement paperwork and check it out. That’s right. And make sure that it’s that it’s clean.

Yeah. I believe just about everybody in our network does send those in for me to be able to scrub and take a look at prior to retirement. And I give them a full checklist of what is needed that needs to be correct. What additional paperwork needs to be included in there? What is it that the employee is trying to do based on their answers? And that way they can take it back to the employee and really help them with that situation and say, hey, here’s here’s what we need to do to make sure this is good to go.

So, yeah, and and really, it’s all of this that we offer is no cost, no obligation, no sales pitch, all that we just want to kick start you and get you in the right spot, because that’s really, really important for the rest of your life.

You got to make sure you do that right. So I just thought I’d add that in there. OK, next question. I have an LLC, no W2 or ten ninety nine. Does that count against the SRS earnings test? Cassie.

Yes. Any self-employed income still counts against the earnings test. How that counts against your earnings test, I’m not exactly sure you’ll have to look at the questionnaire, but I do know that any earned income, whether it’s self-employed or employed. You’re working for somebody else does count against that now. OK, I’m going to get into an area that I am not one hundred percent sure about. So just as a disclaimer so that everyone knows, not one hundred percent sure.

However, I have my own LLC for Fed Pilot and Cassie. You have yours for Fed Pilot.

So it there are two ways to pay yourself basically through an LLC. And really what we’re trying to do in this context is trying to be able to retire and work and still not have the penalty against the special retirement supplement or Social Security. So how can we work and get those at the same time?

Well, if you have an LLC, I think and this is where I’m not 100 percent sure, but I think you have to pay yourself at it.

I mean, if you’re if you’re going to pay yourself something, if you’re going to take money, somehow, it has to be through either a W-2 because you become a an employee of that company or through what has a few different names, but also owner draw, which is the interest really you could call the interest of the company or owner dividends? You might say so, but yeah. So that piece that piece is not does not go against the earnings test.

So that isn’t touched. But if you pay yourself a salary W-2, that would so I don’t know that you can have an LLC and only do the dividends and owner draws. I think you have to do W-2 in there. Again, I’d check on that, but I’m almost positive it’s that way.

Either way, if you have an LLC, you typically have a what is a PNL?

I forget what it stands for.

Profit & Loss?

Yes. And so you’re still using that for other tax purposes and things like that. And you know, all of that really talk to a tax professional. They’re going to be able to answer how you should do your LLC, because I know it’s different also for different places and different kinds of LLC. Right. A contractor type of LLC is going to. Right. We got a Farm Service LLC or this.

And so it depends on what type of business it is and how that is going to work because there’s different deductions for each type of business. Yep. I would just suggest this talk to a tax professional. But the bottom line is that some sort of earnings will have to get reported for yourself. Employment, what those what those earnings are is very different for different types of businesses and how. Right lot. Well, those in play, depending on how you pay yourself, whether you’re taking those deductions or pay yourself a paycheck via W-2.

But that’s why I really strongly encourage you to talk to a tax professional, because there are also deductions that you can take out prior to paying yourself and that might be able to help you get around the earnings test for the SRS. So that way you’re properly setting yourself up to be under that amount and still be able to receive that full benefit. So, yeah, it’s a really tough answer. You can get them to help you out.

You like like you said, you could bring in money that isn’t counted against the SRS or Social Security, really the earnings test. And what was the other point? I don’t remember what the other one was, but anyways, you could all do it legally. I think that’s that’s the main point. Oh, the deductions you can take deductions that benefit you, but at the same time benefit the business. But again, it’s all legal. If you if you consult a tax professional, you can do it legally and be able to do the it not worry about the earnings test or have it not hurt you as much.

So, again, there are good ways to do that. You just got to be really careful.

OK, next one. We only have five minutes on this one. I think we can do this. How do I avoid paying double taxes on my current TSP loan?

Oh, you can’t. Well. So this is what I heard Cassie I’m so I’ve heard two things to tell you the truth, I’ve heard you can’t, by the way and I’ll just say this for all intents and purposes, when you take out a loan from the TSP, you are taxed twice. All right. We’re not going to get into. We don’t have the time on this, but maybe on another one soon. We’ll we’ll go into how that happens and why that happens.

But any time someone takes out a loan from the TSP, they are taxed twice. So if you’re in a twenty to twenty five percent tax bracket, 50 percent of the money that you took out as a loan is now gone or will eventually be gone in taxes. So can you avoid it?

I think if you take really, really, really good, if you keep all the paperwork and I was going to say take good notes, but that’s not quite right. But you know what I mean on that. Right?

And go to a tax professional, they may be able to do your taxes in such a way that it isn’t taken out twice, but almost no one does that.

I mean, really, I haven’t met one person who has ever done that and they just take the the double hit. So if you have ever taken out a loan from the TSP, I would highly, highly, highly suggest you talk to a tax professional to say, OK, I didn’t realize this, how do I avoid it and then start working on it to date ASAP?

Yes, don’t delay that. That’s going to be a critical one. Right.

So I don’t think I have any more to add to that Kevin the so good.

That was good though that it’s but it’s a big thing that a lot of people that almost no one knows about, almost no federal employee understands they’re going to be hit taxed, are taxed twice from their TSP loan.

And these are these are the kind of things and actually we’ve got a couple minutes to tell a quick story. There was one of the advisors and a trusted network. He and I were going back and forth and he said, Kevin guess what happened? He said you were doing a workshop. You talked about this because we talk about this real briefly in the workshop just to warn people, he said. Then I met with one of the people who were at the workshop and he was a little bit upset because right like the week before the workshop, he had looked at this and said, well, I can either pay three point nine percent for a new truck through financing through the through the dealership.

Or I can do one point, whatever it is or whatever. I don’t know what it is with the TSP. Well, that makes more sense. And he went and did that and he said, I completely screwed up here. And I was like, yeah, you did. This is why it’s such an important why it’s so important to talk with finance professionals before you retire well before.

So you can so you can avoid mistakes like this because that kind of thing and there are other things like this can happen throughout your whole employment. If you can avoid those things early, you’re not going to be hit with them later on. So if you’re working with a financial professional early, you can set yourself up. If you do it within the last five years, can you help with that’s still good.

But the earlier you can do this, the better off you’re going to be. Any thoughts about that, Cassie?

Yeah, and if you’re curious, you don’t have a financial professional in your area that knows about the federal benefits or anything else, and you want to make sure that you get a good one, that’s going to help you really distill down all of these different factors that go into planning for your retirement. Please go to Fednobabble.com. Let us get you in touch with somebody from our trusted network, a financial professional.

I shouldn’t say just anybody, but they really help you put together these different pieces and make sure that you’re you’re looking at the bigger picture and, you know, helping you to take action when action is needed and not use of the way you should be doing something.

Right.

We see that all the time and they’re going to help you with that retirement package. So, you know, they they will also prepare a benefits report for you to make sure that you know exactly what you’re going to be starting with. So that way you can make those different plans for what your goals are in life, in employment, in retirement, whatever that looks like for you financially. They’re going to be with you every step of the way. And I’m just so great for the team that we have in place now.

Just so you know, we’re only giving your information to that one person, too. We don’t get into every. Nope, we’re not giving it to to the whole team that we have in the in the network, we’re simply giving it to one financial adviser who is closest to you to get you hooked up and and get you coordinated with that person because they’re are going to be able to help you in that situation. So they got to Fednobabble.com and take action.

And if you would please like subscribe, follow wherever you’re watching this, listening to it, do that and share with your coworkers because they need to learn this as well. It’s important that they do. OK. Thanks, Cassie See you next time, everyone. With some more questions, we’ll come up with.

See you then.

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.

 

43

#43 – Work ‘til 62, TRICARE or FEHB, Would You Rather?

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Work till you’re 62, TRICARE or FEHB, and Would You Rather? All on today’s Fednobabble.com

This is Fednobabble.com where Kevin and Cassie make federal retirement benefits understandable for humans like you. These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

Hi , I Cassie welcome. Hi, how are you? Good recording on a Monday morning just isn’t good for my brain. I think I need to push through it.

So what do we got? The first question.

Here you go. Here’s the first one. All right. I am 58 with 32 years of service. Should I work until sixty two?

The answer is always it depends. I mean that.

I mean, OK, so this is a question out. So just as a reminder for everyone. These are all these are questions that I get during the workshops, the Fed Pilot workshops, and this is one that came up that comes up all the time or something similar. Hey, should I work until I’m 62 or should I work until this or.

I don’t know. What’s your what’s your mental state like?

Can you do you even want to work. What your health. Like what, what are your savings like. There’s no way this can be answered at least right now. No.

And do you want another 10 percent on your pension. Right. Because if you have if you make it to 62 with over 20 years of service and you’re a regular first employee, now, I’m assuming this person is following the regular first employee rules based on their age and how many years of service they have. They’ll get that one point, one percent factor in. It’s that regular one percent factor for the pension computation. So it adds that extra 10 percent, you know, is your high three going to change?

Right. Right. Are you married? What is your spouse’s retirement look like? What is your financial situation? What health condition? And things like that is your spouse said, do you need to carry FEHB for a few more years to be able to qualify to carry it in retirement? Is it even a consideration?

Yeah, I think I, I think this is a yeah. I think this is a question. It’s a it’s a question that needs to be answered. So I I’m kind of mocking it in a way. But it is a good question overall. Should you work till 62? But to tell you the truth, we are the ones that ask about this. You and I. Right? H.R. You can’t ask this of H.R. either. So this can only be answered by a financial professional where they can take a look at the whole situation and say, OK, yeah, now it’s just really so there have been people that have come to the workshop and Cassie you’ve seen this a million times. People come to the workshop. Hey, can they ask this pretty much the same question, right? Hey, well, let’s say let’s change a little bit.

Let’s say it’s I’m 60 with thirty two years. Should I wait till sixty two? They come to the workshop, they ask this question were like, I don’t know.

And then they get a then they get to meet with one of the financial professionals and our trusted network one on one. Get your report. Just like they do like anyone can right now. And what happens is that one of three things happens. Number one, they say, you know, you’re on a good path and here are some options and you’re doing well. Number two, you’re not doing so well. You may want to put more into your TSP before you go and you want the ten percent bump at sixty two for first employees.

Then they go, OK, I got to work until 62 then. Or the other one is you could have retired a couple of years ago and you would be fine. And that happens as well. People come in. Well I could have retired years ago. Yeah. Yeah you could have. So it’s a great question to ask. You just have to ask it of the right people, I think. Exactly.

This is not something that we can answer because we simply don’t have enough information and we’re not licensed to even say whether or not that this person should retire at that age without that many years in service. There’s too many. Like I was saying before, there’s too many different factors that go into play here that need to be looked over by a professional who understands how to coordinate different retirement plans and look at all the different buckets that somebody has for income TSP Social Security, your pension, not including any other outside or private insurance plans or annuities that you might have.

You know, all of those things need to be taken into consideration and put together in a puzzle. And that’s what the financial professionals do, and especially the ones that understand the federal benefits and things like that because they can incorporate the benefits in that bigger picture, in that puzzle. In those different pieces of the of the pie there and get them put together for whatever that picture looks like, I mean, what are your retirement goals? What are you trying to accomplish?

Are you just trying to get enough money to live on or are you trying to get enough money to go and do things with to travel with what? Those are all different factors that really a professional needs to take a look at. You know, we can’t simply say yes or no to.

So in answer to that, overall, I think I hope everyone got a kind of a bigger understanding that, yes, this is a great question. But what are all the other factors that you need to look at to be able to answer this? Yeah, and I think between us, we just gave a whole bunch of things to think about, which is fabulous. All right. Here’s the next one. All right.

My husband is retired military who will be eligible for Tricare at age 60. Should I use TRICARE and not FEHB?

Uh, I guess, yeah, it depends. Yeah, right. But a lot of people would. Go ahead. Go ahead, Cassie. Go ahead.

So there are a couple of ways that the financial professionals will try and take into consideration here. Do you need FEHB until you reach age 60 or until your spouse reaches age 60 and then you guys can get enrolled in TRICARE? What is that TRICARE plan look like? Because there are different ones. I’m assuming this is Tricare for Life, which is pretty good. TRICARE does require folks to also enroll in Medicare. Is enrolling in Medicare Part B part of your health insurance plan?

Uh huh, it’s not. You might want FEHB. Also, location is another factor that comes into play here because. Very good. We don’t know what that TRICARE coverage looks like for your area.

So it might be nice to have, but you may also want to have the availability to get into FEHB in retirement in the event that TRICARE pulls out of that location. So we might need to do some coordination there where we’ve got the FEHB program until the federal employee retires. So that way they can simply suspend FEHB and get into their spouses TRICARE or if they already have or on the TRICARE policy, then they just simply decide to suspend FEHB and use the TRICARE as our primary coverage.

But then they can later on re enroll in that FEHB program in the event that that TRICARE, you know, the they lose that coverage for whatever reason. So there are different ways here to coordinate these different plans and make sure again that you’re getting the best of both worlds and that folks can and cost is another thing as well. What is your TRICARE going to cost? I know it’s pennies on the dollar compared to most FEHB programs. And so that might be something to think about as well.

