Presentation on theme: "Maximizing Your Federal CSRS Benefits"— Presentation transcript:
1Maximizing Your Federal CSRS Benefits Presented for:Colorado Federal Executive BoardDenver, COOctober 24, 2012Presenter: Ann VandersliceSecurities offered through Allied Beacon Partners, Inc. Member FINRA/SIPC. Home office 1201 S. Highland Avenue #2, Clearwater, FL
2Getting And Keeping Important Documents Together What We Will Cover Today:Getting And Keeping Important Documents Together
5You’re Eligible to Retire – Now What? What We Will Cover Today:You’re Eligible to Retire – Now What?
6Retiring Under a VERA or What We Will Cover Today:Retiring Under a VERA orVERA/VSIP
7How Much Will Your Pension Be? What We Will Cover Today:How Much Will Your Pension Be?
8If You’re Married, Should You Take Survivor Benefits? What We Will Cover Today:If You’re Married, Should You Take Survivor Benefits?
9What If You Become Disabled Before Retirement? What We Will Cover Today:What If You Become Disabled Before Retirement?
10Can You Collect Social Security If You’re Eligible? What We Will Cover Today:Can You Collect Social Security If You’re Eligible?
11Do I Get Raises In Retirement? What We Will Cover Today:Do I Get Raises In Retirement?
12What Are Your Choices In TSP While You’re Working? What We Will Cover Today:What Are Your Choices In TSP While You’re Working?
13Understanding The Impact Of Your TSP In Retirement What We Will Cover Today:Understanding The Impact Of Your TSP In Retirement
14The Best Benefit You’ve Never Heard Of What We Will Cover Today:The Best Benefit You’ve Never Heard Of
15How To Choose The Best Health Plan For You And Your Family What We Will Cover Today:How To Choose The Best Health Plan For You And Your Family
16Maximizing The Value Of The Flexible Spending Plan What We Will Cover Today:Maximizing The Value Of The Flexible Spending Plan
17What We Will Cover Today: How FEGLI Works For You
18FLTCIP 2.0 – The Longest Acronym In Federal Benefits What We Will Cover Today:FLTCIP 2.0 – The Longest Acronym In Federal Benefits
19Tax Implications While Working What We Will Cover Today:Tax Implications While Working
20Important Documents Certified Copy of Birth Certificate DD214 – Certifies Military ServiceSF-50’s – Official Personnel FileSocial Security StatementMarriage Certificate (if married)Divorce Decree (if divorced)Receipts for any Deposits/Redeposits madeBeneficiary FormsLast Paycheck – SF Thrift Savings Plan – TSP 3 FEGLI – SF Annuity (if single) - SF 2808 (CSRS)
21Most 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.
23Magic NumbersAges55 = 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
24Magic NumbersAges59½ = Access to TSP Funds for one-time withdrawal if still working Penalty-free access to IRA’s, 401(k)’s, etc.62 = Earliest eligibility for Social Security benefits65 = Eligible for Medicare70 = Latest eligibility for Social Security benefits70½ = Must begin taking at least minimum withdrawals from tax-qualified accounts (TSP, IRA’s)
25Magic NumbersYears of Service41 years and 11 months – maximum amount of service annuity can be calculated on30 years – needed to qualify for unreduced annuity if younger than age 605 years – least amount of years you can work and qualify for an annuity
26Savings Amount Needed At Retirement Magic NumbersSavings Amount Needed At Retirement$1,000,000
27CSRS and CSRS Offset CSRS Employees hired prior to 12/31/83 who have at least 5 years of service at 1/1/87Contribute 7% of pay to Civil Service Retirement System
28CSRS and CSRS Offset CSRS Offset – All employees hired after 12/31/83 are required to be covered by Social SecurityCSRS employees with break in service of +1 year with 5 years of CSRS employment who were rehired after 12/31/83Contribute 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
29CSRS - Retiring On an Immediate, Unreduced Annuity Age Years of ServiceInvoluntary Early Out With Reduction = 1/6 of 1% for each month employee retires prior to age 55 (2% per year)Any age
30Best Dates to RetireThe last day of the month or first 3 days of a new monthEnd of a pay period- Accrue sick leave and annual leave for that pay periodBeginning of a new year- Rollover maximum annual leave- Receive COLA on payout of annual leave- Pay taxes in new year
31January 3, 2013 – Best of the Best Best Dates to Retire –2012January 3, 2013 – Best of the Best31
32Best Dates to Retire –2012February 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
33Components to Calculate Federal Annuity Years of Service Based on Retirement Service Computation DateHigh 3 Average Salary% Formula Based on Years of Service
34Retirement Service Computation Date 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/ Full credit for eligibility and annuity computationPart-time service on or after 4/7/ Full credit for eligibility – prorated for annuity computationIntermittent days worked (WAE 260-day year)Military service/Deposits/Re-deposits (SF 2803)
