Presentation on theme: "Maximizing Your Federal CSRS Benefits"— Presentation transcript:
1 Maximizing Your Federal CSRS Benefits Offered Through:Colorado Federal Executive BoardPresenter: Ann VandersliceSecurities 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:Getting And Keeping Important Documents Together
20 What We Will Cover Today: Rules Of Thumb ForRetirement Planning
21 What Are Your Investment Alternatives? What We Will Cover Today:What Are Your Investment Alternatives?
22 Understanding Diversification What We Will Cover Today:Understanding Diversification
23 How Do You Create Income From Your TSP In Retirement? What We Will Cover Today:How Do You Create Income From Your TSP In Retirement?
24 Tax Implications for Retirement - What We Will Cover Today:Tax Implications for Retirement -What You Can Do Now
25 What Else Do You Need To Pay Attention To? What We Will Cover Today:What Else Do You Need To Pay Attention To?
26 Do You Really Need A Will (And All Those Other Documents)? What We Will Cover Today:Do You Really Need A Will (And All Those Other Documents)?
27 What We Will Cover Today: Retirement Planning -How Do You Get Started?
28 Important Documents Certified Copy of Birth Certificate DD214 – Certifies Military ServiceSF-50’s – Official Personnel FileSocial Security StatementMarriage Certificate (if married)Divorce Decree (if divorced)Beneficiary FormsLast Paycheck – SF Thrift Savings Plan – TSP 3 FEGLI – SF Annuity (if single) - SF 2808 (CSRS)28
29 Most Common Reasons for Retirement Processing Delays Civil Service Retirement System offsets apply and the annuitant is older than 62.Part-time service is involved.Service has been refunded or a deposit for service is needed.Receipt of workers' compensation is indicated.Military retirement pay is involved.Unpaid military deposits are present and the annuitant is older than 62, or the employee was first covered by retirement deductions on or after Oct. 1, 1982.Excess leave without pay (defined as more than six months) is present on the record.The application includes unverified or missing service.The employees has elected an insurable interest (a survivor benefit option available under the Civil Service Retirement System)No survivor election is made. (Remember - Even if you are unmarried at the time of retirement, don't leave this section of the retirement application blank.)A court order for a divorce requires apportionment of the annuity.The submission by the agency is incomplete and is missing key data needed for calculating interim payments. According to OPM, 23 percent of all claims received are missing one or more records and 11 percent are not received during the first 30 days.
31 Magic 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
32 Magic 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)
33 Magic 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
34 Savings Amount Needed At Retirement Magic NumbersSavings Amount Needed At Retirement$1,000,000
35 CSRS 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
36 CSRS 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
37 CSRS - 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
38 Best 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
39 January 3, 2013 – Best of the Best Best Dates to Retire –2012January 3, 2013 – Best of the Best39
40 Best 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
41 Components to Calculate Federal Annuity Years of Service Based on Retirement Service Computation DateHigh 3 Average Salary% Formula Based on Years of Service
42 Retirement 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)
43 CSRS - 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
44 Deposits 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
45 Re-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
46 Part-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 calculation46
47 Annual 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 retirement47
48 Sick 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.48
50 Creditable Service Calculation Year Month DayPlanned Retirement Date ____ _______ ____Retirement SCD ____ _______ ____Creditable Service ____ _______ ____Unused Sick Leave ____ _______ ____Total Creditable Service ____ _______ ____20131319808143241961432113 Days Left Over!
