Thursday, November 17, 2022

Best Time To Retire From Federal Government

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When Are You Eligible

Which Govt Retirement Scheme Is The Best For You? | The Money Show

Some people are looking to retire as soon as they are eligible to and this day will rarely land right on December 31. So for these folks it may not be worth waiting until the end of year because they want to get out right away.

A good way to approach this decision is by finding out the first date that you are eligible to retire and then make tweaks from their to optimize some of your other benefits like annual leave and your pension.

Learn More About Federal Employee Retirement As You Plan To Leave Service

If youre preparing to retire this month or sometime in the next year, make sure you know everything you need to know about federal employee retirement planning.

MyFEDBenefits has a team of local benefits specialists across the country. Find a specialist near you who can review your benefits and make sure youre getting the coverage you need.

Finding the best day to retire is just the first step. Making sure you are financially prepared for the next 10, 20, and even 30 years is the goal for retiring into a healthy, happy life. Find out if you are ready to retire by contacting MyFEDBenefits today to schedule your free retirement review.

What Is The Government Pension Offset

Some of an employee’s spousal, widow’s, or widower’s Social Security benefit may be offset if the employee has a government pension from working when they did not pay Social Security taxes. The offset does not apply to the employee’s own Social Security benefit, only the benefit that comes from a spouse’s, widow’s, or widower’s employment. If the Government Pension Offset applies, the spouse’s, widow’s, or widower’s Social Security benefit will be reduced by two-thirds of any federal pension, based on employment not covered by Social Security.

Some employees are exempt from the Government Pension Offset. They are employees who are automatically covered by the Federal Employees Retirement System or Civil Service Retirement System offset, and those who elected to transfer to FERS before January 1, 1988 or during the belated transfer period which ended June 30, 1988. Employees who were covered by CSRS and who elected FERS coverage after June 30, 1988 must have 5 years of federal employment covered by Social Security to be exempt from the offset.

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How Could I Be Indebted To My Employer

Some examples of causes for indebtedness include:

  • Outstanding travel advances
  • Indebtedness for failure to return government property or for damage to government property
  • Advanced leave

Hours: Monday thru Friday, 7:40 a.m. to 5:00 p.m. ETClosed on federal holidays

Our busiest time is between 10:30 a.m. and 1:30 p.m. ET.

Picking The Best Date To Retire

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Here it is, mid-September. And those of you who have the right amount of age and service are asking, Whats the best date to retire? While there is no single best date to retire sorry about that! some dates are better than others. Let me explain.

Time of Month

The time of month thats best to retire is different for CSRS and FERS. If you are a FERS employee, you have to retire no later than the last day of a month if you want to be on the annuity roll in the following month, If you are a CSRS employee, you can retire up to the third day of any month and be on the annuity roll in the same month. However, your annuity payment for that month will be reduced by 1/30th for every day you arent on the annuity roll.

Clearly, picking the wrong date by as little as one day can affect your annuity. If you are a FERS employee who retires on January 1 instead of December 31, you wont be on the annuity roll until February 1, and you wont receive your first months annuity payment until March 1. The same delay applies if you are a CSRS employee who retires on January 4 instead of January 3.

COLAs

Unused Annual Leave

You have a limit on how many hours of annual leave you can carry over from one leave year to the next. For most employees, thats 240 hours. So, if you have a lot of use or lose leave, theres an incentive for you to retire before those hours are lost. Thats because youll receive a lump sum payment for any unused annual leave.

Taxes

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When To Tap Into Government Pensions

By David Aston on July 18, 2016

Take them early or defer? Heres how to get the most out of OAS and CPP

When you reach the cusp of retirement, youre no doubt aware the Canada Pension Plan and Old Age Security provide much of the financial bedrock for your golden years. But you might be wondering whether you should start your government pensions as soon as possible after you retire or wait until later. An early start will give you a longer stretch of reduced payments, whereas waiting will provide fewer payments but in larger amounts. Which is better?

A lot of complicated factors can affect this decision, so the choice can seem daunting. But you usually wont go far wrong either way. If you have reasons for starting your government pensions now, do it and dont worry about it, says retirement expert and retired actuary Malcolm Hamilton. If you have reasons youd rather not draw it now, defer it and dont worry about it. While that should leave you re-assured, you still need to understand how different personal factors can affect your decision.

How Retirement Benefits Differ And Work For Government Employees

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If you are a government employee, retirement planning and mainstream advice about 401 plans and Social Security benefits probably won’t apply to you. However, there are many ways government employees can plan for a successful retirement. The first step is understanding your benefits, and how to best apply them to your overall financial picture. Below is a look at the top strategies for government employees to plan for a successful retirement.

