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Maximizing Your Federal CSRS Benefits Offered Through: Colorado Federal Executive Board Presenter: Ann Vanderslice Securities offered through Allied Beacon.

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Presentation on theme: "Maximizing Your Federal CSRS Benefits Offered Through: Colorado Federal Executive Board Presenter: Ann Vanderslice Securities offered through Allied Beacon."— Presentation transcript:

1 Maximizing Your Federal CSRS Benefits Offered Through: Colorado Federal Executive Board Presenter: Ann Vanderslice Securities offered through Allied Beacon Partners, Inc. Member FINRA/SIPC. Home office 1201 S. Highland Avenue #2, Clearwater, FL 33756 727-441-1616

2 Getting And Keeping Important Documents Together What We Will Cover Today:

3 CSRS Magic Numbers What We Will Cover Today:

4 When Can You Retire? What We Will Cover Today:

5 Youre Eligible to Retire – Now What? What We Will Cover Today:

6 How Much Will Your Pension Be? What We Will Cover Today:

7 If Youre Married, Should You Take Survivor Benefits? What We Will Cover Today:

8 What If You Become Disabled Before Retirement? What We Will Cover Today:

9 Can You Collect Social Security If Youre Eligible? What We Will Cover Today:

10 Do I Get Raises In Retirement? What We Will Cover Today:

11 What Are Your Choices In TSP While Youre Working? What We Will Cover Today:

12 Understanding The Impact Of Your TSP In Retirement What We Will Cover Today:

13 The Best Benefit Youve Never Heard Of What We Will Cover Today:

14 How To Choose The Best Health Plan For You And Your Family What We Will Cover Today:

15 Maximizing The Value Of The Flexible Spending Plan What We Will Cover Today:

16 How FEGLI Works For You What We Will Cover Today:

17 FLTCIP 2.0 – The Longest Acronym In Federal Benefits What We Will Cover Today:

18 Tax Implications While Working What We Will Cover Today:

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20 Rules Of Thumb For Retirement Planning What We Will Cover Today:

21 What Are Your Investment Alternatives? What We Will Cover Today:

22 Understanding Diversification What We Will Cover Today:

23 How Do You Create Income From Your TSP In Retirement? What We Will Cover Today:

24 Tax Implications for Retirement - What You Can Do Now What We Will Cover Today:

25 What Else Do You Need To Pay Attention To? What We Will Cover Today:

26 Do You Really Need A Will (And All Those Other Documents)? What We Will Cover Today:

27 Retirement Planning - How Do You Get Started? What We Will Cover Today:

28 28 Certified Copy of Birth Certificate DD214 – Certifies Military Service SF-50s – Official Personnel File Social Security Statement Marriage Certificate (if married) Divorce Decree (if divorced) Beneficiary Forms Last Paycheck – SF 1152 Thrift Savings Plan – TSP 3 FEGLI – SF 2823 Annuity (if single) - SF 2808 (CSRS) Important Documents 28

29 Most Common Reasons for Retirement Processing Delays Civil Service Retirement System offsets apply and the annuitant is older than 62. Part-time service is involved. Service has been refunded or a deposit for service is needed. Receipt of workers' compensation is indicated. Military retirement pay is involved. Unpaid military deposits are present and the annuitant is older than 62, or the employee was first covered by retirement deductions on or after Oct. 1, 1982. Excess leave without pay (defined as more than six months) is present on the record. The application includes unverified or missing service. The employees has elected an insurable interest (a survivor benefit option available under the Civil Service Retirement System) No survivor election is made. (Remember - Even if you are unmarried at the time of retirement, don't leave this section of the retirement application blank.) A court order for a divorce requires apportionment of the annuity. The submission by the agency is incomplete and is missing key data needed for calculating interim payments. According to OPM, 23 percent of all claims received are missing one or more records and 11 percent are not received during the first 30 days.

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31 Ages 55 = Earliest age to retire on unreduced annuity FEGLI premiums for Options A and B increase significantly Access to TSP without 10% excise penalty if you separate or retire Magic Numbers

32 Ages 59½ = Access to TSP Funds for one-time withdrawal if still working Penalty-free access to IRAs, 401(k)s, etc. 62 = Earliest eligibility for Social Security benefits 65 = Eligible for Medicare 70 = Latest eligibility for Social Security benefits 70½ = Must begin taking at least minimum withdrawals from tax-qualified accounts (TSP, IRAs) Magic Numbers

33 Years of Service 41 years and 11 months – maximum amount of service annuity can be calculated on 30 years – needed to qualify for unreduced annuity if younger than age 60 5 years – least amount of years you can work and qualify for an annuity Magic Numbers

34 Savings Amount Needed At Retirement Magic Numbers $1,000,000

35 CSRS Employees hired prior to 12/31/83 who have at least 5 years of service at 1/1/87 Contribute 7% of pay to Civil Service Retirement System CSRS and CSRS Offset

36 CSRS Offset – All employees hired after 12/31/83 are required to be covered by Social Security CSRS employees with break in service of +1 year with 5 years of CSRS employment who were rehired after 12/31/83 Contribute 7% of pay which is divided between: CSRS =.80% Social Security = 6.2% Benefits reduced at age 62 by portion of Social Security earned as federal employee CSRS and CSRS Offset

37 CSRS - Retiring On an Immediate, Unreduced Annuity AgeYears of Service 5530 6020 62 5 Involuntary Early Out With Reduction = 1/6 of 1% for each month employee retires prior to age 55 (2% per year) AgeYears of Service 50 20 Any age 25