35CSRS - Buying Back Military Time To Add To Your Creditable Service Employee Under CSRS Before 10/1/1982 Make Deposit of 7% of Basic Pay + Interest = Credit for eligibility and annuityDo Not Make Deposit and Are Not Eligible for Social Security = Credit for eligibility and annuityDo Not Make Deposit and Are Eligible for Social Security at Age 62 = Credit for eligibility but no credit for annuity after age 62Employee Under CSRS On/After 10/1/1982Deposit Required = No deposit – No Credit for eligibility or annuity
36Deposits For Service Prior to 10-1-1982: Deposit Made = 100% for eligibility and annuity computationDeposit Not Made = 100% for eligibility and annuity reduced by 10% of deposit dueFor Service After :Deposit Not Made = 100% for eligibility and NO credit for annuity computation
37Re-deposits Contributions Not Refunded: 100% for eligibility and annuity computationContributions Refunded:Re-deposit made = 100% for eligibility and annuity computationRe-deposit NOT made and service ended before = 100% for eligibility and annuity actuarially reducedRe-deposit NOT made and service ended after = 100% for eligibility and NO credit for annuity computation
38Part-time ServiceAny part-time service prior to April 7, 1986 counts 100% toward eligibility and annuity calculationAny part-time service after April 7, 1986 counts 100% toward eligibility but is prorated for annuity calculation
39Annual Leave Can carryover up to 240 hours of unused leave per year 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 period3/4 day (6 hours) for each pay period, except 1¼ day (10 hours) in last pay period1 day (8 hours) for each pay periodPart-time employees**1 hour of annual leave for each 20 hours in a pay status1 hour of annual leave for each 13 hours in a pay status1 hour of annual leave for each 10 hours in a pay statusCan carryover up to 240 hours of unused leave per yearPaid out as lump sum for any unused hours at retirement
40Sick LeaveAccrue 4 hours per pay period for sick leave. Sick leave is NOT included for creditable service – it is used for annuity calculation purposes only.
42Creditable Service Calculation Year Month DayPlanned Retirement Date ____ _______ ____Retirement SCD ____ _______ ____Creditable Service ____ _______ ____Unused Sick Leave ____ _______ ____Total Creditable Service ____ _______ ____2013131980814324196143 Days Left Over!3211
43High 3 Average Does NOT include: Average of your base + locality pay over any 3 consecutive years of creditable serviceDoes NOT include:Bonuses Overtime Military Pay Cash Awards Holiday Pay Travel Pay
44High-3 Calculation 79, 219 79,219 79,219 79,219 Year Salary 2010 _____________2011 _____________2012 _____________2013 _____________2014 _____________2015 _____________2016 _____________2017 _____________79, 219Add last three years togetherand divide by 3$79,21979,21979,21979,219
45Add’l years = # of years X 2% x High 3 Calculating Your CSRS AnnuityYears of Service X High 3 Average X % Formula = Annual Annuity1st 5 years = 5 X 1.5% x High 3 = 7.5%2nd 5 years = 5 X 1.75% x High 3 = 8.75%Add’l years = # of years X 2% x High 3At 30 years of service = 56.25% of High 3Maximum benefit = 41 years / 11 months = 80%***Sick leave counts toward your Years of Service for annuity computation but cannot be counted for eligibility***
50CSRS - 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
52CSRS 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
53Disability Retirement No longer able to perform in your position and not qualified for any other position in same location at same grade/payMay earn up to 80% of fed pay in private sector jobHealth and life insurance continue if previously insured for 5 yearsMust have at least 5 years creditable service to applyEmployee (or agency, guardian, or interested person if incapacitated) must apply for benefits
54Disability Retirement Benefits are calculated as follows:Guaranteed = lesser of annuity based on High-3 average salary and creditable service as of retirement date + years to age 60OR40% of High-3 average salaryActual earned annuity, if greater 22 years of service
55Social Security Benefits Become eligible by earning 40 “credits”Receive full benefits based on year you were bornBirth YearFull Benefits193765661938mos1955mos1939mos1956mos1940mos1957mos1941mos1958mos1942mos1959mos1960 +67
56Social Security Benefits 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
57Social Security Benefits Your survivors may also be eligible to receive benefits on your work history:Spouse you’ve been married to for at least 9 months who is age 60 or olderChild under age 18 (19 if still in school) or any age if disabled before age 18Former spouse you were married to for at least 10 years
58Social Security Benefits By delaying taking Social Security until your full retirement age, you can increase your benefits by 20% - 30%. You’ll get an additional 20% for waiting until age 70.