51 High 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
52 High-3 Calculation 74,025 76,912 79,219 79,219 79,219 Year Salary 2008 _____________2009 _____________2010 _____________2011 _____________2012 _____________2013 _____________2014 _____________2015 _____________2016 _____________2017 _____________74,02576,912Add last three years togetherand divide by 3$79,21979,21979,21979,219
53 Add’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***
58 CSRS - Survivor Benefits Provides 0% - 55% of annuity at a cost of $1- ~10% Available to: Current spouse Former spouse Insurable interest Minor children MUST keep at least minimal survivor benefit to allow spouse to continue health benefits if employee passes away58
60 CSRS Survivor Benefits - Alternatives $345/month purchases $466,400 in permanent life insurance with premiums and death benefit guaranteed Cost of survivor annuity is paid prior to taxes being deducted. Cost of life insurance is paid with after-tax dollars. Death benefits are paid to beneficiary income-tax free If spouse passes away first – death benefit can be assigned to someone else Total cost in 20 years is $90,844 vs. $119,42760
61 Disability 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
62 Disability 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
63 Social Security Benefits Become eligible by earning 40 “credits”Receive full benefits based on year you were bornBirth YearFull Benefits193765661938mos1955mos1939mos1956mos1940mos1957mos1941mos1958mos1942mos1959mos1960 +67
64 Social 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
65 Social 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
66 Social 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.You can also begin taking benefits and use a Social Security option that lets you repay those benefits at an older age and begin receiving the higher amount!
67 Social 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
68 CSRS Offset @ 62 CSRS annuity is reduced by the lesser of: The difference between Social Security benefit calculated with and without the Offset years ORSocial Security benefit as estimated at multiplied by the number of Offset years divided by 40
69 Social 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.
70 Windfall 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 %
71 Government 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.
72 Government Pension Offset Spouse’s Social Security Benefit $1,340Your Federal Annuity Benefit ($3,000)x .66% ($1,980)($ 640)You are eligible for…………
73 Cost 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%
75 A 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 $295* 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 12/31/201175
76 What’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!76
77 What’s New With TSP The treatment of... Traditional TSP Roth TSP ContributionsPre-taxAfter taxYour paycheckTaxes are deferred, so less taken out of your paycheckTaxes are paid upfront, so more money comes out of your paycheckTransfers inTransfers allowed from eligible employer plans and traditional IRAsTransfers allowed from Roth 401(k)s, Roth 403(b)s, and Roth 457(b)sTransfers outTransfers allowed to eligible employer plans, traditional IRAs and Roth IRAsTransfers allowed to Roth 401(k)s, Roth 403(b)s, Roth 457(b)s, and Roth IRAsWithdrawalsTaxable when withdrawnTax free earnings if 5 years have passed since January 1 of the year you made your first Roth contribution AND you are age 59 1/2 or older77
78 TSP Options While You’re Working Amount of ContributionsAllocationHow Much You BorrowWithdrawals After Age 59 ½78
79 Thrift Savings Plan 2012 Contribution Limits – $17,000 – under age 50 +$ 5,500 – catch-up contributions age 50 or better$22,500 TOTAL 2012No Government Match79
80 Accessing 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 password80
81 Thrift 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 short-term U.S. Treasury securities specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. Government. Thus, there is no “credit risk.”The interest rate resets monthly and is based on the weighted average yield of all outstanding Treasury notes and bonds with4 or more years to maturity.Earnings consist entirely of interest income on the securities.Interest on G Fund securities has, over time, outpaced inflation and 90-day T-bills.81
82 Thrift 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 Index, a broad index representing the U.S. bond market.• The risk of nonpayment of interest or principal (credit risk) is relatively low because the fund includes only investment-grade securities and is broadly diversified. However, the F Fund has market risk (the risk that the value of the underlying securities will decline) and prepayment risk (the risk that the security will be repaid before it matures).• Earnings consist of interest income on the securities and gains (or losses) in the value of securities.82
83 Thrift 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 and medium-sized 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 large to medium-sized U.S. companies.There is a risk of loss if the S&P 500 Index declines in response to changes in overall economic conditions (market risk).Earnings consist of gains (or losses) in the prices of stocks, anddividend income.83
84 Thrift 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 Wilshire 4500 Completion (DJW 4500) Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index.There is a risk of loss if the DJW 4500 Index declines in response to changes in overall economic conditions (market risk).Earnings consist of gains (or losses) in the prices of stocks, and dividend income.84
85 Thrift 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 in developed countries outside the United States.The objective of the I Fund is to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index.There is a risk of loss if the EAFE Index declines in response to changes in overall economic conditions (market risk) or in response to increases in the value of the U.S. dollar (currency risk).Earnings consist of gains (or losses) in the prices of stocks, currency changes relative to the U.S. dollar, and dividend income.85
86 Thrift 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.86
87 Allocations as of April 2012 L IncomeG Fund – %F Fund %C Fund %S Fund %I Fund %G Fund – 12.15%F Fund %C Fund %S Fund %I Fund %G Fund – %F Fund %C Fund %S Fund %I Fund %G Fund – 37.8%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.