38 The last day of the month or first 3 days of a new month End of a pay period - Accrue sick leave and annual leave for that pay period Beginning of a new year - Rollover maximum annual leave - Receive COLA on payout of annual leave - Pay taxes in new year Best Dates to Retire

39 39 January 3, 2013 – Best of the Best Best Dates to Retire –2012 39

40 February 1, 2 or 3 March 1 or 2 April 2 or 3 May 1, 2 or 3 June 1 (also end of pay period) July 2 or 3 August 1, 2 or 3 September 3 (also holiday) October 1, 2 or 3 November 1 or 2 (also end of pay period) December 3 January 1, 2 or 3, 2013 Best Dates to Retire –2012

41 Years of Service Based on Retirement Service Computation Date High 3 Average Salary % Formula Based on Years of Service Components to Calculate Federal Annuity

42 Based on time between appointment and separation where deductions are withheld. It includes: Leave without pay (up to six months/calendar year) Part-time service prior to 4/7/1986 - Full credit for eligibility and annuity computation Part-time service on or after 4/7/1986 - Full credit for eligibility – prorated for annuity computation Intermittent days worked (WAE 260-day year) Military service/Deposits/Re-deposits (SF 2803) Retirement Service Computation Date

43 Employee Under CSRS Before 10/1/1982 Make Deposit of 7% of Basic Pay + Interest = Credit for eligibility and annuity Do Not Make Deposit and Are Not Eligible for Social Security = Credit for eligibility and annuity Do Not Make Deposit and Are Eligible for Social Security at Age 62 = Credit for eligibility but no credit for annuity after age 62 Employee Under CSRS On/After 10/1/1982 Deposit Required = No deposit – No Credit for eligibility or annuity CSRS - Buying Back Military Time To Add To Your Creditable Service

44 For Service Prior to 10-1-1982: Deposit Made = 100% for eligibility and annuity computation Deposit Not Made = 100% for eligibility and annuity reduced by 10% of deposit due For Service After 10-1-1982: Deposit Made = 100% for eligibility and annuity computation Deposit Not Made = 100% for eligibility and NO credit for annuity computation Deposits

45 Contributions Not Refunded: 100% for eligibility and annuity computation Contributions Refunded: Re-deposit made = 100% for eligibility and annuity computation Re-deposit NOT made and service ended before 3-1-1991 = 100% for eligibility and annuity actuarially reduced Re-deposit NOT made and service ended after 2-28-1991 = 100% for eligibility and NO credit for annuity computation Re-deposits

46 46 Any part-time service prior to April 7, 1986 counts 100% toward eligibility and annuity calculation Any part-time service after April 7, 1986 counts 100% toward eligibility but is prorated for annuity calculation Part-time Service 46

47 47 Employee TypeLess than 3 years of service* 3 years but less than 15 years of service* 15 or more years of service* Full-time employees½ day (4 hours) for each pay period 3/4 day (6 hours) for each pay period, except 1¼ day (10 hours) in last pay period 1 day (8 hours) for each pay period Part-time employees** 1 hour of annual leave for each 20 hours in a pay status 1 hour of annual leave for each 13 hours in a pay status 1 hour of annual leave for each 10 hours in a pay status Can carryover up to 240 hours of unused leave per year Paid out as lump sum for any unused hours at retirement Annual Leave 47

48 48 Accrue 4 hours per pay period for sick leave. Sick leave is NOT included for creditable service – it is used for annuity calculation purposes only. Sick Leave 48

49 1,125 Hours

50 Creditable Service Calculation Year Month Day Planned Retirement Date ____ _______ ____ Retirement SCD ____ _______ ____ Creditable Service ____ _______ ____ Unused Sick Leave ____ _______ ____ Total Creditable Service ____ _______ ____ 2013 1 3 1980 814 32 419 614 11 32 3 Days Left Over!

51 High 3 Average Average of your base + locality pay over any 3 consecutive years of creditable service Does NOT include: Bonuses Overtime Military Pay Cash Awards Holiday Pay Travel Pay

52 High-3 Calculation Year Salary 2008_____________ 2009_____________ 2010_____________ 2011_____________ 2012_____________ 2013_____________ 2014_____________ 2015_____________ 2016_____________ 2017_____________ 74,025 76,912 79,219 Add last three years together and divide by 3 $79,219 79,219

53 Years of Service X High 3 Average X % Formula = Annual Annuity 1 st 5 years = 5 X 1.5% x High 3 = 7.5% 2 nd 5 years = 5 X 1.75% x High 3 = 8.75% Addl years = # of years X 2% x High 3 At 30 years of service = 56.25% of High 3 Maximum benefit = 41 years / 11 months = 80% ***Sick leave counts toward your Years of Service for annuity computation but cannot be counted for eligibility*** Calculating Your CSRS Annuity

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55 Quick Calc: (Number of years/months of service – 2) X 2 +.25 = % Calculating Your CSRS Annuity

56 Annuity Calculation High-3 Average ________________ Creditable Service % ____________ = Annual Annuity ______________ / 12 = Monthly Annuity __________ $79,219.620833 $49,181 $4,098 Present Value: $1,006,787

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58 58 CSRS - Survivor Benefits Provides 0% - 55% of annuity at a cost of $1- ~10% Available to: Current spouse Former spouse Insurable interest Minor children MUST keep at least minimal survivor benefit to allow spouse to continue health benefits if employee passes away 58