And are you going to have FEHB and Medicare, like all of these questions and strategies are something that a financial professional would be able to answer when they’re looking at the condition of your health insurance cost and coverage for retirement.

And I’ll I’ll just add for those who may not know what TRICARE is, just in case, basically Tricare is the military’s version of FEHB. And so in this case, you know, the spouse’s military or was is in this case is retired military.

And so, you know, that that TRICARE is Tricare for life is what they get after they retire after 60 or 62, when Tricare for Life start to 60, that is 60.

OK, I’m pretty sure it’s 60. And, you know, I believe that’s for active duty and reserves because there’s different. Yeah. Different plans for those different types of military service.

And so, yeah, and there are different things that you can do with when you have one spouse that has TRICARE and the other spouse has FEHB, there are different combinations that most people can take advantage of. So Cassie, like you said, best of both worlds. Some great things you can do there. But again, you have to figure out what is right for you and your circumstance.

So that’s always good. OK, next question. How should we determine whether or not we should place money into the traditional or the ROTH TSP and I think there’s a theme in this, I think in all questions here.

You know, it depends. Right. I mean, and it depends honestly, whenever we say it depends. That means that someone needs to take a look at the larger picture because it might be better for you to do one or the other or both in this case, at least with a traditional and ROTH, some of you will want to start putting a whole bunch of money into the ROTH some of you will want more. The traditional some of you will have a nice spread between the two.

It’ll just depend on your situation. And there are pros and cons to both and there and around the water cooler, you hear things like, well, the ROTH is so much better than the traditional. Well, that’s what I call the shortcut phrase where it’s true to an extent, but not always true. And so and and in some cases it’s absolutely wrong or it sounds right. And so people just go with it. So we have to be really careful about the water cooler talk that we hear all the time.

Not that it’s bad. And I actually like the water cooler talk, to tell you the truth, Cassie, because it means that people are talking about these kind of issues. People are asking questions and looking for information. And I think that’s great and there’s nothing wrong with that. But as long as people are not figuring out what their retirement is based on water cooler talk or how they should prepare for retirement, or should they put it into the ROTH or traditional based on water cooler talk, if they’re not doing that, then OK.

But if that gets them started thinking about it, great.

I’m all for that. Yeah, I think anything that goes to your specific retirement planning, if it’s water cooler talk, you might be able to get some feedback on what other people are doing. You always get it by your financial professional or your financial advisor, you know, or if you don’t have one, please let us know and let you get into it. Has help you get in touch with one, because it’s so important to have those people to ask those questions, too, and figure out, you know, well, I’m 20 years old.

Is a ROTH going to benefit me better than this guy over here who’s 60 years old and gave me this information at work. Like, that’s going to be completely different. There’s a forty year age gap, right, that your situation is going to be different.

And in fact, my husband did this and it drives me crazy.

But he his uncle was a Casares employee and he didn’t have it in the account. Well, he had other friends that did. And he told my husband and when he first started at 30 years old, the G7 is the safest fund to be in watercooler talk right there.

My husband stayed for a few years.

Yeah, that is a short cut phrase. That sounds good because it sounds good because you want it to be safe, right? You want to be able to have the the money when you need it and for it to not disappear.

But at the same time, one of the huge points of a TSP is to have the money grow, and especially if we take into consideration, in fact, I did a ten year comparison between TSP and inflation.

Yeah. And it’s it’s pretty much the same, which means your TSP is if it’s in the given, it’s not growing, it is keeping up with inflation and that is it. And I’m not saying that that’s wrong. I’m saying that honestly, for most people that will probably be wrong, but not for everyone it’ll be wrong. So again, I don’t want to pass judgment on one thing or another. But what is your situation? When are you going to retire?

What your health. What’s your like the same honestly Cassie the same things that you said for the first question, apply to the second question applied to this question as well. You’ve got to take a look at all those factors and put it all together as one. Then you can have some answers like this, but not until then.

That’s right. Yeah. So again, yeah.

Always go get in touch with somebody, figure out, you know, is this going to be right for you in your situation? Don’t just get stuck in the analysis of paralysis or paralysis of analysis. This or whatever, not for you, isn’t it, right? What is your situation because remember, no decision to take action is still a decision, right?

Right.

And just as I was saying, no, thank you, I don’t want to change my situation.

Right. But the fact of the matter is, these people want to the people listening want to. And I strongly encourage you guys to get in touch with somebody in your area that is versed in the federal benefits. If they’re not, please let us know. Go to Fednobabble.com and we’ll be able to get you in touch with a financial professional and our trusted network who can be able to help you distill down all of these different questions and really give you some solid answers.

They’ll also prepare a benefits report for you that we offer at no cost. No obligation. No sales pitch. They they want to get you the information that you need so you can start the planning process if you haven’t already now as well is different than anything that you’re going to get from OPM or H.R. or anything like that, because it really breaks down each year the different costs for FEGLI and the different costs for FEHB. And we do it on a 10 year average.

So that way you can see on an estimate basis what is the increase going to look like in your future as well to kind of help you not only plan for right now or in retirement, but also, you know, those retirement years and and be able to coordinate all of that with your with your income.

By the way, Cassie puts these together. And so they’re good. You know, they’re going to be good. So definitely Fednobabble.com go and do that and then stay tuned for the next one, because we’ve got some other good questions coming up on the next one. Thanks, everyone, for joining and go take action.

We’ll see you next time.

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.

 

41

#41 – LEOs, Penalties, MRA & TSP

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LEOs, penalties, and MRA & TSP all on today’s Fenobabble

This is Fednobabble.com, 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 at Fednobabble.com.

Welcome, Cassie, good to have you here. Hello, Kevin.

Yes, let’s do some questions.

Here’s all right. I am a LEO and will turn fifty seven with twenty nine point four years, that’s very precise, very specific.

Is there any way to get to 30 years for the retirement benefit? What say you?

Oh, so OK, this is a kind of a funky one because LEO law enforcement officers part a special provision.

They have a mandatory retirement age of fifty seven and for them, well they’re trying to get to 30 years.

The first question is why are you trying to get to 30 years?

Because it really doesn’t matter, does it? I mean, as far as eligibility for retirement. It doesn’t matter, right, not if they’re a law enforcement officer, because they could be 50 with twenty five years of service or fifty five with 20 years.

OK, I was thinking that records I think actually no one was in age twenty five years any age with twenty five years, so 50 with 20 and any age with twenty five years. So he’s going to turn fifty seven. So he’s over the 50. So he could retire or she could retire at 20 years of service, which this person is way over that. So they’re unless they’re trying to get a trophy for 30 years, there’s no need.

And I’ve heard of LEOs waiting until fifty seven because then they can choose any day in that month to retire and their pension will begin accruing right away rather than having to wait till the end of the month.

So that’s been a thing. And other times LEOs though will receive waivers, but that’s if mostly if they have less than 20 years. So for instance, if somebody is hired in at the age of 40, then they might get a waiver to get to age 60 so they can qualify what the twenty five with the 20 years minimum required for LEOs service.

But typically, if somebody has over the 20 years and they’re fifty seven, I mean, the only way to get past that twenty nine year point for Mark would be with sick leave if they want to increase their pension amount.

But there’s no real benefit, no need necessarily to having that extra time.

It’s not going to add or change the percentage factor for those years past 20 so that they can increase their pension. I mean, it will increase their pension just based on the experience. But there’s no other reason.

Right, for that.

If that makes and it will only increase their their their pension at the one point level, not even the one point seven level.

So right now, this is this is something that I’ve seen excuse me, recently where someone was wanting to retire, going off of the wrong rules, not realizing that they could retire already. So I wonder if this person, which very could well be could be the case, is trying to retire, waiting, not realizing that they can retire right now.

Right. Hmm.

This happens all the time.

You would be surprised the amount of lack of information for certain types of employees. Yes. People think that the regular FERS eligibility rules apply to everybody, and that’s simply not the case. There are many exceptions out there. LEOs firefighters’ air traffic controllers, they all have their own set of rules called because there’s special provision employees. And then we’ve got military reserve technicians, Customs and Border Protection, and those each have their own set of rules. There’s so many different.

And it’s not just eligibility either. It’s how their pensions, Computer-Aided and all of these things.

And so people really have to make sure that they’re using the right set of rules for their whole retirement package for what is going to be, you know, pertains to them, because there’s so much information out there and and so many different types of employees that it’s really easy to get confused, that’s for sure.

Right. And, you know, one of the things that when I do the Fed Pilot workshops and we don’t have any special provisions, so we don’t cover those rules, one of the I always hesitate because it’s a little raspy voice. I always hesitate because I say, OK, you first employees, this is how you retire and when you can retire, knowing that if they go to any of their special provision friends, if they go to any law enforcement officers and say, hey, this is what I learned, this is the way it is, that’s actually not true for them.

It’s only true for the people that were on the webinar or in the workshop at that moment.

And so I called.

Do you mean to tell me that you’re a culprit to this water cooler talk everybody talk about?

I may be LEO. I may be enabling that in a way. But but that’s right. You’re right. And I feel badly about that. And every time I hesitate but I can’t say, OK, now, it’s not that way with these because the people on the call are on the webinar in the in the class workshop.

They don’t care about that other stuff. So I have to speak to the people who I’m speaking to with their rules and not go off on all. The exceptions, so, yep, and it not only happens with LEOs, but it happens in all of the other benefits for women in a lot of different ways, I could be speaking to one person and then turn around to their coworker doing the same job and say, oh, it’s different for you because that’s not how it works.

And most people just think there’s a rule and everyone follows that rule and it’s not that way.

So it’s how the government makes them helps them to think. I can’t say it makes them think that way, but leads them on to think that this is the rule. This is how it should be. Yeah, but do not apply government or do not apply logic, I should say, to government policy, because it’s not going to work.

No it’s not. No, it’s not. OK, that’s a good question. Let’s go to the second.

I am over 65 and didn’t take Part B. Well, I pay a penalty if I try to get in or if I try to get it when I retire next year.

No. In fact, even if you continue to delay taking Medicare Part B, you may also be able to avoid the penalty.

If you have FEHB and you fill out the proper documentation with Medicare or Samms, which is the Center for Medicare Services, you can go to CMS.gov or Medicare.Gov. Either one of those websites and you’ll be able to search for the form that you need to avoid the Part B penalty because you have an employer sponsored program.

The other thing is that you can what will happen is when you retire, if you want to get into Medicare Part B, you will have an eight month special election period to be able to do that because you have separated from the service, but you’re not losing employer coverage. So that’s why I said you can continue without Medicare Part B and still avoid the penalty. But you do have you avoid it if you also decide to elect during the special election period once retired.

Yeah, that’s an easy one. The answer is no. Great. Although, well, I’ll just throw in part a part A when you turn 65, even if you’re working, you get because yeah, typically that one’s automatic and there’s no fee to it.

So that’s nice.

Yeah. Easy. OK, next one. Can I retire at age 55 and access my TSP without penalty, even if my MRI is fifty seven?

Well, if your MRI is age 57, you’re not retiring at 55 unless you’re retired special provisions employee and the correct use of service of so.

So let’s say that they they are supposed to provision then. Yes you can. But if you’re not special provision then. Yeah, like you said, you’re not retiring, if it’s not you’re not retiring, you’re going to go out on a limb. Well, you’re going to go out on a deferred pension. You’re not going out on an immediate pension, which then disqualifies, you know. And to think about that. I want to say they have to retire on a pension to be eligible to have penalty access.

I believe penalty free access.

I believe that’s TSP. I don’t get this question very often because it’s not common. Typically, if somebody made it to fifty five and they have so many years in service, they’re waiting until age fifty seven to either receive their MRA+10 retirement or to fully retire.

But yeah, I want to say they have to retire on an immediate pension.

I would have to look that one up. Yeah I believe so.

I think you’re right on that one. So yeah that’s an easy one to just roll. No you can’t.

So as you as I was watching this and listening to Cassie Knight go back and forth, you can tell that some answers are really, really simple to answer. It’s just there it is. Here’s a few things and we’re done. Other ones are, oh, my goodness, we got to get pretty involved. And it’s only going to go to specific people at specific times. And it gets really, really complicated. And that’s why it’s so important to be able to go figure out what your retirement is going to look like well before you retire so that you are setting yourself up in the right way so that when you do retire, you’re not having to make all these adjustments at the last minute trying to figure out, OK, well, how do I put myself in the best spot?

No, you’re already in the best spot because you have a plan and you’re going forward.

So as Cassie and I always say, if you want to get a comprehensive report on your benefits, just go to Fednobabble.com and let us know and we will get you in touch with one of our trusted one of the professionals that we work with and our trusted network and free no cost, no obligation. And you’ll be able to know what your next steps are no matter if you’re twenty years or two months from retirement. Yeah.

Oh, and the answer is no. I just checked my notes. They do have to retire you with an immediate pension. It can’t be a deferred retirement to get that penalty free access. So wait till your MRA until you separate from the service. If you’re looking at needing that, needing that money from TSP in order to make it financially good.

See how quick she is? See that? I love that Cassie. Good job. All right.

