Posted on Friday, 16th June 2023 by Dennis Damp

I discussed the spousal and non-spousal beneficiary issues with a TSP representative last week to substantiate the following inherited account guidelines. When an annuitant or surviving spouse dies the TSP sends out a determination package to beneficiaries. They set up a survivor account for spouses or a temporary account for non-spousal beneficiaries that can be accessed using My Account on TSP.gov.

Notifying the TSP

When a TSP participant dies while still actively employed in federal service, the employing agency informs the TSP.

If a participant dies after separating from federal service or is the account holder of a beneficiary participant account, the participant’s survivors should contact the TSP using one of the following Thriftline Services:

Phone:

• 1-877-968-3778 (United States, toll-free)
• +1-404-233-4400 (outside the United States, not toll-free)
• 7 a.m. – 9 p.m. eastern time, Monday through Friday

Fax:

1-866-817-5023 (United States)
+1-276-926-8948 (outside the United States)

Mail:

Thriftline Service Center
c/o Broadridge Processing
PO Box 1600
Newark, NJ 07101-1600

Order of Precedence

When an employee or annuitant dies their account is distributed in accordance with the beneficiaries that were established before their death. If no beneficiaries are designated, the funds are distributed in the order of precedence required by law:

1. To your spouse
2. If none, to your child or children equally, with the share due any deceased child divided equally among that child’s descendants
3. If none, to your parents equally or to your surviving parent
4. If none, to the appointed executor or administrator of your estate
5. If none, to your next of kin who is entitled to your estate under the laws of the state in which you resided at the time of your death

Beneficiary Determination

The TSP determines the beneficiaries and mails them a notice of their beneficiary status. They establish a TSP account for each beneficiary, and send the beneficiaries the TSP Payment Rights Notice that explains the beneficiaries’ tax obligations.

Spouse Beneficiary of A Deceased Annuitant 

The TSP establishes a Beneficiary Participant Account (BPA) in the spouse’s name. Money in the beneficiary participant account stays invested as it was in the deceased participant’s account except for any money the participant had invested in the mutual fund window.

Funds invested in the mutual fund window will be reinvested in TSP funds according to the deceased participant’s investment election on file. The funds in a beneficiary participant account aren’t subject to federal income tax withholding until it is withdrawn.

The spouse must go online to set up their account using the new account number they provide, and manage the account as they wish: reallocate funds, make withdrawals, convert the account to an annuity if desired, and view their account history.

Note: This provision is not available for a spouse beneficiary of a beneficiary participant account (i.e., the spouse of a remarried beneficiary participant).

Non-spouse Beneficiary of a Deceased Annuitant 

Non spousal beneficiaries of an annuitant can roll over their temporary account to an inherited IRA with another company such as Fidelity or Vanguard to avoid a large tax bill the year of the inheritance.

According to the TSP’s Death Benefits Guide, “A beneficiary who isn’t a surviving spouse cannot retain a TSP account. The TSP establishes a 90-day temporary account for the non-spouse beneficiary. Payment from this account will be made directly to a non-spouse beneficiary or to an “inherited IRA.”

Caution

There are situations that can create a large tax bill the year of the inheritance for beneficiary temporary account holders. If the beneficiary dies before electing to transfer their temporary account to an inherited IRA, all of the funds must be distributed immediately to the beneficiaries listed on their temporary account. The funds can’t be rolled over to an inherited IRA.

A temporary account is set up for non-spouse beneficiaries that can be accessed through My Account on tsp.gov to roll over a death benefit payment to an inherited IRA. They can also request a disbursement via a check or deposited directly into a checking or savings account within 90 days.

If the beneficiary doesn’t make a payment election within the allocated time after receiving the determination package, the account will be cashed out via check. A TSP death benefit paid directly to a non-spouse beneficiary can’t be rolled over in to an IRA or plan!

Beneficiaries of the spouse’s Beneficiary Participant Account (BPA) are not afforded this same option, this is discussed in next week’s article titled, “Inherited TSP Account – Revisited.

The Mutual Fund Window

Another concern is the mutual fund window conversion for spousal accounts. When an annuitant dies, the TSP liquidates any funds invested in the mutual fund window and reinvests the funds in TSP funds according to the deceased participant’s investment election on file.

From my perspective, it would be better to keep the entire account as it was originally invested. If the market is down, you won’t be able to recover those losses as the market recovers. Mutual funds are typically purchased for core accounts long term and this may disrupt account diversification. The spouse can reactivate the mutual fund window in their new account and repurchase the mutual funds if desired.

Many financial planners suggest transferring TSP accounts held by annuitants with non-spousal beneficiaries or surviving spouse account holders to an IRA to avoid these potential pitfalls.

Conclusion

I’ve been satisfied with the TSP’s low fund fees and performance since its inception. Plus, the government bond fund (G Fund) has competitive yields and is guaranteed to never decrease in value. It’s a great place to stash your cash reserves in times like this and returned 3.73 percent over the past 12 months, 4.66 percent since its inception.

The Total Bond Index that tracks U.S. investment-grade bonds, corporate and government debt, lost more than 13% in 2022. Long term Treasuries lost 39%!

Note: If you hold individual Treasury bills, notes or bonds to maturity, or for that matter most triple-A rated corporate bonds, your investment won’t be impacted. Only those who have to sell them on the secondary market can take a loss when the yields on new bonds, at the time of the sale, are higher than the bonds you purchased.

The reverse is also true, if the yields on new bonds are lower than the ones you now hold you can often sell them on the secondary market for a profit.

