10/15/2019
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The Federal Employee’s Pre‐Retirement Workshop ‐‐
Presented by:
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DISCLAIMER
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In the preparation of this workshop, efforts have been made to present current and correct information.
Nonetheless, tax, benefits, and legislation often change and inadvertent errors can occur. The information contained in this presentation is intended to afford general guidance and is not a substitute for professional financial, legal, tax, or investment advice.
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Investment FundamentalsInvestment & the TSP
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Investment FundamentalsInvestment & the TSP
Utilizing the Thrift Savings Plan
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Investment FundamentalsInvestment & the TSP
What is the TSP?
A defined contribution retirement SAVINGS and INVESTMENT plan for Federal EmployeesSimilar to 401(k) plansEstablished in 1986 as a portable retirement account that can move with you when you retire or leave Federal service.
The value of your TSP account may influence your retirement timing decision.
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Investment FundamentalsInvestment & the TSP
Understanding the Traditional TSP & Roth 401‐(K)
Contributions (Pre‐tax vs. after tax)
Investment decisions
Distributions options
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Investment FundamentalsInvestment & the TSP
Traditional TSP ContributionsEmployee Contributions (Pre‐Tax)
Up to $19,000 in 2019(IRC section 402 (g) elective deferral limit)Agency Automatic 1% Contributions*
Agency Matching Contributions*Up to 5%
“Catch‐up” contributions Up to $6,000 in 2019
Must be at least 50 years old in the year catch‐up contributions are made (IRC section 414 (v))
* FERS employees only
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Investment FundamentalsInvestment & the TSP
TSP Contributions
No Agency contributions or matching for
CSRS employees.
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Investment FundamentalsInvestment & the TSP
FERS Government Matching Contributions
If employee contributes:
Government will contribute
Total Contribution
0% 1% 1%
1% 1 + 1 = 2% 3%
2% 2 + 1 = 3% 5%
3% 3 + 1 = 4% 7%
4% 4 + .5 = 4.5% 8.5%
5% 4 + 1 = 5% 10%
More than 5% 4 + 1 = 5% Your contribution +5%
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Investment FundamentalsInvestment & the TSP
in 2012
Roth 401K
began to offer
TSP
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Investment FundamentalsInvestment & the TSP
A Roth 401k feature will combine:
Note: Contributions to the Roth 401‐(k) are after tax dollars but your account will grow tax‐free and future distributions are tax‐free (subject to distribution requirements).
All of the benefits of TSP retirement savings
After‐tax benefits of a Roth Savings Plan.
with
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Investment FundamentalsInvestment & the TSP
You will pay no Federal taxes when you withdraw your Roth 401k as long as:
You are at least age 59 ½
and
have been making contributions for at
least 5 years
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Investment FundamentalsInvestment & the TSP
Maximum Contributions = IRS elective deferral limits
$19,000+ “catch‐up”
contributions for those who are eligible
2019
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Investment FundamentalsInvestment & the TSP
Is the TSP Roth 401(k) right for me?
Will you be in a higher tax bracket when you retire than you are now?Do you want to diversify tax risk in the face of uncertain future tax rules?Do you have a long time to save and will benefit from tax‐free compounded earnings?
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Investment FundamentalsInvestment & the TSP
Financial Savings Principles
Factors to consider in saving for retirement:Always contribute the MAXIMUM amount allowed within your budgetResist the temptation to use money from your Thrift Savings Plan prior to retirement
Loss of compoundingLoss of return opportunitiesPotential adverse tax consequencesCan restrict future participation
By not maximizing, you lose out on potentially THOUSANDS OF DOLLARSthat could be invested for your retirement
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Investment Fundamentals
Three Primary Asset Categories
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Investment Fundamentals
Higher Risk
Higher Potential Return
Lower Risk
Lower Potential Return
Investment Spectrum
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Investment Fundamentals
Nominal vs. Real Rate of Return: 1967‐2016
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Stocks Bonds T‐Bills
10.09%
6.66%
4.82%
8.07%
5.32%
3.86%
6.07%
3.32%
1.86%
Gross ROR
After Taxes
After Taxes & Inflation
Assumes a 20% Tax Rate and 2% Inflation
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Source: Federal Reserve database in St. Louis (FRED). January 5, 2017
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Investment FundamentalsInvestment & the TSP
Investment Choices
G Fund
C Fund
S Fund
F Fund
I Fund
Average rate of return (as of December 2018)
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Investment FundamentalsInvestment & the TSP
26%
9%
25%
20%
20%C Fund
S Fund
I Fund
F Fund
G Fund
Asset Allocation ‐ Moderate
Worst* Best* Average*
‐18% to ‐25% +18% to +25% +6% to +7%
(*) 1‐year
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Investment FundamentalsInvestment & the TSP
Fund Definition: L Funds
L FUNDS – “Life Cycle” Funds (5 options)A form of investing for retirement in which the investor chooses an expected withdrawal date Fund becomes more conservative over time as the expected withdrawal date approaches
L Funds rebalanced dailyEach quarter, each L Fund shifts to a slightly more conservative mixExperts review investment mixes periodically to be sure they are still appropriate
An allocation model that uses the existing asset classes as represented by the original TSP funds (G,F,C,S, and I)
Caution:While selecting an L Fund model based upon an expected retirement date may help manage the allocation decision, it DOES NOT insure that you will have accumulated the amount of capital needed to support a lengthy retirement (20‐30 years) at the lifestyle you desire!