So we’re going to close this one next time. Yes. Thank you. Take care, everyone.

40

#40 – Burn or Save, Who Pays, IRA vs TSP ( Part 3)

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Burn or Save, who pays? IRA and TSP Part three.

This is Fednobabble.com, where Kevin and Cassie make federal retirement benefits understandable for humans like you. These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com. Hey, hey, hey, hey. OK, I have to ask everybody what oh, what are you doing? I don’t know.

I had a question, too, up there. I did. I’m a mess right now, so. OK, it’s clear. Ready? Set. Go Cassie. My I can’t stop looking at your face.

And so I’m not looking at the camera. And so people are probably thinking like I’m all over the place.

I just want to say I get that all the time. People looking at my face. Oh, ha ha. No, no, I was talking with an adviser about it this morning, I was on a two meeting and I was like, I’m so sorry. Well, he apologized first, but I was like, I have the same problem. I look at the person because I’m talking with them and and I’m not looking up at the camera. And so they probably think I’m looking at some random place on my computer or something.

And I’m looking at the person on the screen.

And if I camera so I don’t know, I think you’re OK.

I think that it looks to me like you’ve been looking at me so. Could have fooled me. OK, let’s move on. That’s OK, little known. Very good. All right. Question number one, wouldn’t it be? Wouldn’t it ben efit to not actually… I’m going to reword this a little bit, wouldn’t it be beneficial to use your sick leave or to not use your sick leave and retire early? That way you can just put more into your retirement and TSP and then get paid out for sick leave.

Basically, what they’re saying is, isn’t it better to save up sick leave an annual leave rather than burn it before you retire? Let’s say you Cassie. Well, it depends on your situation. Yep, right.

Sick leave is automatically added to your retirement computation pension amount Annual leave is automatically paid out in a lump sum, typically within two weeks of 30 days of retirement. Or separation, however, there are certain situations where, you know, you’re sick, leave is there to be used for a reason. My husband, when he was working for the federal government and he got into his motorcycle accident, he was able to use his sick leave in his annual leave for the three months he laid on the bed.

All they had a broken back and before he was able to go back to work. OK, so not only did he have the FMLA leave that he that gave him the availability to leave to use that much leave at a given time because you’re going to get permission. But because he had all that sick leave saved, he was able to use it. He didn’t have to go on leave without pay or something else. So we were still able to have an income, even though he was healing from his injuries.

So it can also not just be sick leave, but it can serve as a short disability type income policy as well. So it’s used in the same concept. It is not a short term disability policy, but it can be used for that. It could be used as such in a situation where somebody may not have that coverage and needs to you need to use that leave or certain medical reasons. So sick leave, it is nice to have a bucket of it saved for when you need to use it.

But in the event that you don’t use it, yes, it automatically can increase your pension amount as well. It won’t help you for eligibility purposes. OK, so if you are at your MRA, you’ve got to have 30 years or 10 years if you’re going to take a reduced benefit. 60 were twenty. Sixty two with five years. It’s not going to help. If somebody is age 62 and they only have three years, they’re not going to have enough sick leave to count anyways for eligibility.

But they can’t if they can’t use it to add. More months or something like if there’s a couple of months till retirement, anything great, I’ve got sick leave, I’m just going to use it to be eligible. That’s not how that works.

Right. But it will it will increase your pension. And in fact, it’s the same. It’s a dollar for our for our kind of thing. And so if you in a given year. An employee has two thousand eighty seven hours that they work working hours, so the table stays the same for your sick leave. If you reach two thousand eighty seven hours, you’re going to get an extra year added to your pension. And of course, if you have more hours, then you can have more time.

You don’t just stop at that. You’re either some people think, you know, well, I’ve got you know, it doesn’t go beyond this. Well, the table still goes. It just only shows you that amount if you’re looking at the sick leave chart.

But if it can still it could go on as much sick leave as you can accrue throughout your career.

You could add time, all that time, all those hours, rather, to your retirement computation. On the flip side, your annual leave. You are limited to how much you can have in a given year. You can earn. Well, depending on, well, you. For six or eight hours, so it depends on how many years you have in service to how many hours you’re accruing for Annual leave, but you can’t you can only use or you can only carry over rather a certain amount per year.

So a lot of times you’ll see use orsomebody’s lose on somebodies pay stub and that’s the amount of hours that they have to use before the calendar year is up or they’ll lose that time. So, I mean, if you if you’re going to. Retire at the end of the year, then you can count all of that time, those user lose hours into your Annual leave payout amount, that lump sum. But if you’re going to retire at the beginning of the year, use that time that you have because you’re not going to you’re just going to lose it if you don’t.

And so you might as well take advantage of it.

Right. And there’s also with Annual leave, we have to people do not think about this, but we have to think about taxes. So, one, because you’re if you’re paid out, you’re going to be taxed. Twenty percent right off the top, I mean, it’s going to come out right off the top of your Annual leave payout check, it’s possible to cut down on taxes by using your Annual leave. So what what some people do is they say, I’m going to retire.

Let’s say I’m going to retire July 1st, but I have two months of annual leave. So I’m going to actually retire two months before that. I’m going to quit working and then use my Annual leave, get paid out at get continue to get paid out for that time at a higher rate for the next two months. But then there’s some tax implications of where it actually works out better. And you actually make more you’ll get more money if you do that than if you just save it up and get a check for it.

And so there are different ways to make this work and there’s more considerations of, oh, I get a check. We have to think of taxes and we have to think of other things like that that a lot of people just it’s not on the radar when they’re thinking this. Yeah.

To include on that point, it might even bubble up to the next tax bracket if you are looking at some sort of the increase or step increase as well, because the Annual leave payout is based on your hourly rate at retirement. And so if you’re going to retire or if you’re going to work all year. And then separate November 30th and you get paid out for the Annual leave in December. Well, that actually might hinder your taxes look like next year, too, because not only are you paying the initial taxes, but then you’re having to use that or account for that in your federal taxes on how much you earned as well.

And so and who knows if that’s going to bump you up to a new tax bracket or what have you because of your your increase that you had. Some people think, oh, well, I’m going to I’m going to work another couple of months to make sure that, you know, where that money is included in your height. In my high three. Well, that is great. But then what does that do on the flip side, when you’re paid out for your annual leave as well?

And can I can I suddenly felt I was sorry.

Can I can I just say this is a simple. This this is probably the least I don’t want to say complex, but the least worrisome aspect of federal employee retirement burn or or save up, right? I mean, it’s not like typically people think a lot about this, but it could mean the difference of thousands of dollars. And and just this simple thing can make a huge, huge difference. And most people just say, well, I’m going to do it this way.

Well, did you really think about it? The day someone retires, people just throw that out is OK, I’m going to retire this day. Right? OK, I’m done. Well, let’s think about this in context of everything else, because it can mean thousands, again, thousands of dollars of difference to maximize your retirement. So these little issues should not just be taken just incredibly lightly. They should be planned out. Yeah, and here’s the other thing.

Are you going to need the Annual leave amount to help offset the percentage interim pension that you receive because you have to wait so long before OPM finalizes your paperwork? And so if your payout is going to be, you know, ten thousand dollars, fifteen thousand dollars, is that going to help you get through a couple of months on offsetting what you’re not getting from your pension? To Timbalier, OPM can finalize that amount. Right, and so we have to think about that as well.

And I get this from advisers as well. Why do you put that note in there about the Annual leave? Well, because it could make a big difference. That might be what some Slowes is is looking forward to because they see the numbers and they don’t, you know. They know that they’re only going to receive a certain amount of the pension, right. And so we have to plan for that as well. And they just wanted to make sure, like, oh, is that what you’re putting that in there?

Because that’s how much they get paid out. Right. And it’s like, yes, they don’t have the option to put your annual leave and include in your pension about it’s automatically a lump sum payout. There are no options for sick leave paid out. It’s automatically included in your pension. And so we’ve got to be very clear on that and how those leaves are used because they are beneficial to you. You just got to figure out how are you going to use them, right.

For your situation. That’s right.

So so we’ve taken a lot of time on that one. But it’s a good example of just how much we need to think through this. It’s it’s not a simple decision of, oh, you know, this is the way and again, shortcut phrases. You should do this oh, are you sure about that? That’s again, that’s where a specialist comes into play. No, no, there’s there’s a lot more behind this than just just making a decision and calling it good.

Yeah, I remember that as well, not all agencies are going to let employees use their annual leave like that, right?

Sometimes you have to get special permission to use your annual leave in a situation where, OK, I’m going to separate the state, I’m going to stop working, rather, and then I’m going to burn my annual leave until my separation date or my retirement date. So that way, because that’s going to be best for my situation or what have you. Right. And but you you have to get permission for that. Agencies aren’t just going to say, yeah, go ahead and use up all of your annual leave or all of your sick leave.

Some require maybe doctor certification for sick leave and things like that. And so you just got to be really clear with your agency and what the rules and their policies are for for using leave to see if it’s even an option for you and how that can coordinate with your retirement benefits.

It’s amazing. It’s amazing to me that in in the workshops, I probably spend one minute on this because. It’s something to think about, but then we have to move on to other subjects as well. But we just spent 15 minutes talking about this, and that doesn’t even involve someone’s situation where, OK, let’s look at all the options and all the different things. We’ve just spent a lot of time focused on this. And so I know a small issue can seem like a really big issue later on.

OK, we have five minutes for two questions that is fully paid for by the employer while you’re working.

Isn’t FEGLI paid for by your employer while you’re working? A portion of it, I should say, it’s not fully covered. Well, hmm. Postal employees get basic… What’s that postal employees get their basic. Paid for. Yeah, but besides but besides this place, it’s up there.

Good point. Good point. Someplace. Someplace. Yeah. Yeah, there are like postal inspectors and things like that. Their basic is included or I’m sorry, not included to the father government deduction. So they’re not the federal government’s not paying for that.

So you’re. The government has given you a break. In the premiums that you pay while you’re working for for the FEGLI amount. Once you retire, that premium will change. Because and it’s not because the government pays a portion of it, it’s because of how.

They factor. The premium. It’s kind of complicated to get it to advisers understand this because they get like the price point to the cost per thousand that goes into the FEGLI premium. But essentially your cost per thousand is less while you’re working than it is in retirement. And so that’s why you see a big increase once you retire for your FEGLI premium.

Yeah, and can I can I add to that? I don’t want people, people to misunderstand and mhere when you say it is less than when you when you retire and after less than it’s only comparing before and after. It’s not comparing less than, for example, a private plan. A private plan may already be less than that. It’s just less than when you retire, and so we have to be careful and understand what we’re comparing there. I mean, you said it perfectly, but I just want to point out that we have to understand that.

No, that’s that’s a very good catch. Thanks. Yeah, OK. Next question. This is an easy one. An easier one. How is the ice? A shorter one? How is the government ROTH TSP different than a Roth IRA? OK, so do you want me to do this or do you… Yeah, yeah, watch a previous episode, we talk about that a little bit when we talk about traditional.

A lot of similarities. Well, when we talk about the differences between an IRA and a TSP, well, it’s ROTH or traditional. A lot of the same concepts are applied. Right. So, for instance, when you take money out of the ROTH, TSP, as opposed when you take money out of a Roth IRA in the ROTH TSP, you have that split.

Yes. Well, you go ahead and explain that you’re so much better at it.

No, no, no, no. I mean, you’re on the right track. It’s when you pull it out from the TSP if you have as and the example, if you have 50 percent in your G, 50 percent and you see it’ll come out 50 50 and that’s ROTH more traditional. It doesn’t matter in an IRA with your ROTH or traditional, you can pull it out whatever way you want to. But I think the big the one of the biggest differences of the ROTH TSP other ROTH TSP versus a Roth IRA is that.

For example, I can put up well, you know, if I’m a federal employee, I can put nineteen thousand five hundred dollars into my TSP I can put that all into the ROTH in my TSP.

Right. There are income limits in an IRA so that it if I make too much money, I can’t put any in my Roth IRA. And even if I could, I could only put like I think the limit is seventy five hundred dollars a year, something like that. Yeah.

It’s, it’s limited on the amount that you could contribute to the Roth IRA depending on your income and whether or not you’re married and your situation. Right.

There are there are certain restrictions with the Roth IRA as opposed to the ROTH TSP. And if you’re looking at having a ROTH TSP, there could be a match to write you, whether it’s ROTH or traditional, that you’re contributing that five percent to the government still going to match. Right there, five percent were contributing up to that amount. Now the government match doesn’t go towards the ROTH, but your match does so. I just noticed we’re out of time.

I’ve got to say one more thing. I’ve got to say one more thing real quickly. I know we’re out of time and I hate that. And I apologize people, but I got to say one more thing. And I’m going to and I and I hesitate to say this, but I’m going to do it anyways. Overall, and I’m just going to say this overall, and this may be different for everyone. ROTH Espy’s. And again, I hate saying this, but ROTH TSP, typically for an employee, I’ll say are better for the employee in that rather than a Roth IRA.

