2020 FERS Retirement Planning Guide

By Published by FEDweek

The most important factor in your retirement planning is understanding the federal retirement system and benefits. The more you know, the better the result.

Our brand new FERS Retirement Planning Guide contains the very latest critical information on your retirement benefits and is stated clearly to help you take full advantage of opportunities and avoid costly mistakes.

This reference guide clarifies important topics such as the retirement planning process, maximizing and calculating your annuity, the role Social Security plays, as well as health insurance, life insurance and the TSP.

Included this FERS Retirement Planning Guide for 2020:

•Special Retirement Supplement
•Leaving service before retirement eligibility
•Service Computation Date
•MRA +10
•Catch-62
•Sick leave conversion
•Retirement eligibility
•Early Retirement
•Redeposits
•Key retirement terms you need to know
•Social Security and the Thrift Savings Plan
•How to calculate your annuity (with plenty of easy-to-follow examples)
•Eligibility requirements
•Different retirement types (regular, early, deferred, special disability)
•Credit for military service
•Deposits and redeposits
•Cost of living adjustments – COLAs
•The effect of divorce on annuities
•Social Security
•Public Pension Offset
•Windfall Elimination Provision
•The Thrift Savings Plan
•Taking health and life insurance into retirement
•Special retirement (law enforcement, air traffic controller, etc.)
•Annuity taxes
•Annuity reductions
•Survivor benefits
•And much more!

Note: CSRS-Offset employees should order the CSRS version and those who switched from CSRS to FERS want the FERS version.

• Language: English
• Publisher: BookBaby
• Release date: Jan 22, 2020
• ISBN: 9781098301101

Book preview

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CHAPTER 1

Overview

The Federal Employees Retirement System (FERS) is composed of three parts: a defined benefit plan; the Thrift Savings Plan; and Social Security. All three components are needed to match or exceed the benefits available to retirees under the old Civil Service Retirement System (CSRS).

The defined benefit component allows you to predict the amount of annuity you will receive when you are eligible to retire. It is based on a simple formula involving your years of creditable service and your highest three years of average salary (called the high-3). The closer you are to retirement, the more accurate your estimate will be.

Social Security operates the same for you as it does for other covered employees such as those in the private sector. The percent of income you and your agency contribute to Social Security is set in law, as is the formula used to determine your eventual benefit. However, the amount you will receive varies according to the age at which you claim your benefit and your career earnings. Because Social Security is a social insurance program, the formula is tilted in favor of lower-income workers.

The Thrift Savings Plan (TSP) allows you to invest in a variety of funds on a tax-advantaged basis. Although the rules governing how much you and your agency may put in are defined, the long-term outcomes are far less predictable. That’s because they depend on what percentage of your income you invest, how much of that is matched by your agency, how long you invest, and the success of the investment strategy you pursue.

If all your service has been performed under FERS, your annuity will be calculated exclusively under that system. On the other hand, if you have a CSRS component in your annuity, that service will be calculated under CSRS rules and the two amounts combined into a single annuity payment.

EMBARKING ON THE RETIREMENT PLANNING JOURNEY

Planning for retirement involves numerous financial, personal and other considerations. As you go through that process, and as you go through this book, you will want to bear in mind several key issues. The chapters that follow explain each of these in more detail, but at the outset of your retirement planning journey it’s important to have a perspective on these considerations and to recognize how they relate to each other.

Build a solid knowledge of your retirement benefits, even if it means starting from scratch. Discard almost all of what you have heard in the lunchroom over the years. Even if your co-workers are well informed, the decisions they are making about retirement won’t necessarily be best for you. That’s true even if you seem to be in more or less the same life and career situations. You have to make your own decisions. In some cases this means going in a different direction than your peers—retiring earlier or later, for example, or making a different choice on survivor benefits—and possibly having to stand up for your decisions under their criticism.

Also discard any notions you have of retirement based on your opinions of what the benefits should be. Benefits are set by law and regulation, and those policies don’t change easily or often. Your focus must be on what the benefits are, not what you wish they were, or else you risk misleading yourself. The proper way to go about it is to learn how your retirement system works, what benefits you might be entitled to, what you have to do to make sure you get them, and roughly how much you stand to receive and when.