88 10-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%
89 Year-to Date Returns as of 3/31/12 G Fund %F Fund %C Fund %S Fund %I Fund %L Income-2.72%L %L %L %L %
90 Allocating 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
91 Allocating 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
92 Projection ofmonthly incomeas if you wereage 62 appearson back ofstatement.
93 Thrift Savings Plan - Fees 2011 Expense Fees = .025%Use low-cost index fundsKeep it simple – only five funds availableHuge economies of scale – competitive procurementUse commingled trust funds instead of individual accounts- Only invest one amount per fund each day- Individual accounts are maintained in TSP93
94 Tips 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 plan94
95 TSP 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 – 1.875%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 Again95
96 TSP 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 dollars96
97 Creating 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 = 2.125%
100 Beneficiary 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
101 Voluntary 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 number101
102 Health 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 enroll102
103 Health Insurance - FEHB Choosing Your PlanHealth 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.103
104 Health Insurance - FEHB Choosing Your PlanPreferred Provider Organization “PPO” –Do not choose a primary care physician and can refer themselves to specialists.Do not have to stay within network, but there is a financial incentive to do so.Typically, deductibles are required before benefits begin and can also include co-payments that are larger than HMOs.104
105 Health Insurance - FEHB Choosing Your PlanFee-for-service “FFS” –You go to the doctor or hospital of your choiceYou (or your doctor or hospital) submit a claim to your insurance company for reimbursementYou will only receive reimbursement for the "covered" medical expenses listed in your policy, typically at 80% of reasonable and customary105
106 Health Insurance - FEHB Choosing Your PlanTraditional 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 limits106
107 Health Insurance - FEHB Choosing Your PlanConsumer Driven Health Plan –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 limits107
108 Health Insurance - FEHB Choosing Your PlanHigh Deductible Health Plan –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 limits108
109 Health Insurance - FEHB Choosing Your PlanHigh Deductible Health Plan “HDHP” –Intended to cover serious illness or injury. Includes some preventative care.Includes HSA or HRAMinimum deductibles of $1,100 (self) or $2,200 (self + family)Deductible must be paid before any benefits paidHigher out-of-pocket limitsHSA and HRA can build savings for future medical expenses109
110 Health Insurance - FEHB Choosing Your PlanHealth Savings Account “HSA” –Must be enrolled in HDHP to have oneTax-advantaged savings for future medical expensesYou own account you can use to pay qualified medical expenses for you and your dependentsAccount grows “tax-free” to be used for qualified medical expenses110
111 Flexible Savings Account - FSA You can set aside up to $5,000/year in pre-tax dollars to pay for medical costs, deductibles, co-pays, etc.You can set aside up to $5,000/year in pre-tax dollars to pay for dependent care including elder careMust use it or lose it by March 15 of the following yearEnroll during FEHB open season – employees only111
112 FEDVIP – 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)112
113 MedicarePart 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 Plan113
114 MedicareEnrollment: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.114
115 Medicare 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.115
116 FEGLIBasic 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 beyond116
117 FEGLI 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
118 FEGLIOption 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.118
119 FEGLIAt 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:119