When you’re putting the money in when you go to take it out, it’s usually the opposite. A lot of times the Roth IRAs are better of pulling it out. And we have to realize that there’s a distinction between pulling putting an ad in and putting it out. There are different rules and there are different times to have your money in different areas. Again, it may be different for everyone. So I don’t want to say that, you know, that’s a hard, fast rule because it isn’t.

So that’s my disclaimer. That’s what I had to say. Real quickly, before we end, any last words, Cassie? Yep.

There’s also different features between those policies. And, you know, I don’t know, we can’t say what’s going to be good for you or what’s not. Right. But we’ve got to talk to a financial planner. But if you’re curious, please reach out to us, Fednobabble.com, and we’ll get you in touch with somebody who can help you. We we don’t give your information to everybody. We give you information specifically to one adviser who can answer these specific questions for your case.

So they’re they’re going to provide a benefit analysis for you and then also be able to answer any questions on the back end regarding these types of scenarios where you’re curious, which is better. So go take action.

Yes. Thanks, Cassie Sorry everyone for going over. See you next time. Take care.

Thanks for coming 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.

 

39

#39 – Locality Pay, LTC, IRA vs TSP ( Part 2)

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Locality pay, long term care and IRA versus TSP, part two, all on today’s Fenobabble.

This is Fednobabble.com 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 at Fednobabble.com.

Hello, welcome, Cassie, welcome to another edition of Fenobabble. Hello. Hello.

OK, so I know we went over the past couple of months, so we should probably keep it shorter. So let’s jump in here.

I think I think it’ll be easy, especially with this question. Does the high threat include locality pay? What’s the answer? Oh, yes, yes. OK, that was easy. That’s it. I’d like to be able to expound on that, but. It’s OK, actually, I am going to expound on that and just actually, really, really quickly here, the answer is yes. And I don’t know that I don’t think that there is and it depends on this one.

I think it is just I can’t think of an instance where it does it. But the follow up question that I get a lot to this is, OK, well, what happens if I move to another state? Let’s say I’m in San Francisco and I get a huge locality pay and then I retire and I move to the middle of nowhere, Montana. Do I get to take that with me? And the answer is again, yes. You just you’re I mean, well, you take the high three that is included.

That includes the locality pay in that location. You don’t take it with you in your current pay. They are like it doesn’t locality pay, does it? All of you, that other position. But what I mean is that when they retire in San Francisco, do they get to take. Oh, and then they move. Right. Yeah. And then you move. Yeah. Because what they figure out your whole number is I mean it’s a number of factors.

It’s your locality pay, it’s your basic pay and it’s a few other things possibly put that together. That’s what it is, and then when you retire, if you move, then you get you get to take that number with you wherever you go. I want to clarify one thing, though. Yes, it does not always include overseas locality pay. Right, good distinction overseas locality pay is different than locality pay. Yeah, I want to I get that often where somebody thinks whether they go there to have their their last three years overseas or they come back thinking that their locality pay was included and so they’ll they’ll be compensated, then their high three average will be based on their higher pay overseas.

That’s not always the case. And actually, I want to say a lot of the times locality pay overseas is is not included, period. There are some special exceptions where it is, but it’s not common. So just assume that it’s not in general speaking terms.

Right. Can you know, it’s interesting that a simple question like this, the answer is yes. Right. It just plain old. Yes. But when you when you peel peel it back just a little bit more, you you find that there are still nuances and things to consider and things to be thinking about and questions to ask, questions to answer that, that help with planning. I mean that really can make a big, big difference like that.

Like the overseas locality pay is different than regular. Look at a locality pay and it’s treated completely differently. And you and I have watched people go overseas and do exactly what you said, thinking that they’re bumping up their high three when actually it’s hurting their high three and they froze up Kevin.

I froze up. No, I think we’re good. OK, yeah, yeah, it worked that whole time. Sorry, and I’m the only recording, and if it looks good to me, we’re we’re going to keep going Cassie.

Sorry. No, no, that’s OK. That’s OK. We’re just we’re we’ll go to the next question. That was good. All right. Next question. I have a long term care through the feds. So the federal long term care, is that transferable? Can can they take it into retirement is what they’re asking? Can I you know, can I retire and still have it continue on? Is it one of those benefits that even after I retire, can live on?

Yes, that’s the short answer. It is transferable to retirement, if that’s what you’re thinking of. However, the government is going to still have their hands on it, you know, completely on that policy.

So just think about that in a minute and say, wait a minute. What do you mean? OK, just just to make this clear. What do you mean? I don’t own the policy because it’s on me. Right. I got it. It’s mine. What do you mean? I don’t own it. That’s true, but the government is the owner, you are the insured. And people think, oh, well, I paid for this, and so automatically I’m.

You know, taking care of, but it’s just like your family coverage and things like that, even though the house that insurance and the housing insurance, but they use other providers. Like further federal long term care. You actually have a policy? Well, the government has a policy for you with John Hancock.

ROTH is just an insurance provider, and it’s the same with FEGLI, your FEGLI is with a group MetLife Policy, it’s not through the government, which I guess is a good thing. But on the flip side, you don’t know the policy either. And so how good is it? I don’t know. That’s up to you. Yep.

So, yes, it’s transferable. You can take it. But here’s the other thing. Your premiums for long term care are not going to be taken out of your interim checks. Hey, dental and vision, long term care, they’re not automatically taken out of your interim pension checks.

You’re responsible for those premiums to pay those directly to the federal long term care. You know, whoever.

Well, federal long term care insurance plan is who administers that, right? So you’re responsible for paying those premiums directly to that entity rather than that coming out of your pension. Now, you can request those premiums to be taken from your pension later after your pension is finalized. But in the meantime, between the time that you start getting those interim checks, which are a portion of your pension to the time your retirement application is finalized, you’re responsible for those payments.

So as long as you’re not lapsed on those premiums, then you bet you can continue those into retirement. Right.

Again, it’s it’s a pretty simple answer. The answer is pretty much yes. But there are so many other things to consider. I think that’s a I think that’s a theme of this episode is easy answer, but. The ramifications or the you know, the slight differences can actually make a huge difference again. Well, you know, when I when I put these together, sometimes I it’s not that I am putting them together with answers like that, but they just happen to come out.

So look at that. Yeah, I planned it all, I’m sure.

All right. Next one. How is a traditional IRA different than a traditional TSP? Well. Go ahead, Kevin. OK, yeah, so there again, you put money in. And it’s supposed to grow and depending on how you put it, well, with a traditional, you’re not taxed up front, so it’s deferred. In both cases it’s deferred. So the taxes come out. When you go to pull it out, when you when you take a dispersement, that’s when you’re taxed on it.

So that that’s the same for a traditional and a ROTH.

However, for example, in a in a traditional IRA, traditional Cassie.

Say that again to ROTH. Yes, I’m sorry, yes, I said yes, this is an international TSP. I mean, that’s the same for these two different types of plans, right? Yes.

Sorry, I yes, I shouldn’t even say ROTH right now because we’re not talking about ROTH at all. But I, I do that all the time. I’ll get I’ll switch them anyways. We’re talking about traditional. So in this. Yes. One of the things that they actually changed and actually I will mention ROTH now is that it used to not be that you could take out money and have it only come from traditional. You can do that now, which is which is good from.

So you can say I only want my traditional TSP to come out. You can do that now and you can do that in an IRA as well. So there are a couple of similarities. Well, right.

Because you’re not going to have if you have a traditional IRA, you cannot have ROTH within that traditional IRA. And it’s just a traditional policy because it’s its own thing. Right.

So when one of the one of the differences, however, comes with our RMDs. For example, with in the TSP, if you get a required minimum distribution, so you reach age seventy two and the IRA says, hey, we want our tax money, we’re going to make you pull out some some money from your TSP so we can get our taxes is basically what it is in a in a traditional IRA.

You can say, hey let’s say I have three IRAs, I can pull them from any one that I want. I can pull it all from one thing. I could distribute it or I can you know, I can do some things with it or I can shoot. Honestly, I can choose not to. Now, there are penalties for that, but I can choose if I want not to within the TSP, it’s going to be forced out and you’re not going to have an essay on whether to do it or how to do it.

It’s just and you can’t spread it out between your IRAs as well. Now, it will come out of your TSP and they’re going to make you do that. It is much more rigid in that way.

Yes, and then yes, I would say the last thing. Go ahead, go ahead. No, OK.

I would say the last I would I would say the last thing is within within a traditional TSP. And honestly, this goes for ROTH as well. But I’ll just point this out now. When I go to pull money out of the TSP, let’s say I have 50 percent in my G, 50 percent in my S. Every dollar I pull out will come out 50 cents from each fund and. Right. You don’t have a choice in an IRA. You can say no, only give me 80 percent of my traditional money in the in this in one fund and 20 percent of my traditional from another.

And and doing that make I look, I look I’ve, I’ve seen the numbers Cassie and I don’t know if you’ve seen this from an IRA perspective, but if someone can do that, they can make their money. Last year’s longer the same amount of money, but it’s a several. Yes. I was looking at one example recently, seven years difference of how long someone’s TSP would last them because they’re able to choose from here and here and not do it the way the TSP forces you to do it.

Big difference. I think there’s other things as well in the features of the different types of policies, depending on where you’re located, what state you’re in. Things like that, then there can be additional features to a traditional IRA that the traditional TSP doesn’t offer and vice versa, depending on your age, on the traditional TSP and traditional IRA and those that comes into account with different features and benefits. Which raw options are different, like you were saying, not just the different ones that you can withdraw from, but the penalties that are imposed on withdrawing that money.

Right. Somebody who’s going to retire earlier may want to only put a portion into the traditional IRA to have take advantage of those different features and benefits, but then take advantage of the penalty free withdrawal option depending on what that retirement looks like for you in the traditional TSP. And so we got to coordinate these things together. If you’re looking at both options, which most of the time there are benefits to having both as opposed to one or the other, you’re right.

I can’t say that. That’s not always that’s always the case. Sometimes one might be favorable over the other per person situation, but I don’t know what that looks like for you. So I can’t say, yes, this is going to be best for you or again, I’m not a financial planner. I don’t offer any of that advice.

I’m not certified or licensed to give that advice. But I want you guys to be aware that you have to take a look at these from this perspective. OK, how is the how are these two going to be different? Why are they different? And is it going to be worth it for me? Is it advantageous to have all or one or the other and, you know, it’s really you’ve got to boil, you’re going to talk to a financial planner or somebody who understands those situations?

I can tell you the plan, the different types of plans that are available. No one but the different rules are for your state, number two, and the different features and benefits and who understand the TSP and what that entails, because you’ve got to have somebody who understands that, because if they’re not if they don’t understand the TSP, they might tell you the IRA is completely better for you and then screw you for a couple of years. Yep.

When you need money and access to cash and then you’re having to pay penalties on that money, an extra 10 percent, that could be a lot of money depending on how much you need. So we really have to talk about the talk to somebody who understands both both sides of the house there.

Yeah, and I would just to that point right there, I have seen people say, well, yeah, I dealt with the TSP before. I’m sorry, that’s not good enough. I hate to say it unless they know TSP inside, unless they have worked with many, many, many federal employees, working with a few federal employees. And I’ve dealt with that before. Isn’t enough that that isn’t even if if a financial adviser, a planner says, yeah, you know, I have some federal employees as clients.

No, I personally turn around and walk away because unless they have been through this many, I’m in like 100 plus times. Unless they’ve done this over and over and over again, they’re not going to see the nuances. They’re not going to understand all the differences to to do it right. And so, you know, that’s that’s my plug for a specialist, someone who understands the rules, because as you as he give you one more just real quickly.

Which I TSP. If I take some cash out, let’s say I’ve retired and I take some cash out, I have to wait 30 days before I can take anymore out again. That’s not the way it is in an IRA, you can take out money from your IRA several times a day if you want to, but if but you can go. But with a TSP, it’s once every 30 days. Well, what happens if you take money out, you spend it, then an emergency happens and you need money from your TSP and.

And then you just they say, TSP will say, I’m sorry, that’s the rule, you have to wait another 30 days. Well, that that’s no good. It’s your money. You want to be able to control it the way you want to, not the way someone else is forcing you to. So, again, that’s just another rule that if someone has dealt with the TSP over and over and over again, they’ll know how to work around and how to make it work.

So again, that’s why it’s kept going between. It’s kind of the difference between a general doctor and a specialist. Yeah, I go to the general doctor because my foot hurts and they take an X-ray and say they say, oh, well, you need to go see the specialist because it’s broken and you need Cassie.

And we don’t do that at. Right. So it’s the same situation they’ll be able to answer general questions for the TSP and they might be able to help rollover money into a traditional IRA, but they’re not going to understand that maybe we need to leave some of that money in the TSP for certain reasons. Right, maybe to have an emergency fund. In addition to the IRA, because the IRA is going to be your income. But then we want some some additional emergency fund money right over here.

Exactly. And. And, you know, that can grow or whatever the case is, and so you’ve got to you’ve got to talk with somebody who understands both sides of the house. So that way they can really guide you to where you need to go and what your goals are for retirement and be able to help you out there. Yep.