Various resources are available to you as you transition between a career and retirement. The agency that you work for is responsible for documenting the history of your career, keeping track of your contributions and taxes paid toward retirement benefits, and assuring that you are eligible to maintain insurance benefits when you retire from service. The Office of Personnel Management and Social Security Administration are responsible for computing your retirement benefits and paying them out. The Federal Retirement Thrift Investment Board keeps track of your Thrift Savings Plan money and will pay it out to you in the form you choose. And there are webinars and other forms of training available to you. There are many decisions to make and issues to understand when it comes to planning for and living in a successful retirement.

For starters, it is your responsibility to understand the factors that influence your retirement benefit. Your benefits will be based on your length of service and a computation of your basic pay rates over the high-3 years of your career. Do you understand what is meant by basic pay? If you don’t, those tentative calculations of your future benefits that you’ve been performing might be way off. Basic pay includes locality rates, basic annual pay adjustments, promotions, and step increases. Basic pay does not include most overtime pay, bonuses or cash awards.

Length of service is one of the most important concepts for you to take responsibility for. Have you maintained clear records that document the history of your entire federal career? This means having a copy of all of the SF 50s that show beginning and ending dates of prior service, military service records, and even records of that temporary summer job at a national park while in college. If you don’t have all that, then you should review your Official Personnel Folder (which could be in paper form, electronic form, or both) to be sure that this documentation exists. It is probably a good idea to ask for copies of documentation that you have not maintained in your own personal personnel folder. Do you have any questions about whether or not past service that you have performed is creditable towards your retirement?

In addition to maintaining records of the dates of past service, it is also critical to understand the benefit of paying a deposit into the retirement fund for service where no retirement deductions were withheld or where the deductions were withheld and later refunded to you. The rules relating to paying service credit deposits can be complicated. Generally, if you request an estimated retirement computation from your agency’s personnel office, you will be informed about unpaid deposits and their effect on your retirement benefit. Some deposits can be expensive because of the accumulated interest that is due. And these payments must be received and recorded before you retire—in some cases involving a processing time of many months. This is why it is recommended that you start this process long before actually retiring.

Have you considered the election of a survivor benefit? If you are married, this is a mandatory consideration. There are survivor benefit considerations for your basic retirement benefit, Social Security, and the Thrift Savings Plan. In addition, make sure you keep your beneficiary designations up to date, even after you retire.

What about continuation of life insurance and health benefits? Do you know what is meant by the five-year test? Do you know the benefit of maintaining federal health and life insurance in retirement? Is your spouse dependent on you for health insurance? Do you understand what is required to make sure he or she can continue this valuable benefit in the event you die first? How about long-term care insurance and dental/vision insurance? They don’t carry the same types of restrictions on continuation into retirement as health and life insurance. But have you factored their potential costs and benefits into your financial plans? Even if you don’t have such insurance now, might you want to take it out in the future?

Finally, what about Social Security? Have you reviewed their record of your past earnings? It’s on your benefits summary statement, which in most cases you now have to get by setting up an online account. If there is a discrepancy, it is your responsibility to report and provide proof to correct it. Making these corrections can affect the amount of your future benefit. Are you entitled to more than one benefit? Social Security pays benefits to workers and their dependents. This can include a current spouse, a former spouse, dependent children and in some cases, dependent parents. Have you considered when you will apply for Social Security benefits and the effect your age has on the amount of the benefit you will receive? Do you understand the potential reductions to Social Security and how they work?

Bear these questions and considerations in mind as you walk through the steps described below.

Understand When Not to Retire

A decision on when to retire can be guided in part by some common-sense principles regarding when you should not retire.

First, don’t retire on an impulse, for example, when you’re angry at someone or fed up with the job. In all likelihood, you’ll live to regret it. It’s far better to retire to something than to retire to get away from something.

Second, don’t retire unless you are sure that you have been given credit for all your years of federal service — both civilian and military, if applicable. Don’t neglect to include bits of creditable civilian service such as from employment when in high school or college.

Third, don’t retire if you haven’t evaluated your future financial needs and probable income to verify that you’ll be able to maintain your standard of living. Having to cut corner after corner in retirement can take the shine off those golden years.

Fourth, don’t retire if you haven’t been covered by the Federal Employees Health Benefits (FEHB) program for the most recent five years (or from your first opportunity to enroll). If you do, you’ll be losing out on one of the greatest benefits available to federal retirees. The exceptions to this requirement are very rare. (The same five-year rule applies to the Federal Employees’ Group Life Insurance program, which may or may not be as important to you.)