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Investment FundamentalsInvestment & the TSP
Risk
Return
G Fund F Fund C Fund S Fund I Fund
INCOME
2020
2030
2040 2050
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Investment FundamentalsInvestment & the TSP
L 2050
L 2030
L 2040
L 2020
L Income
For participants who will begin to withdraw their money after 2045.
For participants who will withdraw their money beginning 2035 through 2044.
For participants who will withdraw their money beginning 2025 through 2034.
For participants who will withdraw their money beginning 2016 through 2024.
For participants who are currently withdrawing their TSP accounts in monthly payments.
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Investment FundamentalsInvestment & the TSP
Fund Definition: L Funds Time HorizonsChoose: If your time horizon is:L 2050 2048 or laterL 2040 2038 through 2047L 2030 2026 through 2037L 2020 2019 through 2027L Income Now Withdrawing
L Income
L 2020 L 2030 L 2040 L 2050 G Fund F Fund C Fund S Fund I Fund
2014 3.77% 5.06% 5.74% 6.22% 6.37% 2.31% 6.73% 13.78% 7.80% (5.27%)
2015 1.85% 1.35% 1.04% 0.73% 0.45% 2.04% 0.91% 1.46% (2.92%) (0.51%)
2016 3.58% 5.47% 7.07% 7.90% 8.65% 1.82% 2.91% 12.01% 16.35% 2.10%
2017 6.19% 9.86% 14.54% 16.77% 16.77% 2.33% 3.82% 21.82% 18.22% 25.42%
2018 0.71% (0.36%) (3.58%) (4.89%) (6.02%) 2.91% 0.15% (4.41%) (9.26%) (13.42%)
TSP Historical Returns
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Investment FundamentalsInvestment & the TSP
TSP Modernization Act
‐ Allows for unlimited age‐based withdrawals for employees over 59 ½ years of age and for separated employees with a TSP account balance.
‐ Gives the ability to change withdrawal amounts/frequency at anytime in the year.
‐ The president signed the bill on 11/17/2017 and the Federal Retirement Thrift Investment Board(FRTIB) Changes became effective 09/15/2019.
‐ FRTIB is changing website programming, webpages, publications, and forms to comply with new changes over this 2 year period.
‐ If you begin receiving benefits before the changes are enacted, you will still be eligible to make adjustments once the changes are in place.
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Investment FundamentalsInvestment & the TSP
New TSP Legislation – September 2019
As of September 15, 2019 the TSP has new, more flexible withdrawal options.