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Negotiating My Current Job Duties

  • Likelihood of occurring: 5/10
  • Desirably of outcome: 10/10

Instead of chasing a unicorn job, what if I tried to make a unicorn job. As I have said before, I like my job. Im just not crazy about the following things:

  • Supervisory duties
  • Extensive travel
  • Full time work.

In my mind, working part time in my current job is everything I want .

If I were able to achieve these changes, Id get to keep FEHB and all of the parts of my job I love especially the awesome workplace culture we have. Furthermore, Id moderate some of the unpleasant aspects of my job and add more time to work on passion projects.

In my mind, this is everything I want .

Now- the big questions is whether I can pull it off. I think if I were confident in having enough FU money, I could ask for this knowing I could walk away if it didnt work the way I want it to.

However, even at > 80% of the way to full financial independence, Ive thought about asking to work part time and chickened out. Im not sure Ill ever have the confidence to do this.

When To Retire From Federal Service

Your Retirement Estimate and Payment Options

When is the best time to retire from the Federal Governments workforce? On Dec. 31st, probably.

It is relatively easier for a CSRS employee to pick their retirement date than a FERS one, but CSRS workers are now less than 4% of the federal workforce. For them, all they have is their pension to keep track of while those under FERS have to coordinate their pension, TSP, and social security benefits. With CSRS, it is more clear-cut: the end of the leave year is the most logical date to retire. This is when they can carry over a maximum of 240 hours of leave from the prior year. For CSRS, that date is January 3rd, 2022. The end of the leave year is also a reasonable time for a FERS retiree to stop working. The date for FERS is the actual end of the year: New Years Eve 2021. This is considered common knowledge, which can be seen in the uptick of claims for retirement benefits each December, creating the massive backlog at OPM.

For a CSRS employee with 30 to 40 years of service, picking the right date can be crucial when calculating retirement benefit amounts. In contrast, a FERS employee with only a decade or less of service may face fewer drastic implications based off what exact date they stop working.

Until Next Time,

When to Retire from Federal Service

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Mistake : Being Unaware Of Federal Regulations And Opportunities

Retired feds often move onto a second career whether they want added financial security or they want to apply the skills they have gained to become a consultant, a contractor, or start a small business. You need to be aware that retiring federal employees may be subject to some special considerations if they work for the government as a contractor.

Working after retirement has tax implications, which you need to determine as part of your plan. Another option for retired government employees is to work for the government under the rehired annuitant program, which can result in lower income taxes, lower withholdings, and supplement your Social Security. If you retire and work in the private sector, you still will receive your annuity and benefits.

Federal Employee Retirement System

Congress created the Federal Employees Retirement System in 1986, and it became effective on January 1, 1987. Since that time, new Federal civilian employees who have retirement coverage are covered by FERS.

FERS is a retirement plan that provides benefits from three different sources: a Basic Benefit Plan, Social Security and the Thrift Savings Plan . Two of the three parts of FERS can go with you to your next job if you leave the Federal Government before retirement. The Basic Benefit and Social Security parts of FERS require you to pay your share each pay period. Your agency withholds the cost of the Basic Benefit and Social Security from your pay as payroll deductions. Your agency pays its part too. Then, after you retire, you receive annuity payments each month for the rest of your life.

The TSP part of FERS is an account that your agency automatically sets up for you. Each pay period your agency deposits into your account amount equal to 1% of the basic pay you earn for the pay period. You can also make your own contributions to your TSP account and your agency will also make an additional matching contribution up to 4%. These contributions are tax-deferred. The Thrift Savings Plan is administered by the Federal Retirement Thrift Investment Board.

Service Requirements for Unreduced Benefits

*minimum 5 years of creditable civilian service is required

Service Requirement for Reduced Benefits

  • 10 years of creditable svc and retire at MRA
  • Permanent reduction in annuity

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What Is A Minimum Retirement Age Plus 10 Annuity Under The Federal Employees Retirement System

MRA+10 is a provision that allows you to retire with benefits beginning immediately, if you have 10 years of service and have reached the Minimum Retirement Age . However, the annuity is reduced for each month you are under age 62. The reduction equals 5 percent per year .

To avoid the annuity payment reduction, you can postpone payment. You can request deferred or postponed payments of your annuity by completing the Application for Deferred or Postponed Retirement . You should submit the form 2 months before you want the postponed payment to begin.