So please go to Fenobabble, Fednobabble.com and Cassie’s going to prepare one of those reports and we’re going to have one of our advisors and the trusted network reach out to you and explain it all to you and answer all of your questions, all the all the questions that we ask on these shows. You should be able to do what you you are able to turn around and ask them and get answers. Please get answers for yourself. Any last words of wisdom?

Cassie. Thank you, Kevin, take action, get answers for yourself, go be proactive. There you go. Good. Thanks, Cassie. Thanks, everyone and take care.

Go take action 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.

 

38

#38 – Buy Back, Secondary FEHB, IRA vs TSP ( Part 1)

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Buy Back, secondary FEHB, IRA versus TSP Part one.

This is Fednobabble.com, where Kevin and Cassie make federal retirement benefits understandable for humans like you. These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

Hey, Kevin, how are you? Good, good, good, good to get to some of these questions again. We’re starting a part one, part two, we’re starting a part on TSP and IRAs.

This is going to be fun.

Yes. IRA versus TSP series. I love it. Yeah.

Let’s do question number one. Can I buy back time for my agency? Yeah, for my agency from work in the 80s, this person had five years, four months to make it possible to retire this year. I’m assuming that that five years, four months puts them up, you know, for example, up at the 30 year level or whatever it may be. But I think the essence of the question here is, can I buy time back for my agency from work in the 80s?

What do you think? Well, the short answer would be yes, if your first any time that you had a prior to one one of eighty nine you can make a deposit for.

I’d have to look at the rules for CSRS, we don’t have very many of those anymore. That’s rare.

And if this person is looking at eligibility to be able to retire this year, I’m going to assume that they’re not serious because most of those guys are already eligible to retire anyways. And so, yeah, we’re just going to answer this for FERS right now.

Yeah. You know, so you say the short answer is yes. And I would agree. But again, always it depends, doesn’t it? And there are certain things where you may not be able to buy it back because it doesn’t fit certain criteria. So but typically the answer would be yes. But again, that’s something to dove into and then at that point, so we know this is five years and four months. Do you have the money after all of these years, interest included, to be able to buy it back?

Do you have the cash? Well, you know, not well, I guess, really, it would have to be cash, because if you’re going to retire at the end of this year, it’s not like they’re going to be able to take out enough out of every paycheck to buy it back by the end of the year, possibly. I don’t know.

But I it would depend on what the debts owed. And another factor that people don’t think about is how is it going to negatively affect my pension?

Wait a minute. Wait, hold on a sec. Are are you saying. Oh, OK. So are you saying how will it negatively impact my pension if you don’t buy it back or if you do buy back? If you don’t, OK, and if you do, we need to make sure that it’s going to be fine, like if you’re not. So what we look at when we’re considering a buyback for somebody who’s had Non-deduction service in the eighties is how much?

Well, anybody who owes a deposit or redeposit, really, we’re looking at a couple of different factors. And that’s how does it impact your pension amount? Right. Because we need to know, OK, if it makes you eligible, how much are you going? How much more are you going to get in your pension? OK, and then how much is your deposit? And we take those two and divide them up to find out how long it’s going to take you to recoup that money in retirement.

If this person is 70, well, they’re probably not 70, but if this person is looking at being eligible at, you know, fifty seven or sixty or something to that effect, where they’re looking at having that time being counted towards their 30 or 20 years of service or getting that to that point.

OK, well, if you get to that point, is it increasing your pension enough or rather should you wait till, you know, fifty eight or fifty nine or whatever that age is for you? How much longer do you have to wait, how long is it going to take you to recoup that benefit?

If it takes you 10 years and say you have health issues or something, are you going to make it worth it. There you go.

To be able to get the benefits of buying back that service. If it takes you two years to buy it back, then that’s probably worth it.

Right. But we have to distill down how long it’s going to take to recoup that money and figure out if it’s financially advantageous for somebody to to to make a deposit. Just because you’re eligible doesn’t mean it’s worth it.

Yeah, that that’s exactly where I was going. I think the two first words of this sentence can I are very telling. Can yes. Most likely. Should you again, we keep coming up against that. And it’s strange because people think, can I. OK, then I’m going to go do it. Well, then what they forget to ask is, should I? That should be the follow up question every single time. Can I do it?

Yes, you are eligible. Should I? That’s a completely different question. And a lot of people just assume that because they can, they should. And not only in this situation, but in all of the other benefits, a lot of other things as well. So I actually I have the opposite. People that really maybe think that they can, but that should not, and so they’re not taking into consideration that it might be really financially advantageous for them to do.

And a lot of times I see this with military service. I know this is kind of just for instance, the whole I’m retired military and I’m getting a thousand dollars or twelve hundred dollars, you know, and they think, well, my military pension is going to be better than my federal pension. Well, that’s not always true. If your income is higher with the federal government than it was when you were in the military, in the military, it might be worth it.

And furthermore, if you’re not retired. And how else are you getting credit for that military service? Mm hmm. I think because you’re not going to get credit if you’re not retiring from the military. You have the service and a lot of people think that it affects the VA benefits, but it doesn’t. Right, right. And that’s strictly federal stuff.

Yeah, that’s a good point. Yeah. And I called so I call these shortcut phrases where where you’re you’re told, for example, you should if you retired from the military, you should not buy your time back. OK, you know, whether you can or not doesn’t matter at that point. It’s I shouldn’t. Well, you don’t know that. You don’t know that. And that’s a rule that people say that isn’t actually a hard, fast rule where it might be really, really good if someone actually did buy it back.

So, yeah. Yeah. You have to check.

Yes. Yes. Right. Well, you sure. But I was told I shouldn’t buy back my temporary service and then people think that it’s not worth it for them either. And of course, that spreads like wildfire. And that doesn’t necessarily mean that you shouldn’t. That just means that that person shouldn’t. Right. And we have to think you’re different. I have to do this to my kids. They’re twins. I have to teach them individuality.

What, you are different than your brother or your you know, your coworker because of many different factors. And so figure it out for yourself. Yeah, OK.

That’s a great example, though. I love that you are your own individual person. You need to figure it out on your own. Yeah. All right. Next question. How does Medicare work? If you work receive private health insurance, it becomes secondary, right? Is it any is is there any downside to this? OK, private health insurance. What do they mean, like not FEHB?

Yeah, FEHB and Medicare.

So let’s let’s take this as Medicare and FEHB and let’s call that private life insurance. I should I should back up so anybody with private health insurance, whether it’s FEHB or not, Medicare typically pays first. Right. And then your plan is secondary. So the short answer is yes. Your private insurance plan, whether FEHB or not, is going to be secondary. Is there any downside to this? Yes. Not all doctors except Medicare.

Right. Ding, ding, ding, ding. Right there. Yeah. People think that just because their doctor that they automatically accept Medicare, but they don’t realize that when they’re considering Medicare that not all doctors will take it. And it’s just like any other health insurance plan. Not all doctors are going to take Blue Cross Blue Shield or not all doctors are going to take Aetna or what have you. Group Health or Kaiser Permanente or whatever their you know, you can only go visit their clinics.

And so it depends on the type of plan that you have privately on what doctors you can and can’t see and check with your doctor, you know, and find out if they accept Medicare, because if they don’t accept Medicare, then your plan is going to be primary. If they accept your plan, mm hmm, yep, and and another downside, I would say, is that some people so obviously when you have Medicare and you have, for example, in FEHB plan, FEHB plan, you are paying two premiums.

Now, the reason people do that is because typically I don’t want to say even typically, but it’s very possible. And in a lot of cases, it’s really possible that the overall cost of health care will be less if you do those two things. But if you don’t have enough money to pay for two premiums, you can’t do it. So the downside is that you’re almost, in a way, have to pay up front for a lower, lesser amount.

And again, going back to what was the last episodes when when we’re talking about people coming out with a negative, you know, retiring and having a negative pension amount, well, then in that case. Oh, my goodness, what do you do there? And it’s just going to get worse from that point on, so. Right. Yeah, I mean, you know, it can go both ways. Are there downsides? There are always downsides.

There are always downsides to everything, even if it looks golden. If you’re in some senses, I mean, that’s just the way it is. So, yeah, so again, is there any downside to this? Sure, but I can’t tell you what that is because I don’t know what kind of plan you’re in and how prominent Medicare is in your in your area. And if you’re going to travel or not travel, there are a number of different factors that come into play to a person’s situation that you have to think about.

Are you going to be internationally traveling because then Medicare is not going to cover you or or very minimal coverage?

And does your plan cover any outside international, international or any domestic traveling that you might do?

Right.

For instance, again, Kaiser Permanente, typically those are regional, like you have to stay in your specific area to have coverage. Unless you’re traveling to a place where they have one of those clinics, but if you don’t, what do you do then?

That’s a good cover. Yes, that’s a great thing to bring up, because when I ask, hey, what do you you know, at the beginning of my workshop, I say, what do you plan on doing when you retire? The number one answer is travel by far. And and a lot of it is overseas. A lot of it is obviously out of their area. And if they don’t have a plan that covers them out of their area, even even state to state, then that could be an issue.

But people don’t typically think about that. That’s that’s a really good point. I hadn’t quite thought of that. OK, now this is IRA versus TSP, part one to maximize someone asked to maximize what can it be best to do, a Roth IRA and do a traditional TSP? So basically what they’re saying is, wouldn’t it be best to do my traditional piece of my savings in the TSP and then the ROTH in the IRA? I don’t know as far as my understanding is, and again, I want to clarify, we are not financial advisers.

We do not have certificates or licenses to give any sort of financial advice. We are simply here to tell you to explain rather different pieces of how something may work. Whether that works for you or not, we don’t know number one and number two, we can’t tell you what’s going to be best, right? So a Roth IRA, there are some limitations compared to being able to contribute to the ROTH, TSP and having the traditional TSP, so you have to look at that.

There’s different, I think, income limits and things like that as far as how much you can contribute to an outside Roth IRA. But if your income is high enough, it might not be an issue for you.

That might be something that you want to look into. And there might be other benefits that go along with a Roth IRA as opposed to doing the traditional TSP or doing in addition to the traditional TSP. Right. So what are those factors look like for you? Are there living benefits? Are there other. I prayed for not just the taxable income, and that might be where the Roth IRA is more beneficial than the ROTH TSP. Mm hmm.

So it depends on that person and what their situation is. Again, it boils down to the numbers. Yeah, it all depends every every single time, doesn’t it? And I think so. I’ll just say this to the in answer to the question. If you’re if someone is if someone has, you know, is putting money in the traditional TSP in a Roth IRA and taking all the ROTH and putting it money and putting it in an IRA instead, then the money that they’re not putting into the ROTH TSP they’re not getting a match on unless they’re maxing out their well up to the five percent.

I’ll say if they’re you know, if they’re doing it, if they’re not doing the full five percent into the TSP, a traditional TSP, then the money that they’re putting into the Roth IRA could have been matched in the ROTH TSP. Yeah. And so. Right. And like you said, and there are there are income limitations and there are other things that we have to be there are differences. And and I have heard this over and over again.

I remember someone in one of the workshops gave me negative feedback, said you’re trying to do all this. You know, he was he was accusing me basically of of trying to steer people to an IRA. And I’m like, no, he said, because IRAs work the same as the TSP. And I’m like, and that is where you are wrong. They they do in some ways they work the same, but in other ways they are completely different.

And it’s important to know where they are the same and where they are different and then how to take advantage of them. But to assume that the TSP works the same as an IRA is so completely wrong and right. There are strengths and weaknesses.

The both of them all say that it’s not really yes, the TSP. It’s got great fees as opposed to a regular IRA.

However, actually, let me stop you right there real quickly there. Yeah. Yeah, there are IRAs that I mean, and that’s what a lot of people say, is that, you know, TSP cost so much less. And then the financial professionals we talk with are like, well, it depends what you get into. There are some that are actually cheaper than the TSP as well. And people are know what? Yeah, actually, yeah, there are.

Yeah. So.

Well, hold on. I wasn’t finished though. I’m sorry. Sorry, sorry. You have to consider each of the other features to you. Yes. But IRA as opposed to the TSP like for instance somebody who is a special provision employee who is going to retire at age 50 or a regular employee who’s going to retire at 57. Right. They’re going to have the availability to draw a portion of their TSP penalty free before age fifty nine and a half.

But then again, on that flipside of the IRA, you have other features. You have living benefit features for chronically and terminally ill most of the time, I should say, because that’s different for every state.

Exactly right. But there are other my point to that is there are other benefits of features within an IRA that might be more beneficial to you than keeping money in the traditional TSP or maybe having both.

Yeah, so. That’s where you really have to talk with somebody who understands all of those different intricacies of the products that are offered or your state and who understands the federal benefits, who is going to be able to coordinate all of these different features for you and and get you the answers that you’re looking for, because it also depends on what your goals are in retirement and what you need.

Mm hmm. So all of those different factors and then some is what our financial advisers help with, and I was so happy to have them as a resource for employees because like I said, when I’m on the phone with them, they’re able to ask me so many other questions and we can kind of get into a specific case on the nitty gritty of it and really distill down what that person needs and what that person has or doesn’t have. And again, that’s going to vary whether they’re 30 or 60.