59 CSRS Survivor Benefits - Alternatives Use portion of survivorship cost from annuity to purchase life insurance Year AgeMonthly Monthly Survivors Monthly Annual Accum. Annuity Annuity Monthly Difference Diff. Annual No Surv W/Surv Annuity Diff. 1 55 3,928 3,559 2,161 370 4,445 4,445 5 60 4,417 4,005 2,432 417 5,002 23,597 10 65 5,116 4,643 2,820 483 5,799 50,952 15 70 5,925 5,383 3,269 560 6,723 82,664 20 75 6,862 6,240 3,789 649 7,794 119,427 25 80 7,947 7,234 4,393 753 9,035 162,044 30 85 9,204 8,386 5,092 873 10,476 207,957 3,903 259 25 300 $8,044

60 60 CSRS Survivor Benefits - Alternatives $345/month purchases $466,400 in permanent life insurance with premiums and death benefit guaranteed Cost of survivor annuity is paid prior to taxes being deducted. Cost of life insurance is paid with after-tax dollars. Death benefits are paid to beneficiary income-tax free If spouse passes away first – death benefit can be assigned to someone else Total cost in 20 years is $90,844 vs. $119,427 60

61 May earn up to 80% of fed pay in private sector job Health and life insurance continue if previously insured for 5 years Must have at least 5 years creditable service to apply Employee (or agency, guardian, or interested person if incapacitated) must apply for benefits Disability Retirement No longer able to perform in your position and not qualified for any other position in same location at same grade/pay

62 Guaranteed = lesser of annuity based on High-3 average salary and creditable service as of retirement date + years to age 60 OR 40% of High-3 average salary OR Actual earned annuity, if greater 22 years of service Disability Retirement Benefits are calculated as follows:

63 Become eligible by earning 40 credits Receive full benefits based on year you were born Social Security Benefits Birth YearFull BenefitsBirth YearFull Benefits 1937651943-195466 193865 + 2 mos195566 + 2 mos 193965 + 4 mos195666 + 4 mos 194065 + 6 mos195766 + 6 mos 194165 + 8 mos195866 + 8 mos 194265 + 10 mos195966 + 10 mos 1960 +67

64 Other members of your family may receive benefits based on your work history: Spouse: 50% of yours or 100% of their own (whichever is higher) Child (up to age 18): 50% Former spouse: - Married at least 10 years - Age 62 Social Security Benefits

65 Your survivors may also be eligible to receive benefits on your work history: Spouse youve been married to for at least 9 months who is age 60 or older Child under age 18 (19 if still in school) or any age if disabled before age 18 Former spouse you were married to for at least 10 years Social Security Benefits

66 By delaying taking Social Security until your full retirement age, you can increase your benefits by 20% - 30%. Youll get an additional 20% for waiting until age 70. You can also begin taking benefits and use a Social Security option that lets you repay those benefits at an older age and begin receiving the higher amount! Social Security Benefits

67 Benefits are based on Average Indexed Monthly Earnings AIME Formula for calculating your benefits: 90% of first $767 AIME Plus 32% of AIME from $767-$4,624 Plus 15% of AIME over $4,624 Earnings limit before full retirement age = $14,640* (For every $2 over you give back $1) Year of full retirement age = $38,880* (For every $3 over you give back $1) Social Security Benefits * 2012 Limits

68 CSRS Offset @ 62 CSRS annuity is reduced by the lesser of: The difference between Social Security benefit calculated with and without the Offset years OR Social Security benefit as estimated at 62 multiplied by the number of Offset years divided by 40

69 The Windfall Elimination Provision was enacted in 1986 to cause people eligible for both a pension based on non-covered employment (e.g., CSRS, CSRS Offset and FERS Transferees employees) and Social Security to have their Social Security calculated using a different formula. The main exclusion is for workers with more than 30 years of substantial earnings under Social Security. Social Security Benefits and Your Federal Annuity

70 Substantial Earnings YearsReplacement Factor 30 years 90% 29 years 85% 28 years 80% 27 years 75% 26 years 70% 25 years 65% 24 years 60% 23 years 55% 22 years 50% 21 years 45% 20 years 40% Windfall Elimination Provision

71 If you cant have your own Social Security benefit – can you get your spouses? To determine eligibility, subtract 2/3 of government pension from spouses Social Security benefit. If the answer is greater than zero, you are eligible for that benefit. Government Pension Offset

72 Spouses Social Security Benefit $1,340 Your Federal Annuity Benefit ($3,000)x.66% ($1,980) ($ 640) You are eligible for…………. 0 Government Pension Offset

73 % Increase of Consumer Price Index for Urban Wage Earners and Clerical Workers Effective December 1/appears on January 1 annuity payment Prorated if you retire in middle of year 2009 COLA = 5.8% - Highest since 1982 2010 COLA = 0% 2011 COLA = 0% 2012 COLA = 3.6% Prior to retirement based on amount approved in legislation by Congress each year. After retirement: Cost of Living Adjustments

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75 75 Implemented in January 1988 S and I Funds added in May 2001 Everyone could participate up to IRS limits in 2005 Largest defined contribution plan in the US with $295* Billion in assets, ~4.5 million participants with 68% of CSRS employees participating 1988 - 1999 average annual return was 19.4% 2000 - 2009 average annual return was (.94%) * as of 12/31/2011 A Short History of the TSP 75

76 76 Four provisions in Tobacco Act of 2009 affected TSP: Creation of Roth TSP - May 7 Automatic enrollment for new federal employees New survivorship options Option to create mutual fund choices for investment Updated www.tsp.gov website!www.tsp.gov Whats New With TSP 76