59Social Security Benefits Benefits are based on Average Indexed Monthly Earnings “AIME”Formula for calculating your benefits:90% of first $767 AIME Plus32% of AIME from $767-$4,624 Plus15% of AIME over $4,624Earnings 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)* 2012 Limits
60CSRS Offset @ 62 CSRS annuity is reduced by the lesser of: The difference between Social Security benefit calculated with and without the Offset years ORSocial Security benefit as estimated at multiplied by the number of Offset years divided by 40
61Social Security Benefits and Your Federal Annuity 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.
62Windfall Elimination Provision Substantial Earnings Years Replacement Factor 30 years % 29 years % 28 years % 27 years % 26 years % 25 years % 24 years % 23 years % 22 years % 21 years % 20 years %
63Government Pension Offset If you can’t have your own Social Security benefit – can you get your spouse’s?To determine eligibility, subtract 2/3 of government pension from spouse’s Social Security benefit. If the answer is greater than zero, you are eligible for that benefit.
64Government Pension Offset Spouse’s Social Security Benefit $1,340Your Federal Annuity Benefit ($3,000)x .66% ($1,980)($ 640)You are eligible for…………
65Cost of Living Adjustments Prior to retirement based on amount approved in legislation by Congress each year. After retirement:% Increase of Consumer Price Index for Urban Wage Earners and Clerical WorkersEffective December 1/appears on January 1 annuity paymentProrated if you retire in middle of year2009 COLA = 5.8% - Highest since 19822010 COLA = 0% COLA = 0% COLA = 3.6%
67A Short History of the TSP Implemented in January 1988S and I Funds added in May 2001Everyone could participate up to IRS limits in 2005Largest defined contribution plan in the US with $313* Billion in assets, ~4.5 million participants with 68% of CSRS employees participatingaverage annual return was 19.4%average annual return was (.94%) * as of 07/31/2012
68Interesting Stats About 75,000 federal employees were added in FY 2011 30% of federal workforce spends their entire career as a fedOnly 11% of federal workforce are CSRSThere are 1.5 million CSRS retirees - only 391K FERS retireesThe majority of retirees are age but 1,295 are over 100!200,000 participants contributed the maximum amount to TSP208 TSP “millionaires” - 1 with $4 million!Average account value of TSP millionaire is $1.2 million compared to the average account value of everyone else - $81,000
69What’s New With TSPFour provisions in Tobacco Act of 2009 affected TSP:Creation of Roth TSP - May 7Automatic enrollment for new federal employeesNew survivorship optionsOption to create mutual fund choices for investmentUpdated website!
70How Does Roth TSP Work?Agency contributions will go into Traditional TSPInterfund transfers and contribution elections will apply to both TSP and Roth TSPYou cannot convert TSP funds into Roth TSPYou can transfer a Roth 401(k), Roth 403(b) and Roth 457(b) into Roth TSP but NOT a Roth IRAThe contribution limit to the Thrift Savings Plan set by the IRS for 2012 is a maximum of $17,000. If you are age 50 or better, you may contribute catch-up contributions of up to $5,500. If you are in FERS, your agency’s matching contributions will still go into the Traditional TSP. After all, the government may be willing to give you an incentive to contribute with the match, but they’re not going to let it grow tax free!When you make a change to your current allocations, either through an interfund transfer or for your future contributions, the same elections will apply to both your traditional TSP and Roth TSP dollars. Many of you have asked whether you’ll be able to convert a portion of your current TSP account balance to the Roth TSP. You will NOT be allowed to do a conversion on TSP funds to the Roth TSP.In addition to being able to contribute to the Roth TSP, you could also get funds into the Roth TSP by transferring in a Roth 401(k), Roth 403(b), or Roth 457(b) if you happened to have invested in one of those vehicles. For many of you who have worked the marjority of your career right here with the federal government, it is unlikely you will have one of these accounts.7272
71Contribution Rules and Limits Anyone that is eligible to contribute to TSP is also eligible to contribute to Roth TSPNo income limitations for contributing to Roth TSPCombined total of Roth TSP and Traditional TSP cannot exceed $17,000 and catch-up of $5,500, if age 50 or aboveYou can contribute the maximum to Roth TSP as well as the maximum to an individual Roth IRA; however, there are income restrictions for a Roth IRAAnyone who is eligible to participate in the Thrift Savings Plan is eligible to contribute to the Roth TSP. One of the negatives that has long been associated with a Roth IRA in the private market is that there were income limits. If you made too much money, your ability to the contribute to a Roth IRA was reduced or eliminated. Within the Roth TSP, there are no earnings limits. Anyone eligible to contribute to the TSP can contribute to the Roth TSP.The contribution limits apply for the combined contributions you make to the Roth and Traditional TSP. Your combined contribution cannot be more than $17,000 if you are under age 50 and no more than $22,500 if you are age 50 or better. Those income limits still apply for your contributions to a Roth IRA, but if you are under those limits, you are eligible to contribute to both the Roth TSP AND a Roth IRA, a limit that allows a maximum of $28,500 to go into accounts that are growing tax-deferred and tax free. ($22,500 in the Roth TSP and $6,000 in the Roth IRA if you are over age 50).