Fifth, don’t retire unless you have checked out all the options and timings. To do that you will need professional help, not water-cooler advice. You can get such help from the benefits officers in your personnel office, government agency websites, or private sector specialists. For example, did you know that FERS provides for a 10 percent boost in benefits for those who retire with at least 20 years of service at or after age 62? If you currently don’t meet both those criteria but are reasonably close, it may well be worth your while to keep working long enough to take advantage.

Sixth, if you are married (or have a special someone), don’t retire unless you have discussed it with that person. That old saw, I married you for better or worse but not for lunch, has a measure of truth in it. Accommodations will need to be made and the implications of that need to be worked on before you start being together 24/7.

Seventh, don’t retire if you feel like you’re walking the plank and facing a life without purpose. As noted in the first point above, it’s far better to retire to something. That something can be another job, starting a business, perfecting a hobby, travel, volunteer work, etc. What do you do? needs an answer that makes you feel good about yourself when you are retired.

Determine Eligibility

Often, the hardest decision regarding retirement is choosing the date. The first step to making this decision is to determine when you are eligible to retire. Once you have determined your eligibility date and establish a tentative retirement date, you can adequately begin to prepare for your retirement.

Although standard voluntary (formally, optional) retirement is the most common form, there are other forms of retirement as well, each with their own eligibility rules, as shown in the accompanying table.

Understand Your High-3

The high-3 is an average of your highest rates of basic pay over any three consecutive years of creditable civilian service, with each pay rate weighted by the length of time it was received. That three-year period starts and ends on the dates that produce the highest average pay.

If you are like most federal employees, your highest three years of basic pay will be the 36 months (to be completely precise, the 78 pay periods) immediately before the day on which you retire. If that is the case, to find the starting date for your high-3 calculation just go back from the date you plan to retire. If it isn’t, you’ll have to do some digging to find the numbers you need.

If you have a break in service, the three years used to calculate your high-3 won’t have to be continuous. Two or more separate periods of service may be joined together. All that matters is that the three years of service be the ones that produce the highest average salary.

If you have taken any leave without pay (including through being furloughed), ), it won’t affect your high-3 as long as you haven’t taken more than six months in a calendar year. That time period of absence will be treated as if you’d been at work and receiving your regular salary. However, LWOP beyond six months in a calendar year will cause your high-3 to be based on a longer period.

For purposes of calculating your high-3, basic pay is the portion of your pay from which retirement deductions are taken. For most employees, it’s the salary of the position you occupy.

For general schedule employees, it also includes such things as:

•locality pay;

•within grade increases;

•special pay rates established for recruiting and retention purposes; and

•certain kinds of premium pay, largely affecting firefighters and law enforcement officers.

For wage system employees, base pay includes environmental differential pay.

Excluded from base pay, and, thus, from being used in determining high-3 are:

•bonuses, allowances, holiday pay, military pay, cash awards and overtime;

•travel pay outside the regular tour of duty;

•lump-sum payments covering unused hours of annual leave;

•foreign post differentials;

•non-foreign area allowances and differentials; and

•payment for credit hours earned under a compressed work schedule.

To find out what types of pay are creditable for retirement purposes, check your pay statement to learn if deductions are being taken out for anything other than the pay listed for your grade, step and locality. Also, you can go to your payroll office and either confirm what you’ve found out or ask them why certain kinds of pay you’re receiving aren’t being treated as creditable in your high-3.

The high-3 is based on basic pay before any deductions, including those for a flexible spending account or Thrift Savings Plan investments, are taken out.

Review Your Official Personnel Folder

Employees should review their Official Personnel Folders—typically, no longer physical folders but instead electronic files—on a regular basis as a general rule, but it’s especially important in the run-up to retirement. Generally, you’ll want to be sure to look at it within six months to a year before your retirement date so that you can make any corrections or take any actions needed to best position yourself for retirement. Your supervisor can arrange for you to review your OPF. Here are some issues meriting particular attention.

•Date of Birth. Retirement eligibility is calculated based on age and years of service, but employees may never have actually checked to make sure their date of birth is correct.

•Service Computation Date. This date is used for numerous computations, from the amount of leave you earn to when you are eligible to retire. But due to breaks in service and other factors, it may not be the same date as the date you started work. Verify this date and all beginning and ending dates of the service that will be used to calculate your retirement eligibility date.