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• Key Additions:
• Multiple post‐separation partial withdrawals available
• Up to four in‐service withdrawals available if you’re 59 ½ or older
• Elimination of full withdrawal election after you turn 70 ½ and are separated from federal service
• Monthly, quarterly or annual payments now available for separated participants
• Ability to modify installment payments at any time
• Enhanced online tools on tsp.gov
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Investment FundamentalsInvestment & the TSP
Distribution Options ‐ Post Separation
1. Receive your account in a single paymentRoll the money over into an other retirement‐eligible investment fund (after age 59½)
2. Receive the account in a series of monthly, quarterly or annual payments
Based on your life expectancy or a specific dollar amountYou are also able to take partial withdrawals as needed
3. Have TSP buy an annuity for you (life income stream)Single lifeJoint life with spouseJoint life with someone other than spouse
4. Take any variation of options 1‐3.5. Leave the money in the account
Required to receive the IRS required minimum distributions by taking partial or installment withdrawals once you turn 70 ½
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Investment FundamentalsInvestment & the TSP
Distribution Options
Lump Sum or Partial Distribution
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Investment FundamentalsInvestment & the TSP
Distribution Options
Roll‐over (transfer) to an eligible retirement account
(Non‐taxable event)
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Investment FundamentalsInvestment & the TSP
Distribution Options
Installment payments based on life expectancy (see IRS tables)
Specific dollar amount (subject to minimum payment)Year 1Year 1 Year 3Year 3 Year 4Year 4 Year 5Year 5 Year 6Year 6 Year 7…Year 7…Year 2Year 2
Year 3Year 3 Year 4Year 4 Year 6Year 6Year 2Year 2Year 1Year 1 Year 5Year 5 Year 7…Year 7…
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Investment FundamentalsInvestment & the TSP
Annuity
Purchase an Annuity:
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Investment FundamentalsInvestment & the TSP
Annuity‐Settlement Options
Single Life annuityJoint Life annuity (insurable interest clause)
100% survivor (Payments continue level)(Joint annuitant >10 younger not eligible*)50% survivor (Payment cut in‐half)Level & increasing payment optionsCash refundTen‐year certain
*Former spouse payable under court order
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Investment FundamentalsInvestment & the TSP
Annuity
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Investment FundamentalsInvestment & the TSP
Distribution Options
Does Rolling‐Over the TSP account make sense?
Low expenses
No 10% early withdrawal penalty if retiring at age 55‐59 ½Protection from creditors.
No RMD at age 70 ½ as an active Federal employee
Non‐spousal beneficiaries can transfer TSP assets to a Roth IRA
(Roll‐over IRA)
Expanded investment options
Single retirement account makes monitoring easier
An IRA has estate planning opportunities
(TSP account)
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Investment FundamentalsInvestment & the TSP
Investment Options
Asset classes available:
TSP Roll‐Over IRA
U.S. Equity Yes/2 Yes
Global Equity Yes/1 Yes
Emerging Markets No Yes
U.S. Fixed Income Yes/2 Yes
Global Fixed Income No Yes
Commodities No Yes
Real Estate No Yes
Stocks No Yes
Should I roll‐over my TSP?
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Investment FundamentalsInvestment & the TSP
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Investment FundamentalsInvestment & the TSP
99% 99% 99% 99% 99% 99%
92 94 97 98 99 99
81 83 83 80 69 42
66 65 61 43 14 1
48 43 33 12 0 0
Withdrawal
100/0 80/20 60/40 40/60 15/85 5/95
More Likely Less Likely
3%
4
5
6
7
Recommended
Risky Zone
Rate*
Stock / Bond Percentage
Withdrawal Rates and a 25‐Year Retirement
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Investment FundamentalsInvestment & the TSP
Things You May Not Know About the TSP
Federal employees working in Federal service at age 70 ½ or over are not subject to required minimum distributions.
TRUE
FALSEOR
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Investment FundamentalsInvestment & the TSP
Things You May Not Know About the TSP
Federal employees who separate from service at age 55 – 59 ½are subject to a 10% tax penalty for withdrawals from the TSP.
TRUE
FALSEOR
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Investment FundamentalsInvestment & the TSP
Agency matching will always be deposited into the employee’s traditional TSP account even if the employee’s contributions via payroll deduction are directed to the Roth TSP account.
Things You May Not Know About the TSP
TRUE
FALSEOR
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Investment FundamentalsInvestment & the TSP
An employee will be able to transfer contributions from the traditional TSP funds to the Roth 401 (k).
Things You May Not Know About the TSP
TRUE
FALSEOR
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Investment FundamentalsInvestment & the TSP
You can contribute up to the IRS elective deferral limit to each of the traditional TSP account and the Roth 401(k) account.
Things You May Not Know About the TSP
TRUE
FALSEOR
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Investment FundamentalsInvestment & the TSP
A Roth 401(k) is subject to required minimum distributions beginning at age 70 ½.
Things You May Not Know About the TSP
TRUE
FALSEOR
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Investment FundamentalsInvestment & the TSP
All factors to Consider:
Age and life expectancyRisk tolerance levelsRate of return goalsLiquidity requirementsInvestment alternativesIncome needs
Dollar amount neededWhen it will be neededHow long it will have to last (life expectancy)
Will I still be able to maintain my lifestyle?What kind of benefits can I provide for my family upon my death?
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Retirement Planning
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Retirement Planning
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Types of Retirement
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Who would consider retiring if you could
replace your paycheck the day after you separated
from service?