120 Federal 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
121 Federal Long-term Care FLTCIP 2.0Federal Long-term CareAvailable for current federal employees, their spouses/same-sex partnersAccess to limited underwriting during Open Season
122 Long-term Care Insurance You make four choices in creating your coverage:How much? $50 - $300/dayHow long? 2 years, 3 years, 5 years or lifetimeInflation? 4% compound, 5% compound or future purchaseDeductible? 90 days122
123 Long-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:123
124 Taxes 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 taxed at the higher lump sum rates (currently ~40%!)124
125 National Association of Active and Retired Federal Employees - NARFE 125
127 Rules of Thumb to Consider 70% - 80% of your pre-retirement income is required to maintain your standard of living in retirementYour retirement savings should be allocated more conservatively as you move into retirementInvestment returns need to outpace taxes and inflation127
128 Retirement Concerns in America Another market downturnThe demise of pension plansKeeping up with healthcare costsTaxes may take too much of retirement plans and IRA’s
129 Barriers to Growing and Keeping Your Money EmotionTaxesInflationVolatility
130 Emotion vs. Logic – The Cycle of Market Emotions SellEuphoriaThrillAnxietyExcitementDenialFearOptimismOptimismDesperationReliefPanicHopeCapitulationDepressionBuyDespondency
131 Emotion vs. Logic – The Cycle of Market Emotions BuyEuphoriaThrillAnxietyExcitementDenialFearOptimismOptimismDesperationReliefPanicHopeCapitulationDepressionDespondencySell
133 5% to 8% guaranteed growth for income benefit No Market Risk5% to 8% guaranteed growth for income benefitSome RiskMost Risk8.4% average*5% to 7% DividendCapital Gains3.15% for 5 years5%Fixed Index AnnuitiesREITs(non-traded)Fixed AnnuitiesVariable AnnuitiesMutual FundsStocks & ETFsVentureCapitalCashCDsBondsVA Fees$20,000 to $50,000in bank type accounts2.50%1.25%Fees0.25%0.75%0.25%5.00%Interest risk1% to 2%fees2% to 3% fees
134 Why Does Wall Street Exist? Allocate capital to deserving new businesses and technologies (and some undeserving ones, as well).Capital markets are a major contributor to our economy and society.
135 Is It Still Okay to Mistrust Wall Street? Reckless with leverageRequired taxpayer funded bailoutsWant less regulation - not more
136 Wall Street told us to: Be a long term investor. If you are willing to take higher risk, over time you will be rewarded with a higher return.
138 Wall Street told us to: Market Index Stayed Fully Invested Best 10 Days MissedBest 20 Days MissedBest 30 Days MissedBest 40 Days MissedU.S.S&P 500 Composite8.18%4.83%2.26%0.02%-1.87%15-year time period 1/1/ /31/2009Past Performance is no guarantee of future results. The table is for illustrative purposes only, and the rates of return are not representative of any portfolio or security. Please remember that each asset class has its own unique risks and potential for rewards. Indexes referenced in the table do not include reinvestment of dividends, are unmanaged and not available for direct investment.
140 Change in Spending at each Age & Stage of Life The bigger picture…Change in Spending at each Age & Stage of Life46-50Family,CollegeKids22-30YoungMarried31-42YoungFamily50+EmptyNesters18-22Single60+RetiredSource: H.S. Dent Foundation
142 Baby Boomers Are Not Different The bigger picture…Baby Boomers Are Not DifferentFront end of Boomer generation began retiring inWave continues through 2025.Spending STILL PEAKS between the ages of
143 Wall Street told us to: MISSING THE WORST – The average total return for the S&P 500 over the last 25 years (i.e., ) is +9.8% per year.If you missed the 25 worst percentage gains days in those 25 years (i.e., 25 days in total, not 25 days per year), your average total return increases to +17.8% per year The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).
144 Wall Street told us to: RISK Indices are unmanaged measure of market conditions that is not available for direct investment. Past performance cannot guarantee future results.