77 77 The treatment of...Traditional TSPRoth TSP ContributionsPre-taxAfter tax Your paycheckTaxes are deferred, so less taken out of your paycheck Taxes are paid upfront, so more money comes out of your paycheck Transfers inTransfers allowed from eligible employer plans and traditional IRAs Transfers allowed from Roth 401(k)s, Roth 403(b)s, and Roth 457(b)s Transfers outTransfers allowed to eligible employer plans, traditional IRAs and Roth IRAs Transfers allowed to Roth 401(k)s, Roth 403(b)s, Roth 457(b)s, and Roth IRAs WithdrawalsTaxable when withdrawnTax free earnings if 5 years have passed since January 1 of the year you made your first Roth contribution AND you are age 59 1/2 or older Whats New With TSP 77

78 78 Amount of Contributions Allocation How Much You Borrow Withdrawals After Age 59 ½ TSP Options While Youre Working 78

79 79 2012 Contribution Limits – $17,000 – under age 50 +$ 5,500 – catch-up contributions age 50 or better $22,500 TOTAL 2012 No Government Match Thrift Savings Plan 79

80 80 You will need: 13-digit Account Number Issued by TSP PIN Number Issued by TSP You may customize your User ID by logging on to TSP website: Can change both your sign-on and your password Accessing Your TSP Account 80

81 81 G Fund – Offers the opportunity to earn rates of interest similar to those of long-term Government securities but without any risk of loss of principal and very little volatility of earnings. The G Fund is invested in short-term U.S. Treasury securities specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. Government. Thus, there is no credit risk. The interest rate resets monthly and is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. Earnings consist entirely of interest income on the securities. Interest on G Fund securities has, over time, outpaced inflation and 90-day T-bills. Thrift Savings Plan 81

82 82 F Fund – Offers the opportunity to earn rates of return that exceed those of money market funds over the long term with relatively low risk. The objective of the F Fund is to match the performance of the Barclays Capital U.S. Aggregate Index, a broad index representing the U.S. bond market. The risk of nonpayment of interest or principal (credit risk) is relatively low because the fund includes only investment-grade securities and is broadly diversified. However, the F Fund has market risk (the risk that the value of the underlying securities will decline) and prepayment risk (the risk that the security will be repaid before it matures). Earnings consist of interest income on the securities and gains (or losses) in the value of securities. Thrift Savings Plan 82

83 83 C Fund – Offers the opportunity to earn a potentially high investment return over the long term from a broadly diversified portfolio of stocks of large and medium-sized U.S. companies. The objective of the C Fund is to match the performance of the Standard and Poors 500 (S&P 500) Index, a broad market index made up of stocks of 500 large to medium-sized U.S. companies. There is a risk of loss if the S&P 500 Index declines in response to changes in overall economic conditions (market risk). Earnings consist of gains (or losses) in the prices of stocks, and dividend income. Thrift Savings Plan 83

84 84 S Fund – Offers the opportunity to earn a potentially high investment return over the long term by investing in the stocks of small and medium- sized U.S. companies. The objective of the S Fund is to match the performance of the Dow Jones Wilshire 4500 Completion (DJW 4500) Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index. There is a risk of loss if the DJW 4500 Index declines in response to changes in overall economic conditions (market risk). Earnings consist of gains (or losses) in the prices of stocks, and dividend income. Thrift Savings Plan 84

85 85 I Fund – Offers the opportunity to earn a potentially high investment return over the long term by investing in the stocks of companies in developed countries outside the United States. The objective of the I Fund is to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. There is a risk of loss if the EAFE Index declines in response to changes in overall economic conditions (market risk) or in response to increases in the value of the U.S. dollar (currency risk). Earnings consist of gains (or losses) in the prices of stocks, currency changes relative to the U.S. dollar, and dividend income. Thrift Savings Plan 85

86 86 Lifecycle Funds - The L Funds provide you with a convenient way to diversify your account among the G, F, C, S, and I Funds, using professionally determined investment mixes that are tailored to different time horizons. Your time horizon is the date (after you leave Federal service) that you think you will need the money in your TSP account. The five L Funds were designed for the TSP by Mercer Investment Consulting, Inc. The asset allocations are based on Mercers assumptions regarding future investment returns, inflation, economic growth, and interest rates. The L Funds are rebalanced to their target allocations each business day. When a fund reaches its horizon, it will roll into the L Income Fund, and a new fund will be added with a more distant time horizon Putting your entire TSP account into one of the L Funds allows you to achieve the best expected return for the amount of expected risk that is appropriate for your time horizon. Thrift Savings Plan - Funds 86

87 L2040 L2020 L2030 L2050 L Income G Fund – 74% F Fund - 6% C Fund - 12% S Fund - 3% I Fund - 5% G Fund – 3.83% F Fund - 7.67% C Fund - 43.4% S Fund - 18.7% I Fund - 26.4% G Fund – 37.8% F Fund - 7.33% C Fund - 29.27% S Fund - 9.3% I Fund - 16.3% G Fund – 23.15% F Fund - 8.35% C Fund - 35.4% S Fund - 13.4% I Fund - 19.7% G Fund – 12.15% F Fund - 9.35% C Fund - 39.4% S Fund - 16.7% I Fund - 22.4% Allocations as of April 2012