Right. So just depending on your age, it could depend on what a financial adviser, what you should or shouldn’t do.

Right. So go to Fednobabble.com, reach out to us. We’ll get you in touch with a financial adviser who’s going to be able to answer these questions for you. But before they answer the questions, they’re going to get you a benefits report as well. Then we got to find out where you are to to know where you’re going.

You’ve got to have a you know, you look at a map. You got to and you’ve got to find out where you are to know and then take a look at the different roads that are available and figure out which one’s the best one to take you to where you need to be or what your goals are and what you’re looking at going. So we do we have to do enough for retirement to we have to take action and figure out where we are and plan the path to where we need to go.

Right. That’s a lot of money. So exactly. So that’s good, good. All right, thanks. And we’ll see you in the next episode, everyone. Take care. Thanks, Cassie. I Kevin. 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.

 

37

#37 – Chronic Health, FEHB Drain, Mortgage Pay off

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Chronic health, FEHB drain, and mortgage payoff, all on today’s Fednobabble.com.

This is Fednobabble.com where Kevin and Cassie make federal retirement benefits understandable for humans like you. These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

Well, welcome, everyone. Hello, Cassie. Hello, Kevin, how are you today? I’m happy because we get to answer a whole bunch of great questions, that, boy, these questions come up all the time or these issues, I’ll say, especially with this first one, it’s more of an issue than it is a question.

So look in. All right, best time to retire for an employee with chronic health issues at 62 or a stretch as far as possible toward full Social Security at sixty seven.

So I the reason I chose this question is more we’re not going to really answer this because obviously it depends and there’s no way to know. There’s just no way to say, well, Eli, there’s no way for you and I right now to answer this and say this is what the answer is. Now, again, you know, a financial professional or a trusted network would be able to dove in and say, OK, here, here is everything and then do it and that’s fine.

But this is not a general question. This is very, very specific. And a lot of people don’t think about chronic health issues. Well, not only that, but I would say it depends on a lot of other factors, too, like how many years of service do they have as a federal employee? What is their pension going to look like? What is their financial situation going to look like? Do they have to.

Yeah. Are they married?

What exactly can they take? Like, do they qualify for some living benefits in Feigley or something like that? Where the. Or other policies, for instance, that they may have other injuries or life insurance policies or things like that, like what is this chronic health issue? What are the chronic health issues and what do they qualify for as far as money coming in to where you can spend time with your family or what have you? Because who knows, maybe if you’re at fifty seven and you got 30 years of service, then you want to fully retire earlier than 62 and take that special retirement supplement benefit because you have other sources of income coming in and you guys can make it financially and you want to spend that time with your spouse or loved ones, family members or friends.

Yeah, right. So I really think this is a case by case scenario and it depends on, you know, not just whether or not you have a chronic health issue, but then, you know, the income part of it. And what is the insurance part like? What are your you know, whatever your health condition is, who’s paying for that? Are you eligible to continue FEHB and have that as a as a resource question?

Are you going to get into Medicare at sixty five? Are you going to last that long? And I don’t mean that to be rude, but that’s just. But it’s a public health issue, right. Yep. How chronic. How terminal.

Right. Is this is to people though. I mean especially those who are younger. Don’t think that there’s going to be an issue, and so they march along, march along march along until all of a sudden something happens like what the heck? Now I have to plan for this. It is so much easier to be able to kind of create a comprehensive plan and then change rather than go into panic mode and go from, you know, I’m fine to oh, no.

Now I have to plan for something completely. Well, I mean, now I don’t know what to do because I set myself up in a situation where now that I have a chronic issue, I, I, I was about to say dead in the water. But that’s but that’s almost true, too, right. And so, yes, I know last night my my my wife and my my girls love watching these. They have like three or four doctor shows that they like watching.

And so we were watching one of them and this woman came in with she said, I have this disease and they’re like, OK, and they’re treating her and she’s having issues. And she got her and her boyfriend got married immediately. I mean, when they realized she was going down. And so they’re doing making all these plans. And then the doctor’s like, wait a minute, hold on. And they did some more tests and they said, you don’t have that disease, you have something else and you’re going to have a long life.

Yeah, you’re going to have to deal with some things, but you’re not going to die any time soon. You’ve got who diagnosed you. And she goes, well, I just did, because it was all the symptoms and my dad died of it, so I assumed that I had it. No, you don’t. Oh, my goodness. I mean, completely. And that’s the way I feel like the whole financial thing is, is, well, this is what I’m going to assume is going to happen.

And then life changes. And that’s no, that’s not what’s going to happen either for shortening the life or lengthening the life or whatever it may be. But these are we need to start planning ASAP because we don’t know what’s going to come up. So we’ve got to have something there. Yep, that’s exactly true. I mean, a few years ago, my husband got in a motorcycle accident life situation, right. And that changed immediately how we were going to move forward for the next six months.

I mean, it’s still changed what we’re doing, because physically now he has so much metal in his body that it changes how he acts.

He acts like a robot. Is that what you’re saying? Because he has so much metal? Are you saying that he looks like a robot because politically he can’t he can’t do as much.

Right. And he can’t last as long outside and things like that. I mean, those day to day things that we take for granted being healthy. That if something were to just. Slightly changes. What does that look like? Yep. You know, I mean, there are so many different things that I think people don’t. They just think, oh, it will never happen to me, right, kind of like a federal employee and my benefits will take care of me in retirement.

Yeah, I’m always the case. And, you know, it’s we just don’t know what’s going to happen. And so we need to plan for worst case scenario. Best case scenario, what does that look like? And then we’ll be covered and maybe make a play in it, you know, I mean, we can’t play forever. We can’t plan for every situation, but. If we can plan for those two different factors, best and worst case scenario, that if we fall somewhere in between, we’re going to know exactly what we need to do.

Right. And I think that’s I think what you said actually is a good Segway into the next question. Why don’t you read that one? And let’s let’s talk about this. OK, generally speaking, is the first retirement payout sufficient to pay for continued federal health benefits?

I don’t know. Yeah, it depends. You’re right. You’re right. You don’t know, because here’s another great example of things change in the workshops I talk about. You know, we give an example and an example. Employee gets twenty six thousand dollars a pension each year. But but I say, OK, now you realize, although that’s what the number says, that isn’t actually what you get. And then we start going out and talking about that’s what you get.

But then you take away this, you take away this, and then all of a sudden people start realizing that, oh, my heck, at some point. I’m going to have more deductions that I am going to have pension. And and those that work and that complete, that’s a complete change. I mean, you know, before we’re talking about health changing, this is a this is a money change, although nothing really changed in your life, it the whole money situation changes at that point.

And so there could be a time when you’re actually although FEHB is taken out of your pension, that you may have to start paying for your FEHB out of your pocket because it may the deductions may be more than what you get in your pension. Have you seen that in some of the reports or some of the things that you’ve dealt with? Yeah, actually, there is a few times where people have a negative net because of their elections starting off, because of their early elections and their fear premium on top of what their pension is, because think about it, if somebody is retiring at 62 with five years of service or 10 years of that high three, if the high three is not high enough that it’s not covering those deductions, depending on what the elections are.

And if you’re sixty two, who knows if you qualify for certain, you know, life insurance policies or what have you outside of family at that time. I mean, I dealt with folks who are 50 and fifty five and can’t qualify for other life insurance products outside of family. And so I think people again, they take that for granted when they’re younger and they think, oh, the government’s going to take care of me while I’m retired. And they don’t think about yes, they will.

But it’s still going to be at a cost like they’re not providing these benefits for free.

Mm hmm. You still have to pay for them. And then we need to look at also, though, what are the other expenses that we have as well? I mean, not just the federal benefits. And one of their income sources that we have. Mm hmm. Right. That we can tap into maybe we have to start collecting Social Security at 62 rather than waiting till sixty five or sixty seven, because financially our pension isn’t enough to cover our other expenses.

OK, I want I want everyone to understand this. I want everyone to understand exactly what Cassie is saying. Please understand that there are circumstances where starting off your pension, it is possible for your pension not to pay for everything and you will actually have to pay out of pocket for some of the things you need starting from the very beginning. I Cassie no one thinks about this. No one now has a clue that this might ever happen to them, which is why it is so important to understand this way before you go in.

I cannot imagine the reaction of a federal employee who is all excited about retiring retires and then realizes they don’t get their pension, but they have to pay out to get what they need. That is a completely different set. That is a different life than what they thought they were going to have for the rest of their life at that point. Right.

And go back to the previous scenario where they have chronic health issues or something. Right. If you added in an FEHB plan where they’re paying more for the plan because it’s covering more in their region or their whatever rate they pick, the best plan that works or what they need. For those chronic health issues and their prescriptions and all of these other things. Right. But then they get to retirement and they realize my pension is going to be enough to cover my FEHB premium, I have to select a different plan or else a lower plan coverage, but then you’re paying more out of pocket.

What does that look like? Right, right. Right. How are we going to juggle all these different financial situations if you have to pick a lesser plan? Or a different plan that has lesser coverage, rather, does that mean how much more are you paying out of pocket for that coverage that you need for those prescriptions that you need? Mm hmm. What’s the difference? And is it worth it to even do that? Right. Right. Like, there are so many different scenarios and these are the types of topics that financial advisers in our trusted network will talk with people about.

I don’t know how many times I’ve been on the phone with those advisers that I’m talking to them about how TRICARE coordinates with FEHB or how, you know, what is the difference between a self plus one and a cell phone option or a cell phone family itself plus one option. And why is there a premium five hundred dollars a month?

How can an FEHB premium be five hundred dollars a month, you know, and then, well, they’re on an HMO plan rather than this plan, and they don’t realize that it depends on the type of plan and coverage that an employee needs. And so they really have to just drill down on, OK, if an employee is in a situation where their balance or their pension is negative, even if they get rid of their family because they’re trying to get as much of their pension as possible, who isn’t then they need to look at possibly switching their FEHB plan.

What are the different considerations that they need to be looking at? And these financial advisers are on the phone with me to ask me that. So that way they can go back to the employee and really distill down, even though they’re not making anything off of it because they’re not covering health benefits or even, you know, entering people into these policies because they have coverage with FEHB. It’s just a simply an educational conversation. Of how we can maximize somebody’s pension and get them what they need, so that way they’re not having to do with a negative pension balance or owing the government money, because who wants to do that in retirement or life?

Right. And they’re taking a look at, OK, what is all of these different factors that come into play here and how do we put all these pieces of the puzzle together so that we can help the employee have the best of their retirement? Because that’s our ultimate goal. That’s so the the issue I just keep thinking, you know, we’ve only hit two questions. We have just a couple of minutes for the last question, but things that people just don’t think about now, this next question is different because people do think about this one.

But the two questions we’ve had so far, people don’t think about or don’t consider typically until it happens. And then you’re and then it’s panic mode, trying to figure out what to do and skip the panic mode. Let’s skip that and just be solid on what we’re going to do ahead of time rather than trying to do it at the last minute. Oh, boy. I mean, I know I teach this team. I teach that to my kids all the time.

Be prepared. Right. Be prepared for anything that comes along the lines. You know, if you want this in the future, make sure that you’re set up to get there, not just assume that it’s going to happen. And yeah, but but I know we’ll have to say, I don’t I don’t think it’s so much a factor of federal employees. I you know, you darn federal employees. How can you do this? I think it’s more of a factor of the culture within the federal government.

Is the government going to take care of you? And that’s what they go by. And and we have to realize that that isn’t quite. True, unfortunately, right. OK, so let’s see. Should I seek to pay off my home mortgage before retirement? Yeah, I don’t know, right, how much you owe. Are you going to downsize, sell your house to downsize? Yeah. You may not want to pay off the bigger mortgage if you’re going to gain enough to be able to pay for a house and have a mortgage.

Yeah, if you’re going to have enough equity and profit coming from your your other house. Right. So I don’t know. It depends.

It really does depend every time. I mean, each one of these questions today. It depends. It depends. It depends. And honestly, to tell you the truth, in the workshop that I do, most of the questions that are asked on the webinar in the Q&A section are it depends just about every time. And and I can understand why people won’t say what do I do with my with my mortgage, for example? What do I do specifically?

Well, people you know, it really depends because you’re right, I’ve seen people take out a mortgage in retirement because it is financially better. And so in their situation and people think, well, how can that be? Well, you know, according to taxes and all and write offs, et cetera, et cetera, there are circumstances where that happens. So everyone has to figure out their own. So, again, it depends. So from that, because it depends, of course, if you would like to report that Cassie, by the way, puts together and she is awesome at putting these things together, just go to Fednobabble.com and get it.

Any last words of wisdom here? Cassie. Take action. If you are thinking about these questions or if you have pondered, you know, thinking about them yourself or if you know of somebody who is thinking about these questions, you’ve got to get answers and you’ve got to it boils down to the numbers and you’ve got to take a look at what that is for your situation. So please go to Fednobabble.com. If you don’t have a financial adviser who is working with you regarding your benefits, because you really have to coordinate those with your other products to to make sure that we’re really taking a look at all of these different things and getting you, again, the best out of your retirement.