72Comparison of Roth IRA and Roth TSP Similarities:Contributions are made with after-tax dollars and can be withdrawn income tax-free if you are age 59 1/2 and follow the 5-year rule, (Roth has to be established for at least 5 years in order to allow earnings to come out tax-free)Paying the tax in today’s known tax environment may prove to be a valuable tool during retirementSome of the rules you’ll recognize if you’re familiar with the Roth IRA that are the same for the Roth TSP include the age and time limits associated with your account. You must be 59 1/2 and have held the Roth for at least 5 years to have access to your tax-free growth without penalty.The most common reason for utilizing the Roth IRA is that you would rather pay taxes at today’s known rates rather than see the tax rates increase during your retirement. This is exactly the same reason you would want to consider using the Roth TSP.
73Comparison to Roth IRA and Roth TSP Differences:You are not required to take a minimum distribution from a Roth IRA, but you are required to begin taking RMD’s from the Roth TSP by April 1st following the year you turn age 70 1/2 if you are no longer employed by the federal governmentThere are income restrictions to contribute to a Roth IRA; however, there are NO income restrictions to contribute to Roth TSPYou can contribute significantly more to the Roth TSP than a Roth IRA. Depending on your income and age, the maximum contribution level for the Roth TSP is $22,500 vs. $6,000 for a Roth IRAThere are also some differences in the rules between the Roth IRA and the Roth TSP. One of the nice benefits of the Roth IRA is that you are never required to take distributions from the Roth IRA. Even though you wouldn’t be taxed on these funds, many Roth IRA holders plan to leave these tax-deferred, tax-free funds to their heirs - who inherit them on a tax free basis! In the Roth TSP, there is a minimum distribution requirement just like a traditional IRA. At 70 1/2, you are required to begin taking withdrawals from your Roth TSP. Again, these are not taxable distributions, but if your plan is to leave these funds for your heirs, it will reduce the balance. Of course, you could transfer your Roth TSP funds to a Roth IRA at retirement and avoid this requirement.As we’ve just discussed, there are income limits on contributing to a Roth IRA that do not exist for the Roth TSP. The combination of the lack of an earnings test and your ability to contribute significantly more to the Roth TSP work in your favor to get more of your savings into a tax-free position.
74Considerations Before Deciding to Use the Roth TSP Your current tax bracket - how much room do you have in your current tax bracket for additional taxable income?Once you know how much of your eligible contribution you could make at the same tax rate, you’ll want to determine the net effect on your paycheck. If you contribute less to the traditional TSP and more to the Roth TSP, you net pay will probably be less.How old you will be when you retire and whether you plan to begin taking income from your TSP immediately after retirement.Contributing to the Roth TSP can take the uncertainty out of future tax rates and their impact on your retirement incomeSo far, it may seem like a no-brainer to contribute to the Roth. The question you should ask is, “How will this affect my take home pay now?” Because your current TSP contributions are withheld on a pre-tax basis, there is less money taken out of your paycheck for taxes which leaves you with a larger paycheck.Any Roth TSP contributions will have the taxes taken out first meaning that more money will be withheld from your paycheck for taxes leaving less in your net pay. If you’re cutting it close on your monthly bills, this could have an impact on your decision of how much to contribute to the Roth TSP.You’ll also want to consider whether you think you’ll be in a lower or higher tax bracket in retirement. By contributing (and paying taxes on) more of your income today, you’ll take the uncertainty out of future tax increases and their affect on your retirement income.
75Considerations Before Making a Decision If you choose to contribute to the Roth TSP be aware: Increased income may affect the tax owed on income tax deductions, exemptions, and the ability to use tax credits (as well as Social Security income, Medicare Part B premiums, if applicable)-Increased income may also affect your children’s ability to receive scholarships and financial aidA Roth TSP can be rolled over to a Roth IRA and provide an income tax free legacy for your children and grandchildrenIf you are still working and collecting Social Security or paying into Medicare Part B, you’ll want to pay attention to the fact that your adjusted gross income is going to increase if you’re contributing to the Roth TSP which may cause you to pay taxes on a larger portion of your Social Security or be means tested for Medicare Part B purposes. Even if you don’t fall into this category, the additional income from contributing to the Roth TSP may still affect your tax deductions and ability to use tax credits. If you have children headed for college and you’re filling out the FASFA, the increased income could have a negative impact here, as well.You’ll want to consider whether you think you’ll actually use the funds, or whether this may be part of what is left to your heirs, children and grandchildren as a legacy.
