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Maximizing Your Federal CSRS Benefits Presented for: Colorado Federal Executive Board Denver, CO October 24, 2012 Presenter: Ann Vanderslice Securities.

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Presentation on theme: "Maximizing Your Federal CSRS Benefits Presented for: Colorado Federal Executive Board Denver, CO October 24, 2012 Presenter: Ann Vanderslice Securities."— Presentation transcript:

1 Maximizing Your Federal CSRS Benefits Presented for: Colorado Federal Executive Board Denver, CO October 24, 2012 Presenter: Ann Vanderslice Securities offered through Allied Beacon Partners, Inc. Member FINRA/SIPC. Home office 1201 S. Highland Avenue #2, Clearwater, FL

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 Retiring Under a VERA or VERA/VSIP What We Will Cover Today:

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

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

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

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

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

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

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

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

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

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

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

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

19 Tax Implications While Working What We Will Cover Today:

20 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) Receipts for any Deposits/Redeposits made Beneficiary Forms Last Paycheck – SF 1152 Thrift Savings Plan – TSP 3 FEGLI – SF 2823 Annuity (if single) - SF 2808 (CSRS) Important Documents

21 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, 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. Most Common Reasons for Retirement Processing Delays

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23 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

24 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

25 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

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

27 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

28 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

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

30 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

31 31 January 3, 2013 – Best of the Best Best Dates to Retire –2012

32 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

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

34 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 computation Part-time service on or after 4/7/ 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

35 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

36 For Service Prior to : 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 : Deposit Made = 100% for eligibility and annuity computation Deposit Not Made = 100% for eligibility and NO credit for annuity computation Deposits

37 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 = 100% for eligibility and annuity actuarially reduced Re-deposit NOT made and service ended after = 100% for eligibility and NO credit for annuity computation Re-deposits

38 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

39 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

40 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

41 1,125 Hours

42 Creditable Service Calculation Year Month Day Planned Retirement Date ____ _______ ____ Retirement SCD ____ _______ ____ Creditable Service ____ _______ ____ Unused Sick Leave ____ _______ ____ Total Creditable Service ____ _______ ____ Days Left Over!

43 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

44 High-3 Calculation Year Salary 2010_____________ 2011_____________ 2012_____________ 2013_____________ 2014_____________ 2015_____________ 2016_____________ 2017_____________ 79, 219 Add last three years together and divide by 3 $79,219 79,219

45 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

46

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

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

49

50 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

51 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 ,928 3,559 2, ,445 4, ,417 4,005 2, ,002 23, ,116 4,643 2, ,799 50, ,925 5,383 3, ,723 82, ,862 6,240 3, , , ,947 7,234 4, , , ,204 8,386 5, , ,957 3, $8,044

52 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

53 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

54 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:

55 Become eligible by earning 40 credits Receive full benefits based on year you were born Social Security Benefits Birth YearFull BenefitsBirth YearFull Benefits mos mos mos mos mos mos mos mos mos mos

56 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

57 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

58 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. Social Security Benefits

59 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

60 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 CSRS 62

61 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

62 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

63 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

64 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

65 % 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 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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67 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 $313* Billion in assets, ~4.5 million participants with 68% of CSRS employees participating average annual return was 19.4% average annual return was (.94%) * as of 07/31/2012 A Short History of the TSP

68 About 75,000 federal employees were added in FY % of federal workforce spends their entire career as a fed Only 11% of federal workforce are CSRS There are 1.5 million CSRS retirees - only 391K FERS retirees The majority of retirees are age but 1,295 are over 100! 200,000 participants contributed the maximum amount to TSP 208 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 Interesting Stats

69 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 website!www.tsp.gov Whats New With TSP

70 72 Agency contributions will go into Traditional TSP Interfund transfers and contribution elections will apply to both TSP and Roth TSP You cannot convert TSP funds into Roth TSP You can transfer a Roth 401(k), Roth 403(b) and Roth 457(b) into Roth TSP but NOT a Roth IRA How Does Roth TSP Work? 72

71 Anyone that is eligible to contribute to TSP is also eligible to contribute to Roth TSP No income limitations for contributing to Roth TSP Combined total of Roth TSP and Traditional TSP cannot exceed $17,000 and catch-up of $5,500, if age 50 or above You 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 IRA Contribution Rules and Limits

72 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 todays known tax environment may prove to be a valuable tool during retirement Comparison of Roth IRA and Roth TSP