You’re not going to be able to do that without having somebody to help guide you in planning for those different types of scenarios and coordinating your federal benefits. And so, you know, if you are curious about that at all or again, have somebody who is curious set in the league, let’s get talking to them. You know, we’re only giving you information. We’re only giving your information to one adviser so they can work work with you. They’re versed in the federal benefits.

They know what they’re talking about.

Again, I’m preparing the report for them. And so they’re able to ask whatever questions they want. And we’re digging into different scenarios or different benefits that people might have questions on and just giving them the best information. So that way they can really do that planning and for themselves. And you owe it to yourself.

I mean, we plan for living during our working career and everything else.

Right, to plan for our family. We plan on the house that we plan all of our finances. Then why don’t we plan for retirement? And I think this is one of the things that is just isn’t taking seriously very often. So take hold of your retirement and do some planning.

Good at just go act good. All right. Cassie appreciate it. Talk to everyone next time. Have a good one and see you on the next episode next week. See you then. If it goes. And it goes now. Now, now, 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.

 

36

#36 – Deferred, Fed Couples, Agency Match

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Deferred, fed couples, and agency match all on today’s Fednobabble.com,

This is Fednobabble.com, where Kevin and Cassie make federal retirement benefits understandable for humans like you. These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

Oh, look at that, we’ve got one of your boys with this don’t know, but also I guess my kids will be joining us for today’s discussion. Excellent.

I love it. Hi, boys. OK, let’s jump in. Maybe they know some of the answers to this as well.

So. This first one, will you be going over deferred retirement, obviously. Now, this is webinar, right? Yeah. Do you cover this in your webinar? No, I don’t. We do cover it in the day long one because there’s more time. But this goes for very, very few people. And so, I mean, really. Yeah, really. Not very many people at all. So we we I don’t talk about it. And what I say is, if you if you really want to dove into this, when you you know, afterwards we can talk about this, but not right now where it’s not going to pertain to anyone except for you.

But can you so being fully retired, can you explain the other options? I don’t know how in-depth you want to go, but the other options that are out there. Yeah, so when you’re looking at, you know, retiring from federal service, I don’t think people really understand what the deferred retirement is. This one often gets confused with postpone retirement.

Yeah, deferred retirement is when somebody separates from service earlier than an actual retirement date. Right. So they’re not eligible for any sort of immediate or postponed pension benefit. Right. So they’re typically prior to their minimum retirement age, which is either fifty five to fifty seven, depending on your birth. But they’re separating prior to their minimum retirement age, and even if they have over 10 years of service, that doesn’t matter. They’re they’re either younger than their minimum retirement age or they’ve met their minimum retirement age and they haven’t met at least 10 years of service.

That’s when a deferred retirement is going to pertain to somebody. Right. Postponed retirement is when somebody has met their minimum retirement age and has at least 10 years of service. So they qualify for a reduced pension benefit immediately under the MRA+10 rules. But then they say, hold the phone, I’m going to wait until I’m fully eligible to receive my pension, whether that’s age sixty six to fifty nine, whatever that looks like based on the number of years of service that they have.

And they simply want to avoid that MRA+10 penalty, right, and that helps, and then they’re OK with postponing their other federal benefits as well, such as FEHB and vaguely. But if they do that, I mean, separating out under and MRA+10 pension, they’re not going to receive the SRS or the special retirement supplement anyways, whether they take the immediate pension or the postponed pension. But deferred employees, when you go out on a deferred retirement. So again, those are people that are under their minimum retirement age with or you’ve met your minimum retirement age and have less than 10 years of service.

Then they’re not going to have any of those benefits that are eligible no matter when they when they begin taking that pension. So even if they obviously deferred, then you’re not going to be able to take your pension until 60 or 62, depending on your years of service anyways.

But if you wait, you’re not going to be able to pick up FEHB and vaguely even when you begin your pension, you’re simply saying, I’m done with the federal government, I’m done with their pension, with their benefits, and I’m choosing not to continue them at all. So, for instance, somebody again, who’s forty five. And separate from service, they haven’t retired because they’re not receiving their pension, so they’re going to retire if they have 20 years of service, they can begin their pension at age 60 because they have those 20 years of service.

But then they’re going to waive FEGLI, FEHB, special retirement supplement like they’re not going to receive any of those other benefits, even when a pension at 60.

And this is a great example of why when people say, OK, can you dove into deferred? And and it’s like, well. Boy, if I do, I mean, it’s not a simple discussion, it’s not a this is how it works. I mean, you can’t say, like you just said, this is how it works. But then the natural question is, OK, well, what do I do? And that’s that opens up a whole can of worms that you and I aren’t going to answer.

But, you know, like someone an adviser and I trusted network there, they will be able to answer because they see your situation, they know your situation, they see your numbers, they see everything. They ask and say, OK, what’s best for you to maximize your benefits. This is what you do. But and but you that was a great example of why we don’t even try to explain it in in a workshop or something like that, because it just goes, oh, it’s overwhelming.

It’s tough. So, yeah, OK, good. That’s number one, number two.

All right, my husband and I are both federal employees. What options are available to us?

Hmm. What options are?

Um, yeah.

There, you know, right off the top. I can think of a couple things.

What?

There’s some there because there are bonuses for federal employee couples that are married to each other. One of them has to do with health care. Right.

So with health care, some things with that is that if as long as you both have are in the FEHB plan when you retire, then if one dies, that doesn’t mean that the other one doesn’t get FEHB anymore. You don’t have to take the S.R., the survivor benefit. So they’re they’re out of it that way. You know, they’re not strongarmed into the survivor benefit program because they both are entitled to that. That’s right. And that’s one way there are some there’s another benefit.

I can’t there’s another benefit. So here’s the thing. Yeah, go for it.

The FEHB and the survivor benefit are definitely one. But then they also have to think about the income. Right. So with somebody who is in the federal service and somebody who’s not not always is the spouse who’s not in federal service going to have a pension. And so, sure, the the federal employee obviously will get the pension, but with federal employee couples, both of them are going to have a pension. So that’s going to change a little bit.

How excuse me, how, you know, that planning process looks like and especially for TSP benefits, like they’re both going to have a TSP, you know, federal couples are are, again, like you said, the FEHB and the surviving spouse.

Well, they’re probably both going to have Bagli as well. And the special retirement supplement option, if they’re first like we have to look at, there’s so many similarities and benefits to the federal program that the other federal spouse is going to naturally have depending on which retirement system they’re under. OK? But there’s there’s a whole lot of benefits to that. And so the planning considerations are going to be different because federal couples have the same benefits as each other rather than if somebody doesn’t work.

If a spouse doesn’t work for the federal government, they’re not going to have the ability to keep certain programs. There’s there’s going to be having to be more coordinated approach with the benefits to make sure that certain plans are there for the spouse other than having to be or having to be eligible for them on their own. Yeah.

And I’ll give you I’ll give you one quick example. I’ve had this happen a few times in in my workshops, not too often, but it does happen every now and then where there is a federal couple married together and one is a citizen, one is a fer’s. And when we get to the TSP, I say, OK, this I come to this particular slide and I say, this is dedicated to you to right now. I said, let’s say husband is first and wife is, as I say, husband.

If you want to take out anything from your TSP, you have to get permission from your wife. But wife, when you want to take anything out from your TSP, you don’t have to get permission from your husband. You can just take it out. And he’s just notified, which means that if you get to the mailbox faster than he can, he’ll never know how you got all those shoes. So and and they look at each other. Oh, and you can just sometimes just feel like, are you kidding me?

Why is that fair?

And she just you know, the wife is gloating and saying, yes, I can do that and he’s mad. And then I think, OK, you know, maybe we need to bring in a psychologist or a counselor of some type to work out the issues that you do to that I have created now for you. So, yeah, but there are little things like that that there are differences between CSRS and FERS. Sometimes they own a lot of times they play really well together and can give you some bonuses.

But there are times like that when they don’t play very well together anymore.

So it’s kind of like, well, security, right? If you have a CSRS employee and a first employee, IRS is going to not have Social Security, but they’re going to have a higher pension. FERS is going to have maybe a lower pension, but then they get the Social Security. But the CSRS simply cannot get. Yes. Well, most of the time, I should say, it’s not going to be eligible for the benefit under Social Security because of the government pension offset.

And, you know, and so there’s even though the CSRS can have whatever freedom they have with the TSP by not notifying their spouse or getting consent or anything to withdraw their money. Well, the first employee, you know, they’re going to have other benefits, too.

Yep. It’s all over the place. It gets so confusing.

It depends on to answer this question. It depends on which system those federal employee couples are under. As for what their options are available, because they’re going to be different if you have a CSRS and a FERS as opposed to a person of FERS or a CSRS & a CSRS. You know, and so that’s why getting in touch with somebody who can help them kind of figure out what the differences are or what what options are available to them based on their retirement system is going to be key.

Yeah.

How do you maximize this? How do you put all the rules just in line and keep as much of your own money as possible? That’s the key right there. How do I keep as much of my own money as yourself?

What was that again?

Do you keep it or not? I’ll give it to you. Oh, no, that’s not what I mean. Yeah, that that’s. Yeah, yeah. That’s not what I was talking about. But that’s OK. That could be two. Right. Right. OK, let’s go on to the next question.

All right.

Does the agency match contributions count towards nineteen thousand five hundred max contribution now? Period. Done. OK, I have another question. OK, that was easy, right? I know we only have a few minutes here and I thought that would be perfect for that. But I want to ask another question in here that I’m pretty confident I know the answer to. But I may be wrong in this.

This says, does agency match contributions? Let’s just put a question mark right there. Does the agency match the contributions as opposed to OPM matching contributions and does no matter how.

Hold on hold. And how often do you get that in your workshop where they ask if OPM matches?

I don’t often. But what I do get is a difference between understanding of what an agency does and what OPM does. And, for example, that compared to the compared to the report that they can get from OPM. Those could be the same, but they could be off. Isn’t going to be the site. Right. OPM says, you know, OPM has an MRI and then they have you know, we can take advantage of when someone is going to retire and make it the last day of the month to maximize the amount of money that they have.

But if you’re a law enforcement officer, then it’s actually up to the agency if you hit your maximum retirement age as to when best… I mean, so sometimes we have to look at what OPM says. Sometimes we have to look at what the agency has said. And so I was just thinking here, I think it’s OPM, isn’t it? And talk about that. So OPM is pretty much for advice for federal employee. And they but they handle more of the retirement stuff.

Right.

And the and the laws and the regulations with the federal government. But so, no, they don’t have anything to do with the contributions to TSP or anything.

The agency or OPM, the OPM, the Office of Personnel Management is simply to manage those things.

Right now. The agency is the H.R. department or the agency that you work for, OK? And they’re going to have more specific information. Now, I see this in benefit reports, right, where somebody is like, well, I got this estimate from OPM, but then I got this estimate from from the agency. Well, OPM is going to take into consideration more of what the agency is because the agency does it maybe doesn’t have everything the OPM does or vice versa.

Mm hmm. Right. So, for instance, if somebody has submitted the certified summary of service, the agency has all of that record of somebody whose service history, OPM may not have that service history. And they’re going to give you the information based on what you have, what your retirement is, whether, you know. So they’re going to calculate the pension based on all that information. They’re not going to run the year. They’re not going to be the H.R. department where that can run different scenarios and provide different right reports to you based on if you buy back your military service or something like that.

Right. They’re not always going to have the the part time Proration factor. Because they may not have all of those, and so I think people get this confused often where submitting the retirement application, for instance, they think, oh, well, I’m going to send that into OPM. Well, before you do that, there’s some things that your agency has to do first. And so you actually submit your retirement application package to your agency so they can get together the other documents that need to be included in the package and then send it off to OPM.

And that’s what that process looks like. And when you when you separate agency and OPM, people are like, oh, I didn’t I didn’t realize that that’s how that worked. Right. Well, yeah. You know, it’s separate. Yeah.

It’s it’s good to have an understanding, at least some basic understanding of who does what and and understand, for example, that, oh, my retirement comes from OPM.

And and not the agency and the agency doesn’t handle my retirement, it’s OPM and who not only who to go to, but also when you’re looking for the final word, do go to your H.R. for the final word of what your retirement will be like or do you go to OPM? And so, again, it’s good to understand what your agency is handling and doing compared to what OPM is handling and doing.

Yeah, and I’ll tell you all all things regarding your deductions and contributions and all of that, that is strictly OK. In fact, I’ve got a friend who works in the payroll department, that is for the people who do payroll right there. They’re figuring out what that looks like and and all of that for you. That is is not OPM. It’s not even TSP, really.

That’s your payroll office.

So, OK, well, that’s you know, that’s a that’s something that I don’t think I’ve ever really discussed with anyone before in more in in-depth like that. It’s been a cursory hey, you got to know the difference. But we’ve never dove into it because, you know, in a workshop, we just don’t have time to do that. But it’s good to have an understanding of that. OK, as always, if you would please like and subscribe, get notifications and make sure you stay up to date, make sure you have all the information Cassie.

Any last words of wisdom?