772012 Marginal Income Tax Rates Married filing jointly$0 - $17,400 10%$17, $70,700 15%$70, $142, %$142, $217, %$ 217, $388, %$ 388, and over %Source: Tax Foundation, 2005; CCH, 2009
782013 Marginal Income Tax Rates (After extension of Bush Tax Cuts expire)Married filing jointly$0 - $43,850 15%$43, $105, %$105,950 - $161, %$161, $288, %$ 288, %What happens to this same couple in 2013 when the Bush tax cuts expire? This couple that is making $175,000 is now in the 36% tax bracket! Their spendable income just went down considerably!Source: Tax Foundation, 2005; CCH, 2009
79Is Roth for You? Taxes Now? Taxes Later? How Much to Roth TSP? It is not a simple question. As you have seen there are a lot of factors you will need to consider. Do not think that there is a cookie cutter determinant for deciding if and how much to contribute to Roth TSP.How much to Traditional TSP?
81TSP Options While You’re Working Amount of ContributionsAmount You Contribute to Roth TSPAllocationHow Much You BorrowWithdrawals After Age 59 ½Who You Name As Your Beneficiaries
82Thrift Savings Plan 2012 Contribution Limits – $17,000 – under age 50 +$ 5,500 – catch-up contributions age 50 or better$22,500 TOTAL 2012No Government Match
83Accessing Your TSP Account You will need:13-digit Account Number Issued by TSPPIN Number Issued by TSPYou may customize your User ID by logging on to TSP website:Can change both your sign-on and your password
84Thrift Savings Plan G Fund – Offers the opportunity to earn rates of interest similar tothose 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 non-marketable, short-term U.S. Treasury securities with 1-4 day maturities 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 with4 or more years to maturity.Earnings consist entirely of interest income on the securities.Managed in-house by the FRTIBInterest on G Fund securities has, over time, outpaced inflation and 90-day T-bills.
85Thrift Savings Plan 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 Bond 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 government/government-related securities (41%), asset-backed securities (35%) and credit (24%). 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.
86Thrift Savings Plan F Fund – Managed by BlackRock Institutional Trust Company, NA in BlackRock’s U.S. Debt Index FundInformation and values can be found at:https://ecommerce.barcap.com/indices/index.dxml
87Thrift Savings Plan C Fund – Offers the opportunity to earn a potentially high investmentreturn over the long term from a broadly diversified portfolio of stocks of large U.S. companies.The objective of the C Fund is to match the performance of the Standard and Poor’s 500 (S&P 500) Index, a broad market index made up of stocks of 500 largest U.S. companies. The S&P 500 makes up approximately 75% of the value of the US stock markets.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, anddividend income.
88Thrift Savings Plan C Fund – Managed by BlackRock Institutional Trust Company, NA in BlackRock’s Equity Index FundInformation and values can be found at:
89Thrift Savings Plan 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 US Completion Total Stock Market (TSM) Index, a broad market index made up of all actively traded common stocks of U.S. companies not included in the S&P 500 Index. The TSM makes up approximately 25% of the value of the US stock markets.There is a risk of loss if the TSM 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.
90Thrift Savings Plan S Fund – Managed by BlackRock Institutional Trust Company, NA in BlackRock’s Extended Market Index FundInformation and values can be found at:
91Thrift Savings Plan I Fund – Offers the opportunity to earn a potentially high investment return over the long term by investing in the stocks of companies mostly outside the United States.The objective of the I Fund is to match the performance of the Morgan Stanley Capital International (MSCI) EAFE (Europe, Australasia, Far East) Index. EAFE covers the equity markets of 22 countries included in the index. 42% in USA, 41% in EAFE countries, 13% in emerging markets, 4% in Canada.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.
92Thrift Savings Plan I Fund – Managed by BlackRock Institutional Trust Company, NA in BlackRock’s EAFE Index FundInformation and values can be found at:
93Thrift Savings Plan - Funds Thrift Savings Plan - FundsLifecycle 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 Mercer’s 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 horizonPutting 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.
94Allocations as of October 2012 L IncomeG Fund – %F Fund %C Fund %S Fund %I Fund %G Fund – 12.97%F Fund %C Fund %S Fund %I Fund %G Fund – %F Fund %C Fund %S Fund %I Fund %G Fund – 38.6%F Fund %C Fund %S Fund %I Fund %G Fund – 74%F Fund %C Fund - 12%S Fund %I Fund %Here are the current Lifecycle Fund allocations as of this quarter.