145 Wall Street told us to:The S&P 500 is an unmanaged index which measures broad based changes in stock-market conditions based on the average performance of 500 widely held common stocks. The S&P 500 does not represent the performance of an investment option. This index is not available for direct investment.Indices are unmanaged and cannot accommodate direct investments. Past performance is not indicative of future results.Source: Morningstar. Morningstar Categories presented are for illustrative purposes only and are not indicative of the performance of any particular investment. They are not investment vehicles available for purchase.
146 A New Definition of Diversification A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated.
147 A New Definition of Diversification Correlation measures how closely related your various investments are related to a benchmark.
148 A New Definition of Diversification 2008G FundF FundC FundS FundI Fund
149 +8.3% Cumulative Return Over the last 10 Years $100,000 $55,270 +81% $115,170March 2009May 2011$56,490October 2002-September 2007+101.8%$108,330October 2007-February 2009September 2000-September 2002105.13%-50.95%91.77%-44.73%The S&P 500 is an unmanaged measure of market conditions that is not available for direct investment. Past performance cannot guarantee future results.149
154 Meet David WalkerServed as the 7th Comptroller General of the United States andhead of the Government Accountability Office (GAO) from to 2008Walker left the GAO to head the Peterson Foundation on March 12, 2008154
159 One Hundred Dollars$100 – Most counterfeited money denomination in the world. Keeps the world moving.Source: Federal Reserve &
160 Ten Thousand Dollars$10,000 – Enough for a great vacation or to buy a used car. Approximately one year of work for the average human on earth.Source: Federal Reserve &
161 One Million Dollars$1,000,000 – Not as big of a pile as you thought, huh? Still this is 92 years of work for the average human on earth.Source: Federal Reserve &
162 One Hundred Million Dollars $100,000,000 – Plenty to go around for everyone. Fits nicely on an ISO / Military standard sized pallet.Source: Federal Reserve &
163 One Billion Dollars$1,000,000,000 – You will need some help when robbing the bank. Now we are getting serious!Source: Federal Reserve &
164 One Trillion Dollars$1,000,000,000,000 – If you spent $1 million a day since Jesuswas born, you would have not spent $1 trillion by now.When the U.S government speaks about a 1.7 trillion deficit - this is the volumes of cash the U.S. Government borrowed in 2010 to run itself. Keep in mind it is double stacked pallets of $100 million dollars each, full of $100 dollar bills. You are going to need a lot of trucks to freight this around.Source: Federal Reserve &
165 One Trillion Dollars$1,000,000,000,000 – Compared to a standard sized American Football field, European Football field & Boeing 747.Say hello to the Boeing transcontinental airliner that's hiding on the right. This was until recently the biggest passenger plane in the worldSource: Federal Reserve &
166 15 Trillion Dollars$15,000,000,000,000 – Unless the U.S. government fixes thebudget, U.S. national debt (credit card bill) will topple 15trillion by Christmas 2011.Statue of Liberty seems rather worried as United States national debt passes 20% of the entire world's combined GDP (Gross Domestic Product). In 2011 the National Debt will exceed 100% of GDP, and venture into the 100%+ debt-to-GDP ratio that the European PIIGS have (bankrupting nations).Source: Federal Reserve &