•Promotions/Step Increases/Pay Increases. The effective dates of each of can be are important when calculating your high-3 average salary, which in part determines your annuity.

•Creditable Service. Does your OPF contain information on all service that is creditable towards retirement? Maybe you once worked for the Census Bureau part-time during a census, or served on a temporary holiday season appointment with the Postal Service, or perhaps you held a temporary position with the IRS during tax season. These may very well be creditable towards retirement. Notify your personnel office immediately if you discover that your file is not complete.

•Beneficiary Forms. Do you have current beneficiary forms on file? Keep in mind that not all designations are retained in the OPF. Retirement, FEGLI life insurance and unpaid compensation directives will be on file in the OPF, while TSP designations are on file with the TSP. You may need to update your designations at the time of retirement.

•Health Insurance. If you plan to retain your FEHB in retirement, make sure your file shows your complete coverage for the five years immediately prior to retirement.

•Military Service. Have you performed active military service? If so, and you do not see your DD 214(s) in the OPF, you must submit copies to the personnel office along with your retirement package. Have you made a deposit for military service performed? If you have paid a military deposit, check your OPF for a copy of the OPM Form 1514. If not included in your OPF, you will need to provide proof of payment with your retirement package. If you have not, and wish to do so, you must begin the process immediately.

See the sections below for detailed explanations of several of these considerations.

Obtain an Annuity Estimate

You likely will want to obtain an annuity estimate at least a year before your planned retirement date. This will enable you to make some key retirement decisions and to effectively plan for your retirement. It also enables you to doublecheck whether the records the government has kept regarding your employment and earnings history match yours and to examine the need to make payments to capture certain service for eligibility or benefit calculations.

You can obtain an estimate of your federal retirement benefit through your agency benefits counselor or at www.opm.gov/retirement-services/calculators.

Pay special attention to these factors:

•If you owe any deposits for prior service (including military service) where retirement deductions weren’t taken or redeposits if you took a refund of your retirement deductions, you’ll need to find out what effect that will have on your annuity. If you decide to make a deposit or redeposit, you can get the necessary forms from your benefits counselor or download them at www.opm.gov/forms .

•If you are currently receiving military retired pay, you’ll want to assess the impact of that on your retirement annuity. Under certain, limited circumstances, you may be able to receive both. However, in most cases, you’ll have to waive your military retired pay and make a deposit for that time before you retire in order for that time to be included in your civilian annuity calculation.

•If you owe any money to your agency, you’ll want to arrange a repayment schedule in order to avoid having your annuity offset to recover the debt.

•If a court order assigns a portion of your annuity to a former spouse, you need to know by how much that will affect you.

You’ll also need an estimate of your Social Security benefit, and, if you will be retiring before age 62, the value of your Special Retirement Supplement. A Social Security benefits estimator function is at https://www.ssa.gov/retire/estimator.html.

You can obtain the latest accounting of your Thrift Savings Plan balance, use a calculator function to project future account balances and how they might translate into withdrawals at www.tsp.gov.

Review Your Designation of Beneficiary Forms

There are several types of beneficiary forms that you need to complete to designate your death benefits. You may need to update your designations at the time of retirement. These forms include: the SF 2823, Designation of Beneficiary, Federal Employees’ Group Life Insurance; SF 3102, Designation of Beneficiary-FERS; SF 1152, Designation of Beneficiary-Unpaid Compensation of Deceased Civilian Employee; and TSP 3, Designation of Beneficiary-TSP. Employees wishing to complete beneficiary forms may obtain copies of these forms from their personnel office or the Office of Personnel Management at www.opm.gov/forms and Thrift Savings Plan at www.tsp.gov.

If you previously completed designation of beneficiary forms, you should review those forms to ensure they reflect your current desires. Remember, beneficiary designations are not valid unless properly completed, witnessed, and signed and dated by you.

If for some reason you never fill out a designation of beneficiary form for either FEGLI or the TSP, the benefits usually will be distributed according to the standard order of precedence: your spouse; your child or children in equal shares, with the share of any deceased child distributed among the descendants of that child; your parents in equal shares or the entire amount to the surviving parent; the duly appointed executor or administrator of you estate; and, finally, your next of kin under the laws of the place you were living at the time of your death. Of course, if you are divorced, what happens to those benefits may already have been settled by a court order (such as one requiring you to assign your FEGLI benefits) – or it may not. You’ll have to find out which.