9510-year Average Returns Year G Fund F Fund C Fund S Fund* I Fund* 2002 5.00%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%
96Year-to Date Returns as of 9/30/12 G Fund %F Fund %C Fund %S Fund %I Fund %L Income-4.04%L %L %L %L %
97Allocating Your TSP In Volatile Markets Allowed 2 Inter-fund Transfers per MonthCan Move Funds into the G Fund in Addition to the Inter-Fund Transfers
98Allocating Your TSP In Volatile Markets Considerations:Assessing Your Tolerance for RiskPast Performance Look at historical returns onPeriodic Updates from TSP Go to and Click on “Get updates” Click on the icon to subscribe and you’ll receive automatic updates by from TSPOutside Resources
100Thrift Savings Plan - Fees 2011 Expense Fees = .025%Use low-cost index fundsKeep it simple – only five funds availableHuge economies of scale – competitive procurementIn comparison to mutual funds or 401(k)s:- Average mutual fund expense ratio is 0.262% *- Average 401(k) expenses are .72% *** Lipper, Inc. 2009** Investment Company Institute, 2009
101Tips for Maximizing Your TSP Develop a strategy/plan for monitoring your fundsWhat’s the overall state of the economyWhat are you willing to riskHow does your current allocation fit your retirement planIf you have had a loss, what’s your recovery plan
102Types of TSP Loans and General Purpose No documentation required ResidentialFor purchase or constructionof a primary residence
103TSP LoansTwo Types of TSP Loans – May have one of each General – 1-5 years to repay – No documentation Residential – 1-15 years to repay – DocumentationApply Online or Paper Application (TSP-20)Current Interest Rate – 1.375%Amounts You Can Borrow Must borrow at least $1, % of current vested balance up to $50,000After Repaying Loan Must Wait 60 Days to Borrow Again
104TSP LoansRisks –Loan payments may cause you to contribute less to your TSPIf your TSP earns a higher return than the loan interest rate, there will be less in TSPResidential loans are not considered mortgages and interest is not deductible on tax returnYour loan is paid back with after-tax dollars
105Creating Income From Your TSP in Retirement Two Chances to Take Distributions at Retirement -Partial withdrawal using Form TSP Full withdrawal using Form TSP-70ORCreate an immediate annuity through TSP (Met Life) Current Rate = 1.75%
106Post-service Withdrawals Automatic cashoutLeave funds in the TSPCombine TSP Accounts - civilian and militaryPartial withdrawal of at least $1,000Full withdrawal optionsSingle paymentMonthly paymentsTSP life annuityMixed withdrawal options
107Your Retirement Income Goals – you want your retirement income:To be secure.To last for your lifetime.To help protect you against future inflation and rising healthcare expenses.
111Beneficiary Designations 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
112Voluntary Contribution Program Contribute up to 10% of base pay on ALL earningsCannot owe a deposit or re-depositCannot have been in the program in the past and withdrawn2012 interest rate = 2.25%Interest accrues tax deferredContributions must be in $25 incrementsAll contributions (and interest, if desired) can be rolled to a ROTH IRA AT RETIREMENT!Use Form SF2804 to apply for a VCP account number
114Health Insurance - FEHB 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
115Open Season 2013 From November 12 – December 10, 2012, you can: Enroll in, change or cancel an existing enrollment in a health plan under the FEHB Program.Enroll in, change, or cancel an existing enrollment in a dental plan.Enroll in, change, or cancel an existing enrollment in a vision plan.Enroll in a flexible savings account (health care or dependent care). You must re-enroll each year.
116Ground Rules No pre-existing condition clause. All plans provide coverage against catastrophic medical costs, but there are differences of almost $10,000 in limits from best to worst. It pays to understand what’s included in the out-of-pocket limit.No re-enrollment to stay in same plan.Must re-enroll in a flexible savings account (health care or dependent care) each year.
117The “Right” ??? To Ask In Choosing Your FEHB Do you want an HMO, a PPO, or FFS?Do you want a traditional, consumer-driven or high- deductible health plan?How healthy are you? Does anyone in your family have a chronic health condition?Premiums - How important is cost to you?What is your maximum annual out-of-pocket exposure?How is hospitalization covered?Do you need a referral to see a specialist?Is chiropractic care covered?