88 YearG FundF FundC FundS Fund*I Fund* 20025.00%10.27%(22.05%)(18.14%)(15.98%) 20034.11% 28.54%42.92%37.94% 20044.30% 10.82%18.03%20.00% 20054.49%2.40%4.96%10.45%13.63% 20064.93%4.40%15.79%15.30%26.32% 20074.87%7.09%5.54%5.49%11.43% 20083.75%5.45%(36.99%)(38.32%)(42.43%) 20092.97%5.99%26.68%34.85%30.04% 20102.81%6.71%15.07%29.06%7.94% 20112.45%7.89%2.11%(3.38%)11.81%) 10-yr Avg3.96%5.84%2.94%6.76%4.72% 10-year Average Returns

89 G Fund -.39% F Fund -.32% C Fund - 12.63% S Fund - 14.45% I Fund - 10.91% L Income-2.72% L 2020 - 6.93% L 2030 - 8.58% L 2040 - 9.85% L 2050 - 11.08% Year-to Date Returns as of 3/31/12

90 Allocating Your TSP In Volatile Markets Allowed 2 Inter-fund Transfers per Month Can Move Funds into the G Fund in Addition to the Inter-Fund Transfers

91 Allocating Your TSP In Volatile Markets Considerations: Assessing Your Tolerance for Risk http://moneycentral.msn.com/investor/calcs/n_riskq/main.asp Past Performance Look at historical returns on www.tsp.govwww.tsp.gov Periodic Updates from TSP Go to www.tsp.gov and Click on Get e-mail updates Click on the icon to subscribe and youll receive automatic updates by e-mail from TSP and Click Outside Resources

92 Projection of monthly income as if you were age 62 appears on back of statement.

93 93 2011 Expense Fees =.025% Use low-cost index funds Keep it simple – only five funds available Huge economies of scale – competitive procurement Use commingled trust funds instead of individual accounts - Only invest one amount per fund each day - Individual accounts are maintained in TSP Thrift Savings Plan - Fees 93

94 94 Develop a strategy/plan for monitoring your funds Whats the overall state of the economy What are you willing to risk How does your current allocation fit your retirement plan If you have had a loss, whats your recovery plan Tips for Maximizing Your TSP 94

95 95 Two Types of TSP Loans – May have one of each General – 1-5 years to repay – No documentation Residential – 1-15 years to repay – Documentation Apply Online or Paper Application (TSP-20) Current Interest Rate – 1.875% Amounts You Can Borrow Must borrow at least $1,000 50% of current vested balance up to $50,000 After Repaying Loan Must Wait 60 Days to Borrow Again TSP Loans 95

96 96 Risks – Loan payments may cause you to contribute less to your TSP If your TSP earns a higher return than the loan interest rate, there will be less in TSP Residential loans are not considered mortgages and interest is not deductible on tax return Your loan is paid back with after-tax dollars TSP Loans 96

97 Creating Income From Your TSP in Retirement Two Chances to Take Distributions at Retirement - Partial withdrawal using Form TSP-77 Full withdrawal using Form TSP-70 OR Create an immediate annuity through TSP (Met Life) Current Rate = 2.125%

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100 Form TSP -3 to Name Beneficiaries If no TSP-3 on file at death, TSP is distributed according to Order of Precedence * To widow or widower * If none, to child or children equally and to descendants of deceased children by representation * If none, to parents equally or to the surviving parent Beneficiary Designations

101 101 Contribute up to 10% of base pay on ALL earnings Cannot owe a deposit or re-deposit Cannot have been in the program in the past and withdrawn 2012 interest rate = 2.25% Interest accrues tax deferred Contributions must be in $25 increments All contributions (and interest, if desired) can be rolled to a ROTH IRA AT RETIREMENT! Use Form SF2804 to apply for a VCP account number Voluntary Contribution Program 101

102 102 While employed, premiums are paid using premium conversion provision – paid with pre-tax dollars. Retirees cannot participate in premium conversion. FEHB continues into retirement if you : - Were insured on your retirement date - Retired on an immediate annuity - Were enrolled or covered as a family member for the 5 years immediately preceding retirement or since first opportunity to enroll Health Insurance - FEHB 102

103 103 Choosing Your Plan Health Maintenance Organization HMO – Choose a primary care physician (PCP) from a list of member physicians. The PCP provides general medical care and must provide a referral to see a specialist (who must also be part of the HMO). No coverage for out-of-network care (except emergencies) Typically, no deductibles but members often pay a co- payment for care. Health Insurance - FEHB 103

104 104 Choosing Your Plan Preferred Provider Organization PPO – Do not choose a primary care physician and can refer themselves to specialists. Do not have to stay within network, but there is a financial incentive to do so. Typically, deductibles are required before benefits begin and can also include co-payments that are larger than HMOs. Health Insurance - FEHB 104

105 105 Choosing Your Plan Fee-for-service FFS – You go to the doctor or hospital of your choice You (or your doctor or hospital) submit a claim to your insurance company for reimbursement You will only receive reimbursement for the "covered" medical expenses listed in your policy, typically at 80% of reasonable and customary Health Insurance - FEHB 105

106 106 Choosing Your Plan Traditional Plan – For people with more significant, on-going medical issues Anticipate multiple visits with specialists Ongoing prescription needs Often includes higher premiums but lower deductibles or co-pays Has annual out-of-pocket limits Health Insurance - FEHB 106

107 107 Choosing Your Plan Consumer Driven Health Plan – For generally healthy with minor, ongoing medical issues, e.g., allergies or acid reflux Need few specialist visits annually Few ongoing prescription needs Typically includes set account you can rollover each year if you dont use Lower premiums than traditional plans and has maximum annual out-of-pocket limits Health Insurance - FEHB 107