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Retirement Planning
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Key Retirement & Investment Challenges
Longevity
Inflation rates
Market volatility
Excessive withdrawal rates
Healthcare costs
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Retirement Planning
Source: Annuity 2017 Mortality Table, American Society of Actuaries. Figures assume you are in good health. For illustrative purposes only.
At least one person has a 25% chance of living beyond 97
Couple (Both Age 65)
FemaleAge 65
Age 92
MaleAge 65
Age 88 94 100
Age 86 92 100
50% chance ofliving beyond 86
25% chance of living beyond 92
50% chance ofliving beyond 88
25% chance of living beyond 94
97 10095
9590
90
9085
85
At least one person has a 50% chance of living beyond 92
The Statistics of Longevity
Retirement Planning
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$557
$1,776
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Retirement Income (Purchasing
Power)
Years of Retirement (Longevity)Loss of Purchasing Power Maintaining Purchasing Power
LONGEVITY and THE RETIREMENT IMPERATIVE:
2% Inflation
Creating a rising stream of income
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Retirement Planning
‐1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
As measured by the Consumer Price Index
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Retirement Planning
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Cash Flow Needs During Retirement
Living expenses Long term health care costs
Vacations and travelVolunteeringCharitable work/donationsA second “career”
The Basics
The Reasons for Retirement
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Retirement Planning
Expenses May Shift
Retirement savingsPayroll taxesCommuting costsClothing/dry cleaning
Health careTravelEntertainmentHobbies
Reduced Expenses
Increased Expenses
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Retirement Planning
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Expenses May Shift
Cost of living adjustments (COLA’s)Rising values of retirement investmentsEligibility for Military or other public pensionsSending spouse back to work
Things that could cause income to rise in retirement
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Retirement Planning
Three Major Sources of Retirement Income
Employer Sponsored Plans
Social Security
Personal Savings & Investments
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Retirement Planning
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Retirement Annuity/Pension
Requirements for participation and eligibilityMonthly benefits determined by formulaRisk on employer
Employer Sponsored Retirement Programs
Defined Benefit
Funds set aside by/for employeeBenefits determined by actual funds in the account
Depends on amount of contributions and rate of return
Risk on employee
Defined Contribution
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Retirement Planning
Phased Retirement
Public Law 112‐141 gives federal employees the ability to “phase” in their retirement while continuing to work on a part‐time basis.
Retirement Planning
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Phased Retirement
An eligible employee will receive a CSRS or FERS annuity that is reduced proportionately by the amount of time the retired employee works.
Retirement Planning
Work 50% of the time
Receive 50% of the annuity
+
Income Sources ‐ CSRS
Single Defined Benefit Retirement System
1987:Thrift SavingsPlan Option
Added
DB:CSRS Annuity7.0% of pay
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Retirement Planning
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Retirement Eligibility
Unreduced Benefits
Age 55 and 30 years of credible serviceAge 60 and 20 years of credible serviceAge 62 and 5 years of credible service
Employees contribute 7% of basic pay
Also: Unused sick leave credit
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Retirement Planning
DC:Thrift Savings
PlanUp to $19,000* of pay
(2019)
DB:FERS Annuity0.8% of Basic Pay
3.1% for employees hired after 12/31/2012
+
DB:Social Security
Benefits6.2% of pay
+
Income Sources ‐ FERS
Dual Defined Benefit and Defined Contribution Plan
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Retirement Planning
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Retirement EligibilityUnreduced Benefits
Age 62 and 5 years creditable serviceAge 60 and 20 years creditable serviceMRA and 30 years creditable serviceMRA and 10 years creditable service
Postpone benefit receipt until age 62 (age 60 with 20 years of service) to avoid 5% per year annuity reduction
Employees contribute .8% of basic pay(3.1% for employees hired after December
31, 2012)
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Retirement Planning
Minimum Retirement Age
If you were born Your MRA
Before 1948 55 Years
1948 55 Years, and 2 months
1949 55 Years, and 4 months
1950 55 Years, and 6 months
1951 55 Years, and 8 months
1952 55 Years, and 10 months
1953 to 1964 56 Years
1965 56 Years, and 2 months
1966 56 Years, and 4 months
1967 56 Years, and 6 months
1968 56 Years, and 8 months
1969 56 Years, and 10 monthsAfter 1969 57 Years
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Retirement Planning
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Credit for Unused Sick Leave
Full credit for unused hours, no limit. However, any hours that do not add up to a full month are discarded.