73 Differences: You are not required to take a minimum distribution from a Roth IRA, but you are required to begin taking RMDs 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 government There are income restrictions to contribute to a Roth IRA; however, there are NO income restrictions to contribute to Roth TSP You 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 IRA Comparison to Roth IRA and Roth TSP

74 1. Your current tax bracket - how much room do you have in your current tax bracket for additional taxable income? 2. Once you know how much of your eligible contribution you could make at the same tax rate, youll 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. 3. How old you will be when you retire and whether you plan to begin taking income from your TSP immediately after retirement. 4. Contributing to the Roth TSP can take the uncertainty out of future tax rates and their impact on your retirement income Considerations Before Deciding to Use the Roth TSP

75 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 childrens ability to receive scholarships and financial aid A Roth TSP can be rolled over to a Roth IRA and provide an income tax free legacy for your children and grandchildren Considerations Before Making a Decision

76 Prospects of Higher Taxes

77 Married filing jointly Source: Tax Foundation, 2005; CCH, Marginal Income Tax Rates $0 -$17,40010% $17,400 -$70,70015% $70,701 - $142,700 25% $142,701 - $217,450 28% $ 217,451 - $388,350 33% $ 388,351- and over 35%

78 Married filing jointly Source: Tax Foundation, 2005; CCH, Marginal Income Tax Rates (After extension of Bush Tax Cuts expire) $0 -$43,85015% $43,850 -$105,950 28% $105,950-$161,450 31% $161,450- $288,350 36% $ 288, %

79 Taxes Now? Taxes Later? How Much to Roth TSP? How much to Traditional TSP? Is Roth for You?

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81 Amount of Contributions Amount You Contribute to Roth TSP Allocation How Much You Borrow Withdrawals After Age 59 ½ Who You Name As Your Beneficiaries TSP Options While Youre Working

82 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

83 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

84 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 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 with 4 or more years to maturity. Earnings consist entirely of interest income on the securities. Managed in-house by the FRTIB Interest on G Fund securities has, over time, outpaced inflation and 90-day T-bills. Thrift Savings Plan

85 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. Thrift Savings Plan

86 F Fund – Managed by BlackRock Institutional Trust Company, NA in BlackRocks U.S. Debt Index Fund Information and values can be found at: https://ecommerce.barcap.com/indices/index.dxml Thrift Savings Plan

87 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 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 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, and dividend income. Thrift Savings Plan

88 C Fund – Managed by BlackRock Institutional Trust Company, NA in BlackRocks Equity Index Fund Information and values can be found at: Thrift Savings Plan

89 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. Thrift Savings Plan

90 S Fund – Managed by BlackRock Institutional Trust Company, NA in BlackRocks Extended Market Index Fund Information and values can be found at: Thrift Savings Plan

91 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. Thrift Savings Plan

92 I Fund – Managed by BlackRock Institutional Trust Company, NA in BlackRocks EAFE Index Fund Information and values can be found at: Thrift Savings Plan

93 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

94 L2040 L2020 L2030 L2050 L Income G Fund – 74% F Fund - 6% C Fund - 12% S Fund - 3% I Fund - 5% G Fund – 4.08% F Fund % C Fund % S Fund % I Fund % G Fund – 38.6% F Fund % C Fund % S Fund - 9.1% I Fund % G Fund – 23.97% F Fund % C Fund % S Fund % I Fund % G Fund – 12.97% F Fund % C Fund % S Fund % I Fund % Allocations as of October 2012

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

96 G Fund % F Fund % C Fund % S Fund % I Fund % L Income-4.04% L % L % L % L % Year-to Date Returns as of 9/30/12

97 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

98 Allocating Your TSP In Volatile Markets Considerations: Assessing Your Tolerance for Risk Past Performance Look at historical returns on Periodic Updates from TSP Go to and Click on Get updates Click on the icon to subscribe and youll receive automatic updates by from TSPail updates Outside Resources

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100 2011 Expense Fees =.025% Use low-cost index funds Keep it simple – only five funds available Huge economies of scale – competitive procurement In comparison to mutual funds or 401(k)s: - Average mutual fund expense ratio is 0.262% * - Average 401(k) expenses are.72% ** Thrift Savings Plan - Fees * Lipper, Inc ** Investment Company Institute, 2009

101 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

102 Types of TSP Loans and General Purpose No documentation required Residential For purchase or construction of a primary residence

103 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 – 1.375% 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

104 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

105 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 = 1.75%

106 Automatic cashout Leave funds in the TSP Combine TSP Accounts - civilian and military Partial withdrawal of at least $1,000 Full withdrawal options Single payment Monthly payments TSP life annuity Mixed withdrawal options Post-service Withdrawals