Mistake No : Thinking That Fers Starts Right Away

Itâs Time to Make Good on Phased Retirement

Its true that your FERS pension begins the first day of the month after you retire, BUT that doesnt mean youll immediately start receiving payments that fast!

Be prepared to wait because OPMs retirement application processing time can vary quite a bit. Ive seen 6 weeks time all the way up to 9 months before the full pension is received.

It can be a big mistake to retire without enough savings to take care of expensesand money can get very tight fast. Even TSP can take 4-6 weeks after you retire before you can request payments. It makes good financial sense to start retirement with at least 4 6 months of expenses in a saving account.

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A Lot Of Time Out Of The Workforce

If you spent a lot of time away from work years ago and have now stopped working, theres a technicality in the way CPP is calculated that can provide a modest incentive to start CPP as soon as you can.

Its complicated. Your CPP entitlement depends on averaging your contributions and earnings in relation to the maximum each year from age 18 until you start taking CPP . Youre allowed to drop 17% of your lowest-earning years from the calculation, which amounts to eight years if you retire at 65. You can drop out additional years if you had little or no income due to serious disability or due to looking after children before the age of seven.

The thing is, it is easy to use up all your standard 17% drop-out years if you spent many years getting an education or doing other unsalaried pursuits. If you then stop working in your early 60s and dont start CPP immediately, then youll add more years of zero contributions and zero earnings to the calculation. The impact of that factor in these cases in isolation is to reduce your annual CPP benefit when you do start it by about 2.5% for each additional year of zero income, says Runchey. So for people in this situation, the net impact is that the payoff they would otherwise get for deferring CPP would be curtailed to around 4.7% per year. You get a larger slice of a smaller pie, but you still get more pie in total, says Runchey.

Congress Guts Federal Retirement Benefits

  • Likelihood of occurring: 3/10
  • Desirably of outcome: 1/10

If youve gotten to this point in the post you understand why I dont want to retire early.

But what if Congress gutted federal retirement benefits?

The biggest reason to stay in a federal job after reaching financial independence is to keep FEHB for life. If Congress gets rid of that benefit, there is little reason to stay in a federal job.

Over my nearly 20 years of federal service, Congress has often debated changes to the FERS retirement system. There are almost always proposals to change the annuity formula or get rid of the FERS supplement.

If the FEHB or FERS supplement were eliminated, so would the incentive to stay until MRA.

I am not aware of proposed changes to FEHB. However, if Congress cut FEHB, it would be bittersweet. On one hand, Id no longer have golden handcuffs keeping me tied to my desk. On the other hand, Id lose a major benefit.

In other words, if the FEHB or FERS supplement were eliminated, there would be no incentive to stay until MRA.

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Choosing Your Best Day To Retire

Many articles have been written about choosing the best day to retire when it comes to federal pensions, both CSRS and FERS. Although you can retire any day you want to once you become eligible, some days are more advantageous than others. Often the last day of a month is the most beneficial for FERS, while a day between the last day of a month and the 3rd of the next month work best for CSRS. For those who are looking at maximizing the value of their lump-sum annual leave payout, the end of the year is generally best.

When it comes to the Thrift Savings Plan, are there any days that are better than others? Not as much as there are with CSRS and FERS, but there are some items that you should consider when you are choosing the day you retire.

First, if you are retiring at or near the end of the calendar year, you should be sure to max out your TSP contributions for the year. The means that you should, at the beginning of the year in which you plan to retire, divide the elective deferral amount by the number of pay days you will have . If you were retiring at the end of 2017, you would contribute $693 per pay period in a 26 pay day year this would have you reaching the elective deferral amount in your final pay period. You would also receive the full employer matching contribution, as you had contributed over 5% of your salary in each pay period.

How Federal Retirement Eligibility Is Calculated

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Like many retirement systems, FERS uses the “Rule of 80.” This states that an employee must reach a combined 80 years when adding age and federal service to be eligible for retirement.

Let’s say an employee begins federal service right after college at age 22. After 29 years of service, they reach age 51. The employee has satisfied the rule of 80, but hasn’t yet reached the minimum retirement age. At an MRA of 57, the employee has six more years left until retirement eligibility.

Assuming this employee wants to retire as soon as they’re eligible to do so, FERS gains six more years of retirement contributions from them and forgoes six years of annuity payments by forcing them to wait until age 57.

Retirement can be tempting at age 51. An employee can decide to do something different and still have enough time left to make a real career out of it. Retirement is still tempting at age 57, but many employees choose to ride out federal service until retiring sometime in their early 60s.

The Social Security Administration allows citizens to take early retirement at age 62, so this is a popular retirement age among public servants at all levels of government as well.

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