Note: unused sick leave cannot be used in computing high‐3 salary or for meeting the minimum length of service for retirement eligibility
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Retirement Planning
CSRS General Retirement Formula
Unreduced Annuity
3 Steps:
1.5% x high 3 average salary x years of service (up to 5)
1.75% x high 3 average salary x years of service (6‐10)
Plus: 2.0% of high 3 average salary xall service (over 10 years)
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(40%)
(16.25%)
EXAMPLE
Step One
1.5% x $60,000 x 5 years = $4,500
2.0% x $60,000 x 20 years = $24,000
Age 55
30 years of service
High‐3 = $60,000
Step Two
1.75% x $60,000 x 5 years = $5,250
Total Annual Annuity = $33,750
CSRS General Retirement Formula
Step Two
$33,750/$60,000 = 56.25% income replacement
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Retirement Planning
CSRS General Retirement Formula
Exception for lengthy service due to sick leave credit.
Early retirement penalty: 2%/year
Annuity generally capped at 80% of high 3 average salary
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Retirement Planning
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FERS Basic Annuity Calculation
Unreduced Annuity
If retiring before age 62:
If at least age 62 and at least 20 years of service:
1.0% x high 3 average salary x years of service
1.1% x high 3 average salary x years of service
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Retirement Planning
FERS Basic Annuity Calculation
EXAMPLE
Step One
If at Age 62, 30 years of service, High‐3 = $60,000
1.0% x 30 years = 30%
1.1% x 30 years (33%) = $19,800/year
Age 57
30 years of service
High‐3 = $60,000
Step Two
30% x $60,000 = $18,000/year*
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Retirement Planning
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Basic Annuity Calculation
High‐3 Average Salary includes:
Regular PayLocality Pay*Environmental differential payPremium pay for standby timeLaw enforcement availability payNight differential pay (wage grade only)Special pay/recruiting and retention
*Public Law 111‐84 applies to non‐foreign employees phase‐in until 2013
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Retirement Planning
Basic Annuity Calculation
Special Category Employees
Optional
Mandatory
Age 50 and 20 years of creditable service
Law enforcementAge 57 and 20 years of creditable service
Fire fightersAge 55 and 20 years of creditable service
Air traffic controllersAge 56 and 20 years of creditable service
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Retirement Planning
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Basic Annuity Calculation
Special Category Employees
Calculation
Employees contribute 1.3% of pay
1.7% of high 3 average salary up to 20 years
1.0% of high 3 average salary over 20 years
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Retirement Planning
Basic Annuity Calculation
Special Category Employees
CSRS Calculation
2.5% of high 3 average salary up to 20 years
2.0% of high 3 average salary over 20 years
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Retirement Planning
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Retiring Prior to Age 62
Step 1: Estimate the full career Social Security Benefit as if the employee were age 62.
Step 2: Calculate civilian service creditable under FERS, rounded to nearest full year Note: Military service is included only if performed during leave from civilian service after FERS coverage began.Step 3: Divide the years of FERS service by 40 to obtain a fraction.Step 4: Multiply the career Social Security Benefit by the fraction determined in Step 3.
Supplement Calculation
$1,000/month
30 years
30 ÷ 40 = .75
.75 x $1,000 = $750/month FERS
Supplement
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Retirement Planning
Annuity Supplement
Retiring Prior to Age 62
Supplement is subject to Social Security earnings limitations
Limit applies only to income from wages Must report earnings to OPM for each year eligible to receive supplementIn 2019, earnings limit = $17,640Retirees exceeding this amount:
$1 in supplement benefits will be withheld for every $2 earned above the limit
Annuity Supplement
Example:
Earn $20,000 and receive $12,000 annual supplement
benefits
$20,000 ‐ $17,640 = $2,360
$2,360/$2 = $1,180
$12,000 ‐ $1,80 = $10,820© 2019 Financial Workshops, LLC www.thriftsavingsplan.org
Retirement Planning
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COLA
Percentage of increase determined by average Consumer Price Index for Urban Wage Earners (CPI‐W) for Q‐3 over Q‐3 average of the previous year.
A COLA* is paid to all CSRS retirees, regardless of the age at which they retire, and to their survivors.
*Subject to final approval
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Retirement Planning
COLA
Amount of increase depends upon the change in the average Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI‐W) for the third quarter of each year over the third quarter average CPI‐W index of the
previous year.