Go get a benefits analysis from somebody, right, whether it’s each hour or OPM get something if you’re looking at retirement planning or are curious about what that looks like for you and try and get in touch with somebody who understands what these benefits are all about because they’re going to help answer the questions that pertain to you specifically. And if you’re looking at a more robust type planning, then reach out to a financial adviser and who understands the federal benefits if you don’t have one.

Let us help you get someone in your area. Great. Thank you very much.

And we’ll talk to everyone next time 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.

 

35

#35 – Pension vs Annuity, FRA vs MRA, and Lump vs. Annuity

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Pension versus annuity, FRA versus MRA, and lump sum versus annuity on today’s Fenobabble

This is Fednobabble.com, where Kevin and Cassie make federal retirement benefits understandable for humans like you.

These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

Well, welcome, Cassie, that’s a long title for this one. That is so these are questions that you get from your workshop, what’s going on here?

Well, let’s see. This first one is pension versus annuity. What’s the difference?

Hey, can you can you explain what the difference is between this is a little bit difficult? Well, I’ll just let you go for pension versus annuity. All right, so your pension is going to be it? Well, if you look up the definition right, it’s going to be something that you get once you’ve separated because you’ve contributed to a certain retirement plan, OK? So for six hours or first employees, we call this your the money that you receive at retirement or in retirement is your pension because it’s something that you’ve contributed to, you’ve worked towards.

They’ve deducted it from your paychecks because you’ve worked for that company in that retirement system. Now, OPM calls it your annuity. How confusing, I hate that, let’s just confuse everyone even more, right? OK, yeah, go ahead. Sorry.

Yes, but annuity is simply just something that you’ve contributed over time and you decided to take money on a monthly basis. And that’s an annuity rate. So it’s a very they could be one in the same, but they can also be different if you would like to keep it easy for yourself. Yes. Because you can call your TSP, you know, monthly income an annuity and call what you get from your from the federal government, your pension. I oh, really?

Yeah. And really, that’s what we do because this is so confusing because. The pension, the way they decide to pay it out, is a type of annuity, that’s the way the annuity is. The way they paid out the pension is what they build up. They could offer it as a lump sum.

I know there are some pensions from companies, although those are very, very rare from a company doing a pension. But they could just do a lump sum. There’s your pension and it’s not given to federal employees in an annuity style. But they chose the annuity style and opium calls it an annuity. But then there’s the TSP annuity as well. And people get those confused all the time. And so typically in my workshops and Cassie, when you and I are talking about it, when we say pension, we’re talking about CSRS & FERS, CSRS Offset all the rest.

Right.

When we talk about annuity, we’re going to be focused on the TSP because we don’t want to cross the nomenclature. We don’t want to confuse people. So we will. That’s how we’ll talk about it.

Right, because annuity is so general. That I don’t understand why OPM does not distinguish, right, that there first and Sirrs monthly income is a pension, because that’s what you it’s you’ve contributed to that because you worked for the federal government. Right. That is an employer sponsored program. So that’s where that’s where pension and annuity are different. Right. An annuity is simply just I get monthly, I get money on a monthly basis because I contributed to something that could be an IRA.

Whether that’s traditional, whether that’s ROTH, that doesn’t matter. Right. But a pension is specific for. Deductions that have been made because of your to an employer sponsored program, right?

OK, so that’s why we differentiate pension as your employer sponsored program for FERS or CSRS, an annuity to your outside TSP or other kind of programs because those are not employer sponsored.

I think that’s the easiest. Yeah, different and or and distinguishing factor.

I want to just point out that this. A play of words and how it’s all named entitled and how we refer to things. The confusion is not uncommon when it comes to federal benefits. It is very, very common to have that confusion and why the government doesn’t do a better job of clearing that up, because people make they say, oh, I’ve got an annuity and they think one thing, but not what it really is. And so they make plans based off of what they thought it was or what they saw somewhere else.

Because every agency I mean, I remember one person saying I’m a temporary employee. And I talked to him and I said, well, according to your agency, you’re a temporary employee. But according to OPM, you’re not a temporary employee. It’s like, what? Yeah, that’s exactly right. And so you can actually make decisions based on what you think it is, but it’s not really that. And you hurt your retirement because of that. So that’s that’s why we have we do real quick.

I got a funny story. So I was meeting with this guy when I was first getting into helping federal employees and coordinating their benefits with other insurance plans or whatever. Right. Yeah, and I was not Scelzi. I was not I simply wanted to get him his benefits report. Right. And I’m talking with him a little bit and everything else about just getting him the benefits report and, you know, talking about finding some some outside planning, if if that’s something that is needed for him, then I would have that availability to help him out there.

And I remember. When I was walking up to him, he’s kind of got this like, oh, great, kind of, you know, spoke to him and everything else. And I walk up and is the first words out of his mouth were, I don’t want to buy an annuity. And I was like, you realize that you have an annuity with the federal government. Like, people don’t think that it’s actual annuity, but it is your pension is an annuity, right?

Even though we distinguish the two, because it’s what you it’s an employer sponsored program. It’s still an annuity. Mm hmm.

If you are going to take or use your TSP funds for monthly income, whether you decide to withdraw a monthly portion of that, you know, or get into a separate IRA, it’s still going to be an annuity because you’ve contributed to that plan and you’re making those contributions. You’re you’re paying yourself that income based on your contributions. Right.

Right. So you’ve got to follow Suze Orman. And she said don’t buy an annuity. Annuities, right.

Well, then you’re going to give up your pension will have a choice on all government.

You only have one, right? Look at that. Then I’ll tell you what. You give me your pension. If you don’t want an annuity, you give me your pension and I’ll just take that off your plate. All right.

Good. All right. So, OK, that’s a good. We went along on that one. That’s OK. That’s good. The next question is, is your full retirement age your MRA? So let me put this a little differently. Is your FRA your MRA? What do you think? Well, no. What are we talking about here, right? Are we talking about or the federal government? Are we talking about for Social Security? Right.

Because retirement. Yes. Is this.

Write your full retirement age is something that is referred to for Social Security, right? Yeah, minimum retirement age or MRA is something that’s referred to for your eligibility for the federal government.

So they’re not always the new.

I don’t know that they are the same at all. I mean, they’re they’re different. They’re different things unless people are calling it weird things. But if we look at it in that respect, like you said, FERS Social Security MRA is federal government work employee. Right. Those are two completely separate things that don’t have anything to do with each other.

No. But I don’t know what context we were talking about here. What was the reason for this question?

Yes, no, there is I mean, that’s what I think someone was just I think my guess is when someone asked this question, they were just confuses way.

FERS MRA aren’t aren’t they the same thing? Because they had been my guess. They’ve been told that, oh, it’s you know, it’s all the same and it works well. No. And one thing I have to keep reminding people is Farra is for Social Security and Social Security is for all Americans, not just. Federal employees and all that. That’s right, I guess everyone gets that. Yeah, everyone does get that. But your MRI is for your pension and only federal employees get that.

So it’s I direct payments. All right. It’s way confusing.

I mean, and which MRA are we talking about here? Are we talking about retirement or your retirement age? Right. Right. Yes.

I’m going to go because all regular employees have a minimum retirement age, and that could be between fifty five and fifty seven, depending on your year birth. But all special provision employees have a different maximum retirement age, depending on which agency there is, that could be 56 or 57, right. So it depends. No, they’re not the same. You’re right. So I guess the short answer is no. Your everyday is not your Emerin. Yep.

Have nothing to do with each other. Good. Good answer. All right. Next one. Is there a lump sum option rather than taking the penalty pension annuity? Oh, look at that. We were just talking about that. Look, that did not plan. That did not think about that. But yes, go ahead and add to that one Cassie. Is there a lump sum option rather than taking your pension annuity, I mean, sure, you can get a refund of your contributions that you’ve made to CSRS or FERS.

Rather than actually retiring and getting a monthly benefit, but. I I think it depends on when you separate, because, right, let me go back here.

Well, let me let me ask you a couple of questions in that to have you as you answer this.

First off, sure.

You can bring it all back, but does do you have to do that before you retire or as you retire? And can or can it be done after you retire? Well, it can’t be done after you retire. Now, once you’ve made that election and you’ve filled out the retirement application and you’ve made, then you’ve already told OPM how you want to receive that pension annuity. Right. OK, you’ve already said, yes, I want the survivor benefit or no, I want this amount or whatever that looks like for your retirement type.

Yeah, it’s too late, you can’t go back on that, but. If you separate from service, do not retire. Then you could simply take your contributions and go away, like if somebody is age forty five and they don’t want to retire, they don’t want to wait 15 to 17 years to receive that annuity pension, you bet they can take those retirement contributions and, you know, put them in another IRA or whatever you want to do.

And I don’t care, but you can take that lump sum benefit. But if something is made, it’s only what you put in. There isn’t any growth of anything. It’s exactly what you put in, nothing more.

Right. So if you’ve only contributed ten thousand dollars, that’s all you’re going to get. Yep. Hmm.

Now, if you add so it depends on what age you are or whether or not this is going to be good for you. But is there a lump sum option rather than taking a pension annuity. Yes, but if you’re eligible for an immediate annuity, an immediate pension annuity, then why would you want to take your your lump sum right. Option? Now, there could be a reason, say somebody is terminally ill.

That’s exactly where I was going. That’s exactly it. If you’re terminally ill, maybe you do want to take it all out. So because you’re not going to get it. So you may want. Yeah, that’s exactly what I was thinking.

Yeah. But if that’s the case, you’re going to want to separate from service.

You’re not going to want to retire because once you retire then that’s it. You fill out that application, you’ve submitted your your package and that’s what you get. So I think people get those two dates confused too, on the separation date versus the retirement date. The separation date is not necessarily your retirement date. Usually it is, but is not always, usually is, but it’s just like your LEOs service computation and your retirement computation. They could be two separate dates.

Yeah, usually they’re the same, but there are reasons why they’re not the same. Yeah.

Can I, can I throw in one one example of as as we’re talking about this, I thought of where it gets really as if it’s not complicated already. Here’s here’s an example where it gets more complicated. Let’s say someone is terminally ill and they know that they’re not going to live more than two months. We’ve seen that happen. They may want to say, I’m done, I quit. I’m taking all the money so that I can give it to my family because they’re not going to get it afterwards.

If they do that, they’ve separated from service. They didn’t retire. So their family can’t have FEHB from that point on, however. Right. Right. However, if they pass away while they’re employed, then their family can have FEHB even after assuming assuming some other rules and everything.

But they can have the FEHB after plus 50 percent of the monthly pension from that point on. So financially, which one is better? That is where it is so important to make sure that we’re getting help on this. We’re not we’re not making decisions like that willy nilly and just saying, oh, this is what we should do. Or honestly, we’ve heard we’ve heard the story before where they took advice from H.R. and they were going to do the third option was which was absolutely the wrong thing to do.

So oops, sorry.

Right. So I’m all over the place with this.

So we just you know what, we we have to make sure that the changes are the decisions we make and we need to make our federal employees need to make decisions now for what’s going to happen later.

And we need to look at the different scenarios of what may happen just in case. So if this happens, this is what we want to do. If this happens and we don’t you don’t get into every little oh, you know, if you go terminal, OK, but one of the ones that are most likely to happen here are the situations. And the thing is, is that federal employees are typically going to retire one time. They’ve got one shot at.

Yes. Whereas a financial planner and financial adviser, they have helped thousands of people or hundreds or thousands of people.

They’ve done this again and again and again and again and again and again. They know what’s going to come up. They’ve seen it before. So it’s not like you’re going in blind. You’re going in with someone who understands this already. So, again, that’s why we say, yes, please, you know, go to Fednobabble.com and just get the report.

And Cassie, by the way, Cassie creates the reports. These reports are phenomenal. And she she was just telling me the other day that Cassie you were you stayed up way late to try to get the information just right on one. And you’re up and you get up early, you get up like stupid early.

And you were going you’re going well, at least for me, you know, but you get up at 4:00 a.m., I think. Is that right?

Yeah, something like that. Yeah. But that doesn’t matter, you know. But I mean, people need this information, right? And so not only are we making sure those numbers are right, though, we’re also giving back to the advisors the information that they need for the employee, whether that’s a different option of what that retirement looks like, you know, whether the lump sum option is how and how that’s going to not just affect them, but there are other benefits.

How is that going to affect their spouses if they’re married? How is that going to affect if they’re divorced and they owe a portion of that annuity to their former spouse? What does that look like? Like we’re we’re able to distill down all of those different intricacies in a case so that we we’re getting that specific information to you, to the adviser, so that way they can help the employee, because the whole point of this is to make sure that the employee is taken care of.

They have the information that they need and know exactly how these different benefits are going to affect one another. And until you can just drill down that you can’t do any sort of retirement planning or figure out whether the lump sum option is going to be better than the annuity as a pension annuity for you. Right. And that’s that’s what it’s all about, is finding out what’s best for the employee. So that way they can make the most informed decision.

Yeah.

So if you would please like subscribe get notifications for this to continually be updated, to continually be educated, to know different perspectives on how to think about all this and really dove in. Other than that, we’ll see you next time. 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.

 

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