118The “Right” ??? To Ask In Choosing Your FEHB Which of these services do you want covered? Well-child visits- Annual OB/GYN Maternity care Annual physical Chiropractic care Mental health Physical therapy- Health programs- Prescription drug coverage
119What to look for in the plan document The Summary of Benefits and Coverage will include information on the following:cost - deductibles, copayments, coinsurance, and out-of- pocket limitscoverage - covered services, examples of covered services, and excluded servicesrights -- rights to continue coverage and grievance and appeal rights
120What to look for in the plan document The FEHB Plan Brochure revamp includes:adding a mini-text box to the front cover which includes where to find the rates, changes for 2013, and the summary of benefitsmoving the FEHB Facts (Section 11) to the beginning of the brochure as an unnumbered sectionadding information on Qualifying Life Events to the FEHB Facts (Section 11)for fee-for-service FEHB plan brochures, combining all Medicare information (except the Part D notice) into Section 9 and renaming the section "Coordinating Benefits with Medicare and Other Coverage"
121FEHB - Definitions Provider – person/place who provides care In-network – group of providers that insurer has a negotiated contract with.Out-of-network – providers who are not in-networkReferral – authorization to receive care from another provider or specialistPremium – the money you pay for health insuranceDeductible – the amount you pay for health care expenses before the plan covers expenses.Cost-sharing - the general term used to refer to your out-of-pocket costs (e.g., deductible, co-insurance and co-payments) for the covered care you receive.Annual Out-of-Pocket Limit - the maximum amount participant is expected to pay each year. Not all expenses count toward this limit.
122Costs – Out-of-Pocket Expenses How to Look at Adjusted Claimed LimitsSAMPLE – Self OnlyHDHPStandardLimit Stated in Plan’s Summary of Benefits$5,000$4,500DeductiblesIncluded$350Hospital, Physician, Drug Co-pays$2,560Specialty Drug Limit$4,000Premium Minus Savings Account-$ 200$1,080Actual Limit to You$4,800$12,490
123Health Insurance - FEHB 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.
124Health Insurance - FEHB Choosing Your Plan - RegionalPreferred Provider Organization “PPO” –Do not have to 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.
125Health Insurance - FEHB Choosing Your Plan - NationalFee-for-service “FFS” w/PPO–You must use the plan’s network to reduce your out-of-pocket costs.Not using PPO providers means only some of your claims will be paid.
126FEHB–Fee-for Service Providers APWU Health PlanBlue Cross/Blue Shield Service Benefit PlanGEHA Benefit PlanMail Handlers Benefit PlanNALCSAMBA
127Health Insurance - FEHB Choosing Your Plan -Traditional Plan –For people with more significant, on-going medical issuesAnticipate multiple visits with specialistsOngoing prescription needsOften includes higher premiums but lower deductibles or co- paysHas annual out-of-pocket limits
128Health Insurance - FEHB Choosing Your Plan -Consumer Driven Health Plan – (APWU)For generally healthy with minor, ongoing medical issues, e.g., allergies or acid refluxNeed few specialist visits annuallyFew ongoing prescription needsTypically includes set account you can rollover each year if you don’t useLower premiums than traditional plans and has maximum annual out-of-pocket limits
129Health Insurance - FEHB Choosing Your Plan -High Deductible Health Plan – (GEHA, Mail Handlers)No known medical issuesRoutine visits to doctor, e.g., flu or broken armNo ongoing prescription medicationsIncludes Health Savings Account that can be rolled over from year-to-yearLower premiums than traditional or consumer-driven plans and has maximum annual out-of-pocket limits
130Health Insurance - FEHB HSA Features –Unlike Flexible Savings Account “FSA,” you can carryover funds and interest each yearEarns tax-free interest on unused balancePortability – you can take it with you if you leave the plan, leave federal service or retireFunds held with a custodian who provides a debit cardCan use in retirement – can’t contribute after age 65Is inheritable – just like an IRA
131Health Insurance - FEHB HSA Funding –Can contribute up to IRS limits annually through pre-tax contributions($3,250 single or $6,450 family in addition to pass-through PLUS $1,000 if age 55 or better )Insurer “rebates” a portion of your premium into your HSA
132Health Insurance - FEHB HSA Eligibility –You must enroll in HDHP firstCan’t participate if you are: Enrolled in Medicare Covered by non-OPM health plan Enrolled in FSA (except for dental and vision) Covered by Tri-Care or Tri-Care For Life
133Health Insurance - FEHB Qualified Medical Expenses for HSA include:Out-of-pocket expenses like deductibles and co-paysDental and orthodontic treatmentsHearing aids + batteriesPrescription drugsEye exams, glasses and contactsQualified long-term care premiumsAcupunctureChiropractors
134Costs - PremiumsWhile 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 dateRetired 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* Must suspend if deferring annuity