Check for Needed Civilian Deposit/Civilian Redeposit/Military Deposits

If you were ever employed by the federal government—most commonly, as a temporary employee—where retirement deductions were not withheld (non-deduction service), if you are a rehired federal employee who previously took a refund, or if you had military service for which you have not made a deposit, you may owe a deposit or redeposit in order to receive retirement credit for that period of service. If you owe a deposit/redeposit, an agency benefits counselor can compute an annuity estimate for you. This will enable you to assess the benefits/detriments of making or not making the deposit.

However, if you owe a redeposit for refunded service, you will need to contact OPM to obtain the redeposit amount, before contacting a benefits counselor to assist you. It is important to remember that the longer it takes to make the deposit/redeposit, the higher the interest owed will be. Additionally, you should note that a deposit/redeposit is required to receive credit for some service.

Notes: These payments are not tax-deductible. For the applicable interest rates, see Figure 1 in Chapter 4.

Civilian service time — Any non-deduction service performed before January 1, 1989 will not count for eligibility or computation purposes unless you make a deposit plus interest. Further, in most cases, you can’t make a deposit to get credit for any such service performed after December 31, 1988. That time is rarely creditable for retirement purposes.

If you took a refund of your FERS retirement contributions at break in service and returned to work for the government, you may make a deposit to reclaim the time covered by those contributions. (Note: A change in law, effective October 28, 2009, put FERS employees on equal footing with Civil Service Retirement System employees, who always have had that option.)

To find out how much you would have to pay to get full credit for civilian service time, you need to fill out Standard Form 3108, available through personnel offices or online at www.opm.gov/forms and mail the form to the address given.

If you have gotten a statement in the past and want an update, call [phone], give them your CSD number, which will be on the original statement, and ask for an updated billing statement. You can also ask for the update by sending an e-mail to [e-mail] with the words deposit inquiry in the subject line and your CSD number in the message.

Military service time — To capture credit for military service, you must make a deposit based on the amount of your military base pay (not including allowances) plus interest. If you don’t know what your base pay was, you can get that information by completing OPM form RI-20-97 and sending it in to your military finance center. You can get a copy of the form from your personnel office or download it at www.opm.gov/forms.

The percentage of base pay required is 3 percent except for 1999 (3.25 percent) and 2000 (3.4). If you transferred to FERS from CSRS, and your military service occurred before or during the time you were covered by CSRS, you’ll follow CSRS percentage rules—7 percent except for 1999 (7.25 percent) and 2000 (7.4). If the military service occurred after transferring, you’ll follow FERS rules.

If a deposit for military service wasn’t made within two years after you first became employed, interest will be charged to your account one year after that two year period ends. In effect, you have, or had, three years minus one day to complete an interest-free deposit. After that, interest is added. So, the longer you wait to make a deposit, the bigger the bill will be. If you decide to make a deposit, it will have to be completed before you retire. If you don’t, the amount you deposited will be refunded to you and you’ll get no credit for that time.

Note: If you retired from the military, in most cases, you will not only have to make a deposit for that time but you will have to waive your military retired pay. Only those who were awarded that pay on account of a service-connected disability either incurred in combat with an enemy of the United States or caused by an instrumentality of war and incurred in the line of duty during a period of war will be allowed to receive both their military retired pay and their civilian annuity without a reduction in either. Your branch of service will have to determine if you meet that criterion.

Understand Lump-sum Annual Leave Payments

If you retire before the end of the leave year, you will receive a lump-sum payment for all of your accrued leave after retirement. However, if you retire just after the end of the leave year, your lump-sum leave payment will be limited to that maximum amount of leave allowable to be carried from one year to the next, which for most employees is 240 hours. For example, if you retire on January 3 and the leave year does not end until January 5, you will be paid for your entire balance of annual leave and it will not be limited to your maximum carry over. However, if you retire on January 7, after the old leave year ended and the new one has begun, you will be paid a lump-sum annual leave payment for your accrued annual leave limited to the maximum carry over.

A listing of current and future leave year beginning and ending dates is at www.opm.gov/policy-data-oversight/pay-leave/leave-administration/fact-sheets.

There are exceptions to the general 240-hour limit:

•Postal Employees —If you are under the Executive and Administrative Schedule, which includes supervisors, managers, postmasters and other non-bargaining unit employees, you can receive a lumpsum payment for a maximum of 560 hours plus any earned and unused annual leave during the year in which you retire. The maximum for employees covered