107 Goals – you want your retirement income: 1. To be secure. 2. To last for your lifetime. 3. To help protect you against future inflation and rising healthcare expenses. Your Retirement Income

108 108

109

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111 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

112 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

113

114 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

115 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. Open Season 2013

116 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 whats 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. Ground Rules

117 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? The Right ??? To Ask In Choosing Your FEHB

118 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 The Right ??? To Ask In Choosing Your FEHB

119 The Summary of Benefits and Coverage will include information on the following: cost - deductibles, copayments, coinsurance, and out-of- pocket limits coverage - covered services, examples of covered services, and excluded services rights -- rights to continue coverage and grievance and appeal rights What to look for in the plan document

120 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 benefits moving the FEHB Facts (Section 11) to the beginning of the brochure as an unnumbered section adding 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" What to look for in the plan document

121 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-network Referral – authorization to receive care from another provider or specialist Premium – the money you pay for health insurance Deductible – 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. FEHB - Definitions

122 Costs – Out-of-Pocket Expenses How to Look at Adjusted Claimed Limits SAMPLE – Self OnlyHDHPStandard Limit Stated in Plans Summary of Benefits $5,000$4,500 DeductiblesIncluded $350 Hospital, Physician, Drug Co-paysIncluded$2,560 Specialty Drug LimitIncluded$4,000 Premium Minus Savings Account-$ 200$1,080 Actual Limit to You $4,800$12,490

123 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

124 Choosing Your Plan - Regional Preferred 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. Health Insurance - FEHB

125 Choosing Your Plan - National Fee-for-service FFS w/PPO– You must use the plans network to reduce your out-of-pocket costs. Not using PPO providers means only some of your claims will be paid. Health Insurance - FEHB

126 APWU Health Plan Blue Cross/Blue Shield Service Benefit Plan GEHA Benefit Plan Mail Handlers Benefit Plan NALC SAMBA FEHB–Fee-for Service Providers

127 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

128 Choosing Your Plan - Consumer Driven Health Plan – (APWU) 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

129 Choosing Your Plan - High Deductible Health Plan – (GEHA, Mail Handlers) 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

130 HSA Features – Unlike Flexible Savings Account FSA, you can carryover funds and interest each year Earns tax-free interest on unused balance Portability – you can take it with you if you leave the plan, leave federal service or retire Funds held with a custodian who provides a debit card Can use in retirement – cant contribute after age 65 Is inheritable – just like an IRA Health Insurance - FEHB

131 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 Health Insurance - FEHB

132 HSA Eligibility – You must enroll in HDHP first Cant 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 Health Insurance - FEHB

133 Qualified Medical Expenses for HSA include: Out-of-pocket expenses like deductibles and co-pays Dental and orthodontic treatments Hearing aids + batteries Prescription drugs Eye exams, glasses and contacts Qualified long-term care premiums Acupuncture Chiropractors Health Insurance - FEHB

134 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 * Must suspend if deferring annuity Costs - Premiums

135 2013 premiums averaged a 3.4% increase from 2012 premiums The government pays the lesser of: 72% of the average total premium of all plans weighted by the number of enrollees in each OR 75% of the premium for the specific plan you choose Costs - Premiums

136 2013 Premiums are available at: Health Premiums

137 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 FEDVIP – Dental and Vision Program

138 2013 Dental premiums are available at: Vision premiums are available at: Dental and Vision Premiums

139 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 years You 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 Flexible Savings Account FSA

140 Rendered by a health care professional appropriately licensed or certified in the state in which he or she practices; AND Performed within the scope of the health care professional's license Qualified Expenses Include: Dental treatments Out-of-pocket expenses Prescriptions Over-the-counter drugs (w/prescription) Eye exams, glasses and contacts Acupuncture Acne treatments Chiropractors Immunizations Qualified Medical Expenses for FSA Must Be:

141

142 – non-profit organization that provides comparative information on current federal health plans – Check to see if your agency has paid for Consumers Checkbook – non-profit organization that provides comparison tool for federal plans Health Care Resources

143 If 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 TriCare You can suspend TriCare and use FEHB Provides more options, coverage choices nationwide TriCare and FEHB

144 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

145 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

146 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

147 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

148 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

149 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

150 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: FEGLI

151 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

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

153 You make four choices in creating your coverage: How much? $50 - $450/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

154 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: Long-term Care Insurance

155 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 withheld at the higher lump sum rates (currently ~40%!) Taxes While Working

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

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


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