167 $114,500,000,000,000 U.S. Unfunded Liabilities 114.5 Trillion Dollars$114,500,000,000,000 U.S. Unfunded Liabilities(Medicare, Medicaid, Medicare Prescription Drugs, Social Security, Military & Civil Servant Pensions)To the right you can see the pillar of cold hard $100 bills that dwarfs the WTC & Empire State Building - both at one point world's tallest buildings. If you look carefully you can see the Statue of Liberty. The Trillion dollar super-skyscraper is the amount of money the U.S. Government knows it does not have to fully fund the Medicare, Medicare Prescription Drug Program, Social Security, Military and civil servant pensions. It is the money USA knows it will not have to pay all its bills. If you live in USA this is also your personal credit card bill; you are responsible along with everyone else to pay this back. The citizens of USA created the U.S. Government to serve them, this is what the U.S. Government has done while serving The People. The unfunded liability is calculated on current tax and funding inputs, and future demographic shifts in US Population. Note: On the above 114.5T image the size of the base of the money pile is half a trillion, not 1T as on 15T image. The height is double. This was done to reflect the base of Empire State and WTC more closely.Source: Federal Reserve &
168 The Future of Tax RatesWhere do you think tax rates are headed in the future?1) Increase2) Decrease3) Stay the same
169 Top Federal Tax RatesSource: Tax Foundation – and H.S. Dent Foundation
170 2012 Marginal Income Tax Rates Married filing jointly$0 - $17,400 10%$17, $70,700 15%$70, $142,700 25%$142, $217, %$ 217, $388, %$ 388, and over 35%Source: Tax Foundation, 2005; CCH, 2009
171 Marginal Income Tax Rates (after Bush tax cuts expire) Married filing jointly$0 - $43,850 15%$43, $105,950 28%$105,950 - $161,450 31%$161, $288, %$ 288, %Source: Tax Foundation, 2005; CCH, 2009
173 Examples of Investments Going In Growth Going Out Option #1 Checking AccountsSavings AccountsMoney Market AccountsMutual FundsCertain Stocks That Pay DividendsCertificates of Deposit (CD’s)TaxedOption #2StocksNon-qualified AnnuitiesUIT’sTax-deferredOption #3401(k) PlansThrift Savings PlanQualified AnnuitiesTraditional IRA’sSEP IRA’sPre-taxOption #4Roth IRA’sVUL’sMunicipal Tax-free BondsTax-free
174 How much of your annuity will be tax-free as a refund of your contributions?
175 Taxes In RetirementAt retirement, you will complete a new W-4P for withholding from your federal annuityYou will need to get your state form for withholding – not included in OPM packageIn Colorado – federal annuities are exempt from state tax up to $20,000 ($24,000 after age 65)Unused annual leave is paid in a lump sum and taxed at the higher lump sum rates175
176 Taxes In Retirement What about Social Security? Depending on your income a portion of your Social Security income may be taxed, as well.Single filers:AGI $25,000-$35,000 – 50% benefit taxed AGI $35, % of benefit taxedJoint filers:AGI $32,000-$44,000 – 50% benefit taxed AGI $44, % of benefit taxedOnly 50% of your Social Security benefit counts in computing your AGI176
177 Taxes In Retirement What about Thrift Savings? Taxed as ordinary income when withdrawnNo penalty if you:Separate or retire when you reach age 55 or betterRetire on disability retirementTake monthly payments based on your life expectancy177
178 Taxes What can you do to insulate your assets from future taxes? Three ways to get tax-free income:Municipal bondsRoth IRAPermanent life insurance178
179 Who Can Contribute To a Roth IRA? Income Limits on Eligibility to Contribute for 2012:Based on Adjusted Gross IncomeMarried Filing Jointly: $173,000 - $183,000Single: $110,000 - $125,000 NO Income Limits on Eligibility to Convert for 2012
180 Roth IRA If eligible, 2012 Contribution Limits – $5,000 – under age 50 +$ 1,000 – catch-up contributions age 50 or betterNo Tax DeductionTax-free When Withdrawn180
181 How Can I Find Out My Score? Three Credit BureausExperianEquifaxTransUnionHow Can I Find Out My Score?
182 What should your credit score be? 850 = Pristine750 = Very Good680 = Minimum300 = Dismal
183 Tips for Improving and Maintaining Your Score Know your scoreScout for mistakesNEVER be lateMagic 20%Keep your oldest cardsAccept fate on the rest
184 Should You Pay Off Your Mortgage? PROsYou’ll save thousands of dollars in interestPeace of mindCONsPossibility to earn higher returns on your moneyLiquidityTax deductibility of interest
185 Techniques and strategies while living Durable power of attorneyFinancialHealthLiving willName beneficiaries to reduce probate costs and time delaysFamily planning
186 Getting Started Save! Understand Your Options Make Good Choices Today to Build For FutureCreate Strategies for Balance
187 The best time to think about retirement is before your boss does.