If it increases by 3% or more, COLA = CPI‐W minus 1%
If it increases by 2% to 3%, COLA = 2%
If it increases by 2% or less, COLA = CPI‐W
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Retirement Planning
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COLA
Retirement benefits payable to retirees age 62 and olderSurvivor benefitsDisability retirement benefitsCertain special service (LEO, ATC, FF) retirees age 50 with at least 25 years of serviceSpecial CIA employees
Benefits Eligible for COLAs:
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Retirement Planning
Age and years of service combinations
Social Security Eligibility (age 62 or later)
Earned income above certain levels
Events that may cause adjustments in income:
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Retirement Planning
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CSRS Off‐Set formula (age 62)
Government Pension Offset
Windfall Elimination Provision
Events that may cause adjustments in income:
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Retirement Planning
Offset occurs when you become
eligible to receive Social Security
benefits
Usually age 62
If you retire at age 62 or later and
are already entitled to Social
Security benefits, offset made at
retirement
The offset will be deducted from
CSRS even if you are postponing
Social Security benefits
CSRS Annuity Offset
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Retirement Planning
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If you continue to work in a job where
you pay Social Security taxes, SSA
recalculates your Social Security
benefit to take into account your
extra earnings
OPM will recompute your offset
calculation each year you have
these additional earnings
CSRS Annuity Offset
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Retirement Planning
The offset reduction is then subtracted
Offset reduction is lesser of:1. The difference between the Social Security
monthly benefit amount with and without CSRS
offset service
2. The product of the Social Security monthly
benefit amount, with Federal earnings,
multiplied by a fraction where the numerator is
the employee’s total CSRS offset service rounded
to the nearest whole number of years and the
denominator is 40Social Security Benefit x Total Years of Offset Service
40
CSRS Annuity Offset Formula
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Retirement Planning
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Applies if you worked for a federal, state, or local government where you did not pay Social Security taxesOffset reduces the amount of your Social Security spousal or survivor benefits by 2/3 of the amount of your non‐Social Security annuityExample
Your monthly CSRS annuity = $1,200Social Security spousal or survivor annuity = $900$1,200 x 2/3 = $800 $900 ‐ $800 = $100Amount you will receive from Social Security.
Government Pension Offset
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Retirement Planning
Applies if you will receive a pension from a job where you didn’t pay Social Security taxes (CSRS) and you also have enough Social Security credits to be eligible for retirement or disability benefits
Applies to workers who reach 62 or become eligible for a monthly pension based in whole or in part on work not covered by Social Security
Results in use of modified formula to calculate your personal Social Security benefit (Up to a 50% reduction, subject to “substantial earnings” test)
Windfall Elimination Provision (WEP)
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Retirement Planning
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Social Security is penalized by the lessor of 50% of the Social Security benefit expected at age 62, or $442.50/month.
21‐29 years of substantial earnings will mitigate the WEP penalty and after 30 years the penalty is not assessed.
Windfall Elimination Provision (WEP)
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Retirement Planning
The Windfall Elimination Provision does not apply if:
You are a federal worker first hired after December 31, 1983; (FERS Employee)
You were employed on December 31, 1983, by a nonprofit organization that did not withhold Social Security taxes from your pay at first, but then began withholding Social Security taxes from your pay;
Your only pension is based on railroad employment;
You have 30 or more years of substantial earnings under Social Security.
Substantial Earnings Test
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Retirement Planning
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Minimum dollar amount up to 55% of unreduced annuity electionElection may be a percentage or dollar amountCost: 2.5% of first $3600, plus 10% of the amount over $3600 used as a baseBenefit continues to survivor for life, unless remarriage prior to age 55
CSRS Survivor Annuity Option
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Retirement Planning
CSRS Survivor Annuity OptionEXAMPLE:
Age 60
Years of service: 30
High 3 Average: $60,000
Retirement Benefit: $2,813 / month
Survivor Benefit: $1,546/ month
Cost: $274/ month
Annuities “pop up” to the unreduced amount if the
designated annuity beneficiary pre‐
deceases the retiree.
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Retirement Planning
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Election is a fixed percentage of the unreduced annuity25% or 50% option25% election – 5% of unreduced annuity50% election – 10% of unreduced annuityInsurable Interest Party may be namedCost based on the age difference ranging from 10% to 40%
FERS Survivor Annuity Option
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Retirement Planning
*Survivor eligible for the greater of either their own benefit or the deceased spouses benefit
FERS Survivor Annuity OptionEXAMPLE:
Age 60
Years of service: 30
High 3 Average: $60,000
Retirement Benefit: $1,500 / month
50% Option 25% Option
Survivor Benefit: $750 / month
Survivor Benefit: $375 / month
Cost: $150 / month Cost: $75 / month
+ Social Security Benefit*
Annuities “pop up” to the unreduced amount if the
designated annuity beneficiary pre‐
deceases the retiree.