108 108 Choosing Your Plan High Deductible Health Plan – No known medical issues Routine visits to doctor, e.g., flu or broken arm No ongoing prescription medications Includes Health Savings Account that can be rolled over from year-to-year Lower premiums than traditional or consumer-driven plans and has maximum annual out-of-pocket limits Health Insurance - FEHB 108

109 109 Choosing Your Plan High Deductible Health Plan HDHP – Intended to cover serious illness or injury. Includes some preventative care. Includes HSA or HRA Minimum deductibles of $1,100 (self) or $2,200 (self + family) Deductible must be paid before any benefits paid Higher out-of-pocket limits HSA and HRA can build savings for future medical expenses Health Insurance - FEHB 109

110 110 Choosing Your Plan Health Savings Account HSA – Must be enrolled in HDHP to have one Tax-advantaged savings for future medical expenses You own account you can use to pay qualified medical expenses for you and your dependents Account grows tax-free to be used for qualified medical expenses Health Insurance - FEHB 110

111 111 You can set aside up to $5,000/year in pre-tax dollars to pay for medical costs, deductibles, co-pays, etc. You can set aside up to $5,000/year in pre-tax dollars to pay for dependent care including elder care Must use it or lose it by March 15 of the following year Enroll during FEHB open season – employees only www.benefeds.com Flexible Savings Account - FSA 111

112 112 Available to current and retired federal and postal workers and eligible family members Purchased on a group basis but employee pays entire premium Pre-existing conditions are included in coverage Premiums are paid on a pre-tax basis You can enroll in either or both during FEHB Open Season Do not have to be in FEHB to enroll (but must be eligible) www.fedvip.comwww.fedvip.com FEDVIP – Dental and Vision Program 112

113 113 Part A – Hospitalization Deductible - $1,156* Pay 1.45% of pay while working Free at age 65 Part B – Medical Expenses Deductible $140* +20% after deductible Pay $99.90/mo* with MAGI under $85,000 Pay $319.70/mo* with MAGI over $214,000 Part D – Prescription Drug Plan Medicare 113

114 114 Enrollment: Age 65 – Part A - within 7-month window of birthdate Part B – within 7-month window of birthdate if retired otherwise within 8 months after retirement General enrollment is from January 1 to March 31 each year. Penalty for not enrolling on time is 10% for each 12 months late. Medicare 114

115 115 Do you need Part B? Most federal employees use their FEHB as a Part B replacement. You can have both, but you will be paying not only your portion of the FEHB but the Medicare premiums, as well. Medicare becomes the primary payor and your FEHB acts as a supplement in this case. Medicare 115

116 116 Basic coverage – Current salary rounded to the nearest thousand + $2,000 Costs.15/thousand = employee share Federal government picks up 1/3 of premium Option A - $10,000 Must have Basic coverage to participate Costs increase from $.30 - $6.00 from age 35 to age 60 Option B – Current salary rounded to the nearest thousand in multiples from 1-5 Must have Basic coverage to participate Costs increase dramatically at age 55 and beyond FEGLI 116

117 FEGLI Age Band Premium/$1 000/Mon th *NEW Premium/$10 00/Month For persons ages 35 and under $0.065$0.043 For persons ages 35 through 39 $0.087$0.065 For persons ages 40 through 44 $0.13$0.108 For persons ages 45 through 49 $0.195$0.173 For persons ages 50 through 54 $0.303$0.282 For persons ages 55 through 59 $0.607$0.498 For persons ages 60 through 64 $1.30$1.127 For persons ages 65 through 69 $1.56$1.343 For persons ages 70 through 74 $2.60$2.47 For persons ages 75 through 79 $3.90 For persons ages 80 & Over $5.20

118 118 Option C– For spouse and minor children Spouse = $5,000 in multiples of 1-5 Children - = $2,500 in multiples of 1-5 Children covered until age 22 unless disabled Costs increase from $.27 to $3.00 from age 35 to age 60 In retirement – you choose how much of the benefits to keep. FEGLI 118

119 119 At retirement, most federal employees choose to keep their Basic coverage with a 75% reduction and eliminate their other coverages. This reduces or eliminates the cost at age 65. To compare coverage and premiums: www.opm.gov/calculator/worksheet.asp FEGLI 119

120 Original coverage was established in 2002 as a partnership between John Hancock and MetLife – managed by LTC Partners John Hancock awarded next 7-year contract beginning October 1, 2009 – still managed by LTC Partners FLTCIP 2.0 Federal Long-term Care

121 Available for current federal employees, their spouses/same-sex partners Access to limited underwriting during Open Season FLTCIP 2.0 Federal Long-term Care

122 122 You make four choices in creating your coverage: How much? $50 - $300/day How long? 2 years, 3 years, 5 years or lifetime Inflation? 4% compound, 5% compound or future purchase Deductible? 90 days Long-term Care Insurance 122

123 123 All tax-qualified plans: Pay non-taxable benefits directly to you Start payments when you cannot perform 2 out of 6 activities of daily living (certified by your physician) or cognitive impairment Provide for the deductibility of premium payments under certain conditions To calculate premiums or apply for coverage: www.ltcfeds.com Long-term Care Insurance 123

124 124 Your current W-4 dictates withholding from your salary Contributions to Thrift Savings Plan reduce taxable income Unused annual leave is paid in a lump sum and taxed at the higher lump sum rates (currently ~40%!) Taxes While Working 124

125 125 National Association of Active and Retired Federal Employees - NARFE www.narfe.org 125