135Costs - Premiums2013 premiums averaged a 3.4% increase from premiumsThe government pays the lesser of:72% of the average total premium of all plans weighted by the number of enrollees in eachOR75% of the premium for the specific plan you choose
136Health Premiums 2013 Premiums are available at:
137FEDVIP – Dental and Vision Program Available to current and retired federal and postal workers and eligible family membersPurchased on a group basis but employee pays entire premiumPre-existing conditions are included in coveragePremiums are paid on a pre-tax basisYou can enroll in either or both during FEHB Open SeasonDo not have to be in FEHB to enroll (but must be eligible
138Dental and Vision Premiums 2013 Dental premiums are available at:2013 Vision premiums are available at:
139Flexible Savings Account “FSA” You can set aside up to $2,500/year in pre-tax dollars to pay for medical costs, deductibles, co-pays, etc. (minimum election of $250/year)Note: This is a reduction from $5,000 on previous yearsYou can set aside up to $5,000/year in pre-tax dollars to pay for dependent care including elder care (minimum election of $250/year)Must use it or lose it by March 15 of the following year – must file all claims by April 30
140Qualified Medical Expenses for FSA Must Be: Rendered by a health care professional appropriately licensed or certified in the state in which he or she practices; ANDPerformed within the scope of the health care professional's licenseQualified Expenses Include:Dental treatments Out-of-pocket expensesPrescriptions Over-the-counter drugs (w/prescription)Eye exams, glasses and contacts AcupunctureAcne treatments ChiropractorsImmunizations
142Health Care Resources– non-profit organization that provides comparative information on current federal health plans – Check to see if your agency has paid for Consumer’s Checkbook– non-profit organization that provides comparison tool for federal plans
143TriCare and FEHBIf you are covered under TriCare while employed with the federal government, that coverage counts toward the 5-year requirement to take FEHB into retirement.You must be enrolled at retirement (you would enroll 1 full year prior)You can suspend your FEHB coverage and use TriCareYou can suspend TriCare and use FEHBProvides more options, coverage choices nationwide
144MedicarePart A – Hospitalization Deductible - $1,156* Pay 1.45% of pay while working Free at age 65Part B – Medical Expenses Deductible $140* +20% after deductible Pay $99.90/mo* with MAGI under $85,000 Pay $319.70/mo* with MAGI over $214,000Part D – Prescription Drug Plan
145MedicareEnrollment: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 retirementGeneral enrollment is from January 1 to March 31 each year. Penalty for not enrolling “on time” is 10% for each 12 months late.
146Medicare 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.
147FEGLIBasic coverage – Current salary rounded to the nearest thousand + $2,000 Costs .15/thousand = employee share Federal government picks up 1/3 of premiumOption A - $10,000 Must have Basic coverage to participate Costs increase from $.30 - $6.00 from age 35 to age 60Option 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
148FEGLI Age Band Premium/$1000/Month *NEW Premium/$1000/Month For persons ages 35 and under$0.065$0.043For persons ages 35 through 39$0.087For persons ages 40 through 44$0.13$0.108For persons ages 45 through 49$0.195$0.173For persons ages 50 through 54$0.303$0.282For persons ages 55 through 59$0.607$0.498For persons ages 60 through 64$1.30$1.127For persons ages 65 through 69$1.56$1.343For persons ages 70 through 74$2.60$2.47For persons ages 75 through 79$3.90For persons ages 80 & Over$5.20
149FEGLIOption 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 disabledCosts increase from $.27 to $3.00 from age 35 to age 60In retirement – you choose how much of the benefits to keep.
150FEGLIAt 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:
151Federal Long-term Care FLTCIP 2.0Federal Long-term CareOriginal coverage was established in 2002 as a partnership between John Hancock and MetLife – managed by LTC PartnersJohn Hancock awarded next 7-year contract beginning October 1, 2009 – still managed by LTC Partners
152Federal Long-term Care FLTCIP 2.0Federal Long-term CareAvailable for current federal employees, their spouses/same-sex partnersAccess to limited underwriting during Open Season
153Long-term Care Insurance You make four choices in creating your coverage:How much? $50 - $450/dayHow long? 2 years, 3 years, 5 years or lifetimeInflation? 4% compound, 5% compound or future purchaseDeductible? 90 days
154Long-term Care Insurance All tax-qualified plans:Pay non-taxable benefits directly to youStart payments when you cannot perform 2 out of 6 activities of daily living (certified by your physician) or cognitive impairmentProvide for the deductibility of premium payments under certain conditionsTo calculate premiums or apply for coverage:
155Taxes While WorkingYour current W-4 dictates withholding from your salaryContributions to Thrift Savings Plan reduce taxable incomeUnused annual leave is paid in a lump sum and withheld at the higher lump sum rates (currently ~40%!)
156Getting Started Save! Understand Your Options Make Good Choices Today to Build For FutureCreate Strategies for Balance
157The best time to think about retirement is before your boss does.