Posted on Friday, 13th December 2024 by

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I close out each year with a few last-minute updates and observations. My next article won’t be published until early January. It’s time to celebrate the holidays and just sit back and relax.

At the age of 75, soon to be 76, I realize just how fortunate we are, and much of that is thanks to my federal service, from active duty through retirement. I received my draft notice in 1968, 5 months after graduating high school; life has flown by at warp speed these last 55 years.

My 2024 New Year’s resolution was to slow down and take life easy for a change. I’m not sure I achieved that goal; just too much to do and too little time to do it. Yet, I have hopes for this coming year, and changes are on the horizon.

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Open Season Follow-up

Yes, open season is over but not out for the upcoming year. Those who signed up for Medicare FEHB/PSHB sponsored Medicare Advantage (MA) or Medicare Prescription Drug Plans (MPDPs) can revert to their FEHB/PSHB plans anytime. You don’t have to experience a Life Event or wait for the next Open Season.

Many find the MA and MPDP options worthwhile and desirable, while others have problems with approvals and available providers in their areas. It’s all about what works for you and the state of your health.

The Sunsetting of the Civil Service Retirement System (CSRS) – The End Game

I entered the federal civil service in 1973 after being discharged from active duty. At that time, all federal employees were under the CSRS system; now, less than 32,000 remain! Anyone hired into federal civil service starting January 1, 1987, was automatically enrolled in the Federal Employees Retirement System (FERS).

Many FERS employees lament this change and don’t realize their system can be more beneficial overall. Concurrent with this change, the Thrift Savings Plan was established, and the government provided a 5% contribution match for FERS employees.

CSRS employees didn’t receive the match and are limited to contributing 5% of their basic pay annually, whereas FERS employees can contribute up to the statutory limit each year. This is why many tenured FERS employees retire as millionaires or close to it.

The amount that FERS employees can contribute changes annually. You may elect to contribute any dollar amount or percentage of basic pay if it doesn’t exceed the IRS limit of $23,500 for 2025.

The TSP is governed by Internal Revenue Code (IRC) § 401(a), which is similar to a 401(k) with some restrictions.

CSRS Verses FERS Annuity Determination

Under the CSRS system, the annuity is calculated at 1.5 percent of your “high-3” average pay times years of service up to 5 years, 1.75% of your “high-3” pay times years of service over 5 and up to 10, and 2 percent of your “high-3” pay times years of service over 10. Many assumed the CSRS annuity was a flat 2 percent of your high-three average pay; it isn’t.

The regular FERS retirement annuity is calculated at 1% of your high-3 average pay times years of creditable service. If you retire at age 62 or later with at least 20 years of service, a factor of 1.1% is applied.

If FER employees meet certain requirements and retire before age 62, they receive a Special Retirement Supplement; this is in addition to their regular annuity and is paid until they reach age 62. This supplement is similar to their Social Security benefit. CSRS annuitants aren’t eligible for this supplement. The supplement ends at 62, even if you wait to apply for Social Security benefits.

Trade-Offs

Under CSRS, employees didn’t pay into Social Security. They contributed close to the same amount towards their CSRS retirement. Therefore, many long-term CSRS annuitants aren’t eligible for Social Security, or their monthly check is small compared to the average Social Security check others receive.

To be eligible to collect Social Security, you have to work at least 10 years, 40 quarters, paying into the Social Security system. To avoid the Windfall Elimination Provision (WEP), you had to work 30 substantial earning years under Social Security to collect a full Social Security benefit.

CSRS employees with 30-plus years typically worked only a few years part-time in school and possibly some military service. Those individuals must either work part-time while employed with the government, start a small business like I did 40 years ago, or work in the private sector after retirement to accumulate 40 quarters to collect a Social Security check.

FERS annuitants receive a lower COLA if the CPI increase is more than 2 percent but no more than 3 percent; their Cost-of-Living Adjustment is limited to 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase.  This is often referred to as the diet COLA.

 

Federal employees and recent retirees with security clearances can
search thousands of high-paying defense and government contractor jobs.

Six One Way, Half A Dozen the Other

Both systems are generous, with the differences highlighted above. Federal employees are fortunate to have a cost-of-living adjusted annuity to rely on with our other savings and investments. I retired 20 years ago this month, and thanks to our COLAs, my annuity is now close to what I was earning annually in 2004. FERS annuitants would have to work considerably longer to achieve the same results.

Our annuities provide a cushion that few in the private sector have. Even though CSRS offers a more generous annuity, FERS employees collect full Social Security benefits that often make up the difference. They potentially have significant TSP savings to fall back on when needed, and their TSP contributions over the years were tax-deferred.

Any way you slice it, both systems have served us all well.

Wrap Up

Another year has passed, and I had hoped to slow down. Instead, I wrote more articles than any year prior and am looking forward to this winter’s break. I’m another year older and feel my age, not my shoe size!

This year’s Open Season attributed to most of my articles these past two months due to the many changes and general confusion around our health care options. From MPDPs to MA plans and everything in between, it’s still confusing, and many just want to throw their hands up and surrender or stay the course. I hope my articles shed light on this subject; my intent was to clarify the issues for everyone.

I revised and sent out our updated 2025 Federal Employees Leave and Schedule spreadsheet for those still working and planning their exit. Please forward this spreadsheet to others in your organization. It tracks all leave balances, and you can use it to annotate your work schedule. This spreadsheet allows current employees to set realistic target retirement dates and will help them increase their annuity through prudent leave management.

I wish all my newsletter subscribers and site visitors a joyous holiday and a happy, healthy, and prosperous NEW YEAR!  My best to you and yours always.

Helpful Retirement Planning Tools

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, investment, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center.

Over time, various dynamic economic factors relied upon as a basis for this article may change. The information contained herein should not be considered investment advice and may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Last 5 posts by Dennis Damp

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Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, EMPLOYMENT OPTIONS, ESTATE PLANNING, FINANCE / TIP, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION | Comments (0)


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