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127 127 70% - 80% of your pre-retirement income is required to maintain your standard of living in retirement Your retirement savings should be allocated more conservatively as you move into retirement Investment returns need to outpace taxes and inflation Rules of Thumb to Consider 127

128 Retirement Concerns in America Another market downturn The demise of pension plans Keeping up with healthcare costs Taxes may take too much of retirement plans and IRAs

129 Emotion Taxes Inflation Volatility Barriers to Growing and Keeping Your Money

130 Buy Optimism Sell Excitement Thrill Euphoria Anxiety Denial Fear Desperation Panic Capitulation Despondency Depression Hope Relief Optimism Emotion vs. Logic – The Cycle of Market Emotions

131 Buy Optimism Sell Excitement Thrill Euphoria Anxiety Denial Fear Desperation Panic Capitulation Despondency Depression Hope Relief Optimism Emotion vs. Logic – The Cycle of Market Emotions

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133 No Market Risk CashCDs Fixed Annuities Fixed Index Annuities 5% to 8% guaranteed growth for income benefit 3.15% for 5 years $20,000 to $50,000 in bank type accounts Some Risk Bonds REITs (non- traded) 5% 5% to 7% Dividend Capital Gains Interest risk Most Risk Variable Annuities Mutual Funds Stocks & ETFs Venture Capital 1% to 2% fees 2% to 3% fees 8.4% average* FeesFees 2.50% 1.25% 0.25% 5.00% VA Fees 0.75%

134 Why Does Wall Street Exist? 1. Allocate capital to deserving new businesses and technologies (and some undeserving ones, as well). 2. Capital markets are a major contributor to our economy and society.

135 Is It Still Okay to Mistrust Wall Street? 1. Reckless with leverage 2. Required taxpayer funded bailouts 3. Want less regulation - not more

136 Wall Street told us to: 1. Be a long term investor. 2. If you are willing to take higher risk, over time you will be rewarded with a higher return.

137 137

138 MarketIndexStayed Fully Invested Best 10 Days Missed Best 20 Days Missed Best 30 Days Missed Best 40 Days Missed U.S.S&P 500 Composite 8.18%4.83%2.26%0.02%-1.87% Past Performance is no guarantee of future results. The table is for illustrative purposes only, and the rates of return are not representative of any portfolio or security. Please remember that each asset class has its own unique risks and potential for rewards. Indexes referenced in the table do not include reinvestment of dividends, are unmanaged and not available for direct investment. Wall Street told us to: 15-year time period 1/1/1995 - 12/31/2009

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140 18-22 Single 22-30 Young Married 31-42 Young Family 46-50 Family, College Kids 50+ Empty Nesters 60+ Retired Change in Spending at each Age & Stage of Life The bigger picture… Source: H.S. Dent Foundation

141 141

142 Baby Boomers Are Not Different Front end of Boomer generation began retiring in 2003. Wave continues through 2025. Spending STILL PEAKS between the ages of 48-50. The bigger picture…

143 MISSING THE WORST – The average total return for the S&P 500 over the last 25 years (i.e., 1984-2008) is +9.8% per year. If you missed the 25 worst percentage gains days in those 25 years (i.e., 25 days in total, not 25 days per year), your average total return increases to +17.8% per year. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research). Wall Street told us to:

144 Indices are unmanaged measure of market conditions that is not available for direct investment. Past performance cannot guarantee future results. RISK

145 Source: Morningstar. Morningstar Categories presented are for illustrative purposes only and are not indicative of the performance of any particular investment. They are not investment vehicles available for purchase. Wall Street told us to: Indices are unmanaged and cannot accommodate direct investments. Past performance is not indicative of future results. The S&P 500 is an unmanaged index which measures broad based changes in stock-market conditions based on the average performance of 500 widely held common stocks. The S&P 500 does not represent the performance of an investment option. This index is not available for direct investment.

146 A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated. A New Definition of Diversification

147 Correlation measures how closely related your various investments are related to a benchmark. A New Definition of Diversification

148 2008 G Fund F Fund C Fund S Fund I Fund

149 149 September 2000- September 2002 September 2000- September 2002 $100,000 $55,270 +81% The S&P 500 is an unmanaged measure of market conditions that is not available for direct investment. Past performance cannot guarantee future results. 105.13% October 2002- September 2007 October 2002- September 2007 -44.73% -50.95% October 2007- February 2009 October 2007- February 2009 March 2009 May 2011 March 2009 May 2011 $115,170 $56,490 $108,330 +101.8% 91.77% +8.3% Cumulative Return Over the last 10 Years +8.3% Cumulative Return Over the last 10 Years

150 -44.73% September 2000 September 2002 October 2006 $100,000 $55,270 +81% $500 Monthly Distribution $12,500 $42,770 +133% Return

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152 152

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154 154 Served as the 7th Comptroller General of the United States and head of the Government Accountability Office (GAO) from 1998 to 2008 Walker left the GAO to head the Peterson Foundation on March 12, 2008 Meet David Walker 154

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156 156 Affect your income in retirement Even if youre earning less – you may still be in a higher tax bracket Tax rates arent in your control – how you plan is Taxes in the Future 156

157 Two Key Factors Are: Historical Data Private and Public Debt

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159 $100 – Most counterfeited money denomination in the world. Keeps the world moving. http://usdebt.kleptocracy.us/http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org One Hundred Dollars

160 $10,000 – Enough for a great vacation or to buy a used car. Approximately one year of work for the average human on earth. http://usdebt.kleptocracy.us/http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org Ten Thousand Dollars