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Retirement Planning
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Please note: Retiring Federal Employees MUST elect a form of a
survivor annuity to continue eligibility for health insurance for
their dependents.
Survivor Annuity Option
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Retirement Planning
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Retirement Planning
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Retired Military Service
Cannot receive credit in your civilian annuity unless:
Waive retired payRetired military pay awarded:
Service‐connected disability incurred in combatService‐connected disability caused by instrumentality of war in line of dutyUnder Provisions of 10 U.S.C., Chapter 67
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Retirement Planning
Blended Retirement System (BRS)
The Blended Retirement System (BRS) combines the traditional legacy pension with a defined contribution to a service member’s TSP
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Blended Retirement System (BRS)
Who’s eligible?Service members with fewer than 12 years of service as of 12/31/2017 (Opt‐in period ended 12/31/2018)Any service member who enlists after 1/1/2018
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Retirement Planning
Who’s not eligible?Any service member with 12 or more years of service as of 12/31/2017
Blended Retirement System (BRS)
Should you opt‐in?If you do not plan to serve in the military for at least 20 years, BRS is likely the better option. If you do plan on serving for at least 20 years, there are multiple variables to consider.
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Retirement Planning
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Blended Retirement System (BRS)
HealthRank and likelihood of promotionTSP contribution rateExpected TSP rate of return
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Retirement Planning
Three Major Sources of Retirement Income
Employer Sponsored Plans
Social Security
Personal Savings & Investments
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Retirement Planning
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Social Security
Eligibility
Retirement40 quarters of coverage
2019: $1,320 earned equals one credit/quarter
Age (62 to 67) Early to Full Retirement AgeCost – 7.65%
6.20% OASDI1.45% Medicare
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Retirement Planning
Social Security
Earnings Limitations
Applies if you retire prior to full retirement age and continue working
Social Security benefit will be reduced $1 for each $2 you earn above $17,640 (2019)
For Special Category Employees, earnings test applies when employee reaches minimum retirement age
Example:
Earn $20,000 and receive $12,000 annual Social Security benefits
$20,000 ‐ $17,640 = $2,360
$2,360/$2 = $1,180
$12,000 ‐ $1,180 = $10,820
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Retirement Planning
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This hypothetical example assumes that the person is not working in retirement. Sample benefit amounts are not exact due to rounding. They do not reflect annual cost‐of‐living adjustments or taxes. Had taxes been taken into account, the amount would be lower. Benefit at full retirement age is assumed to be $2,000 per month.
Social Security “ Break Even” Age
The age at which you break even and begin to come out ahead versus taking Social Security before full retirement age
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Social Security
Taxability of Social Security Benefits
Single Married Filing Jointly
50%$25,000–$34,000 $32,000–$44,000
85%Over $34,000 Over $44,000
50% and 85% refers to percentage of the Social Security benefit that is reportable as income for tax filing purposes
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Retirement Planning
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Three Major Sources of Retirement Income
Employer Sponsored Plans
Social Security
Personal Savings & Investments
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Retirement Planning
Personal Savings & Investments
Three Buckets
TAX FREE
TAX DEFERRED TAXABLE
Examples: Roth IRA and Roth 401(k)
Examples: Traditional IRA, 401(k), 403(b), TSP, etc.
Examples: Bank & brokerage accounts, CDs, savings, bonds, etc.
Tax‐free withdrawals
Withdrawals taxed as ordinary income
Withdrawals taxed as ordinary income or capital gains
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Retirement Planning
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Calculating the Cost of RetirementBallpark E$timate®
www.choosetosave.org
The Ballpark E$timate is an easy‐to‐use, two‐page worksheet that helps you quickly identify approximately how much you need to save to fund a comfortable retirement.
Complete the worksheet online and let the computer do the math.
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Retirement Planning
Ballpark E$timate®
www.choosetosave.org
Federal Government Employees Ballpark E$timator
Includes projected Federal annuity and Thrift Savings Plan benefits to help you quickly identify approximately how much you need to save to fund a comfortable retirement.
Calculating the Cost of Retirement
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Retirement Planning
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5 Years Before Retirement
Confirm enrollment in FEGLI in order to keep benefit post‐retirementConfirm enrollment in FEHB in order to keep plan eligibility post retirementMaximize contributions to TSP accountBegin paying off any loans on the TSP‐ Must be paid off prior to retirement or loan amount is considered as a taxable event.