161 $1,000,000 – Not as big of a pile as you thought, huh? Still this is 92 years of work for the average human on earth. http://usdebt.kleptocracy.us/http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org One Million Dollars

162 $100,000,000 – Plenty to go around for everyone. Fits nicely on an ISO / Military standard sized pallet. http://usdebt.kleptocracy.us/http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org One Hundred Million Dollars

163 $1,000,000,000 – You will need some help when robbing the bank. Now we are getting serious! http://usdebt.kleptocracy.us/http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org One Billion Dollars

164 $1,000,000,000,000 – If you spent $1 million a day since Jesus was born, you would have not spent $1 trillion by now. http://usdebt.kleptocracy.us/http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org One Trillion Dollars

165 $1,000,000,000,000 – Compared to a standard sized American Football field, European Football field & Boeing 747. http://usdebt.kleptocracy.us/http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org One Trillion Dollars

166 $15,000,000,000,000 – Unless the U.S. government fixes the budget, U.S. national debt (credit card bill) will topple 15 trillion by Christmas 2011. http://usdebt.kleptocracy.us/http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org 15 Trillion Dollars

167 $114,500,000,000,000 U.S. Unfunded Liabilities (Medicare, Medicaid, Medicare Prescription Drugs, Social Security, Military & Civil Servant Pensions) http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org 114.5 Trillion Dollars

168 The Future of Tax Rates Where do you think tax rates are headed in the future? 1) Increase 2) Decrease 3) Stay the same

169 Top Federal Tax Rates 1913 - 2009 Source: Tax Foundation – www.taxfoundation.com and H.S. Dent Foundationwww.taxfoundation.com

170 Married filing jointly Source: Tax Foundation, 2005; CCH, 2009 2012 Marginal Income Tax Rates $0 -$17,40010% $17,400 -$70,70015% $70,701 - $142,70025% $142,701 - $217,450 28% $ 217,451 - $388,350 33% $ 388,351- and over 35%

171 Married filing jointly Source: Tax Foundation, 2005; CCH, 2009 Marginal Income Tax Rates (after Bush tax cuts expire) $0 -$43,85015% $43,850 -$105,95028% $105,950-$161,45031% $161,450- $288,350 36% $ 288,350+ 39.6%

172 http://wheredidmytaxdollarsgo.comhttp://wheredidmytaxdollarsgo.com/

173 Examples of InvestmentsGoing InGrowthGoing Out Option #1 Checking Accounts Savings Accounts Money Market Accounts Mutual Funds Certain Stocks That Pay Dividends Certificates of Deposit (CDs) Taxed Option #2 Stocks Non-qualified Annuities UITs TaxedTax-deferredTaxed Option #3 401(k) Plans Thrift Savings Plan Qualified Annuities Traditional IRAs SEP IRAs Pre-taxTax-deferredTaxed Option #4 Roth IRAs VULs Municipal Tax-free Bonds TaxedTax-deferredTax-free

174 http://apps.opm.gov/tax_calc/index.cfm How much of your annuity will be tax- free as a refund of your contributions?

175 175 At retirement, you will complete a new W-4P for withholding from your federal annuity You will need to get your state form for withholding – not included in OPM package In Colorado – federal annuities are exempt from state tax up to $20,000 ($24,000 after age 65) Unused annual leave is paid in a lump sum and taxed at the higher lump sum rates Taxes In Retirement 175

176 176 What about Social Security? Depending on your income a portion of your Social Security income may be taxed, as well. Single filers: AGI $25,000-$35,000 – 50% benefit taxed AGI $35,000+ - 85% of benefit taxed Joint filers: AGI $32,000-$44,000 – 50% benefit taxed AGI $44,000+ - 85% of benefit taxed Only 50% of your Social Security benefit counts in computing your AGI Taxes In Retirement 176

177 177 What about Thrift Savings? Taxed as ordinary income when withdrawn No penalty if you: Separate or retire when you reach age 55 or better Retire on disability retirement Take monthly payments based on your life expectancy Taxes In Retirement 177

178 178 What can you do to insulate your assets from future taxes? Three ways to get tax-free income: Municipal bonds Roth IRA Permanent life insurance Taxes 178

179 Who Can Contribute To a Roth IRA? Income Limits on Eligibility to Contribute for 2012: Based on Adjusted Gross Income Married Filing Jointly: $173,000 - $183,000 Single: $110,000 - $125,000 NO Income Limits on Eligibility to Convert for 2012

180 180 If eligible, 2012 Contribution Limits – $5,000 – under age 50 +$ 1,000 – catch-up contributions age 50 or better No Tax Deduction Tax-free When Withdrawn Roth IRA 180

181 Three Credit Bureaus Experian Equifax TransUnion How Can I Find Out My Score? www.mycreditreport.com www.annualcreditreport.com.com

182 What should your credit score be? 850 = Pristine 750 = Very Good 680 = Minimum 300 = Dismal

183 Tips for Improving and Maintaining Your Score Know your score Scout for mistakes NEVER be late Magic 20% Keep your oldest cards Accept fate on the rest

184 PROs Youll save thousands of dollars in interest Peace of mind CONs Possibility to earn higher returns on your money Liquidity Tax deductibility of interest Should You Pay Off Your Mortgage?

185 Techniques and strategies while living Durable power of attorney – Financial – Health Living will Name beneficiaries to reduce probate costs and time delays Family planning

186 Save! Understand Your Options Make Good Choices Today to Build For Future Create Strategies for Balance Getting Started

187 The best time to think about retirement is before your boss does.


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