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Retirement Planning
1 Year Before Retirement
Determine best date to retire‐ Plan to submit paperwork at least 60 days in advanceFinalize plans for best TSP options upon separation form serviceDetermine amount of cash on hand required to transition from work to retirement (2‐3 months)Review and revise, if necessary, all beneficiary designations Finalize Survivor Annuity election
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Best Dates to Retire
*TransFERS employees are employees with at least five years of CSRS service who voluntarily transferred to FERS during on the two FERS “open seasons” held in 1987‐88 and 1998. Upon retiring, these employees receive both a CSRS annuity and a FERS annuity but follow FERS retirement eligibility rules even though they are also receiving a CSRS annuity
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Retirement Planning
Calendar Year
Leave Year: Beginning Date to Ending Date
Best Days to RetireCSRS/CSRS Offset Employees
Best Days to RetireFERS/”Trans” FERS Employees
2019 1/6/2019 to 1/4/2020
(26 pay periods)
Jan. 3, Feb. 2, Mar. 2, Mar. 30,
Aug. 3, Aug. 31 and Sept. 28
Mar. 30, Aug.31,
Sept. 28 & Dec. 31
2020 1/5/2020 to 1/3/2021
(26 pay periods)
Jan. 3, Feb. 1, Feb. 29, Mar.
28, Aug. 1 and Aug. 29
Feb. 29, Mar. 28, Aug
29. and Dec. 31
2021 1/4/2021 to 1/2/2022
(26 pay periods)
Jan. 2, Jan. 30, Feb. 27, July 3,
July 31 and Aug. 28
Jan. 30, Feb. 27, July
31, Aug. 28 and Dec.
31
Hallier’s 10 rules for investment success:
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1. Select an asset allocation based on your ability to tolerate downside risk.
2. Keep your emotions out of your investment decisions. See rule 1.
3. Keep expenses within the portfolio as low as possible.
4. Maintain sustainable withdrawal rates (at or below 5% per year in earlier phases)
5. If you have money to invest, then invest. Don’t attempt to time the market.
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Hallier’s 10 rules for investment success:
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6. Anticipate the effects of tax and inflation on long term returns (Real Rate of Return Calculation)
7. Maintain adequate cash reserves.8. Rebalance your portfolio.9. If it sounds too good to be true…it is!10. If you don’t know what you’re doing,
hire a professional. Make sure the professional is acting as a fiduciary.
“REWIREMENT” Tips
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• REWIREMENT is the time in our lives when the
world of work becomes who we were, not who we
are. The following suggestions will help all enjoy
their retirement:
1.) It’s time to use the money you saved up. Use it and enjoy it. Don’t just
keep it for those who may have no notion of the sacrifices you made to get it.
Remember there is nothing more dangerous than a son or daughter‐in‐law
with big ideas for your hard‐earned capital. This is a time for you to enjoy
some peace and quiet.
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“REWIREMENT” Tips
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2.) Stop worrying about the financial situation of your children and
grandchildren, and don’t feel bad spending your money on yourself. You’ve
taken care of them for many years, and you’ve taught them what you could.
You gave them an education, food, shelter and support. The responsibility is
now theirs to earn their own money.
3.) Keep a healthy life. Do moderate exercise (like walking every day), eat well
and get your sleep. It’s easy to become sick, and it gets harder to remain
healthy. That is why you need to keep yourself in good shape and be aware of
your medical and physical needs. Keep in touch with your doctor, do tests
even when you’re feeling well. Stay informed.
“REWIREMENT” Tips
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4.) Don’t abandon your hobbies. If you don’t have any, make new ones. You
can travel, hike, cook, read, and dance. You can adopt a cat or a dog, grow a
garden, play cards, checkers, chess, dominoes, golf. You can paint, volunteer
or just collect certain items. Find something you like and spend some real
time having fun with it.
5.) Laugh. Laugh A LOT. Laugh at everything. Remember, you are one of the
lucky ones. You managed to have a life, a long one. Many never get to this
age, never get to experience a full life. But you did. So what’s not to laugh
about? Find the humor in your situation.
6.) REMEMBER: “Life is too short to drink bad wine.”
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Websites to consider?
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www.thriftsavingsplan.org
www.creativeplanning.com
Thank you for attending today’s program!
Randall P. Hallier, CFP®
5454 W. 110th StOverland Park, KS 66211Phone: (913) 269‐3151Fax: (888)243‐9402
For more information on professional financial planning from those specializing in Federal Employees Nationwide; Go to:
www.thriftsavingsplan.orgwww.creativeplanning.com
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