I don’t use the mutual fund window because of the high transaction costs and have Fidelity and Vanguard brokerage accounts for equity and mutual fund purchases.

There are significant reasons for annuitants and survivors with BPA accounts to consider moving their TSP assets to an IRA. The next article discusses this issue in detail.

Here are several articles that may help you decide what path to take:

• TSP – Ways to Safeguard Your Heirs Inheritance
• Which Way is Up – A Retiree’s Conundrum
• Preserving Your Assets (The TSP Rebalancing Act)

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Deciding When To Retire – A 7-Step Guide
• Annuity Expectations – Before and After
• TSP Guide
• Budget Work Sheet
• Medicare Guide
• Social Security Guide

The advice and strategies contained herein may not be suitable for your situation and 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.

Tags: Inherited IRA, Non-Spouse Beneficiary, Spouse Beneficiary, TSP beneficiaries, TSP Spousal Accounts, TSP Temporary Accounts
Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 2nd June 2023 by Dennis Damp

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The first part of this article discussed the delays survivors can expect before receiving their first annuity check, electing a survivor’s annuity, survivor’s annuity cost, reporting a death, and submitting the application for death benefit forms.

Part 2 explains the weak link in the system, ways to reduce the delays as much as possible, and how to report a death to Social Security and the Thrift Savings Plan (TSP.)  I suggest printing this two-part series and place the copies in your estate or retirement binder for your heirs to use when needed.

The Weak Link

OPM’s response exposed the weak link in the process and those who aren’t prepared financially will suffer the consequences. They stated in their reply, “The application for death benefits form after receipt by OPM is currently taking 3 months to process under the CSRS system and about 5 months under the FERS system.”  After the claim is processed a spouse would receive any backpay owed since the passing.

You have to add the delay in reporting the death while family and friends are grieving, the 4 to 6 weeks to receive the forms package, the time to complete the forms and send them back, and the 3 to 5 months for OPM to process them and send out the survivor’s first annuity check with backpay!

The first check you would probably receive is for the FEGLI life insurance payout and that could be as long as the initial 4 to 6 weeks for OPM to send the forms, then add the time to mail it back, and for them to process the forms, you are looking at 8 to 10 weeks for that check to arrive.

Set Up a Survivor’s Savings Account

If you have minimal savings and assets to rely on, set up a savings account to cover your survivor’s expenses for at last 4 to 6 months. Use our Budget Worksheet to enter your current expenses and determine what they will need to pay the bills and cover basic necessities while they wait. Those just getting by will have a difficult time making ends meet while waiting for their first survivor’s annuity check to arrive.

Ways to Reduce the Wait

To avoid the 4 to 6-week wait for these forms to arrive from OPM, I asked Mike, one of their customer service representatives, if survivors could report the death online and complete and send in these forms shortly after a death to expedite the process. OPM replied, “It would be best to send back the paperwork in the blue and pink colored envelopes that we send with the packet. This allows for the process to be sped up in the mailroom.”

What I did years ago was to add these forms to my estate planning binder. I have a SF-2800 and the FE-6 forms partially completed (the forms are pdf fill-in forms) with sticky arrows on sections where my wife and son will need to add the date of my death, attach a certified copy of my death certificate, etc. (If you are a FERS employee/annuitant you will need Form SF-3104, not the SF-2800, which is for CSRS.)  

I also included a copy of our marriage license and identified where signatures are needed and the return address. Even if survivors must wait for receipt of the forms package from OPM, these forms will at least be completed and ready to be sent in. Plus, it will help survivors during a very emotional and stressful time for all.

Reporting a Death to Social Security

In most cases, the funeral home will report the person’s death to Social Security. The surviving family member should give the funeral home the deceased’s Social Security number if you want them to make the report. You can also report the death to Social Security by calling 1-800-772-1213 or visit your local Social Security office. Unfortunately, a death can’t be reported online.

The death should be reported as soon as possible, because benefits end in the month of the death. Social Security pays a $255 one-time lump sum death payment to the surviving spouse and a surviving spouse may be able to apply for a survivor’s benefit. Download Social Security’s brochure titled “How Social Security Can Help You When a Family Member Dies.”

Reporting a Death to the TSP   

Call the TSP at 1-877-968-3778 to report a death. Account investments are not converted to the G-Fund upon an annuitant’s death as previously required. You will be instructed to send a certified copy of the death certificate to their TSP Death Benefit Unit and to set up a new survivor’s online account. The deceased spouse’s assets would transfer to this new account. This can take up to a month or more.

The spouse is able to set up a new account and move the funds around as necessary, set up an annuity, or transfer the account to an IRA if desired. The surviving spouse can keep the TSP account active until their death. However, the survivor’s beneficiaries can’t set up an inherited TSP account like you are able to do in the private sector. All funds are distributed to designated beneficiaries in a lump sum taxable the year of the death.

This is one reason why it is recommended by many financial planners to eventually transfer a survivor’s TSP to an IRA. This way heirs can convert their inheritance to an inherited IRA and withdraw the funds over a specific period of years to avoid a large tax hit the first year.

Summary

I suggest printing this article and part 1 and place them in your estate file or binder.  There are so many things to think about when planning your estate; it can be overwhelming at times. Review my 11-part Estate Planning Guide to help you take care of many essential tasks while still able to do so.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Deciding When To Retire – A 7-Step Guide
• Annuity Expectations – Before and After
• TSP Guide
• Budget Work Sheet
• Medicare Guide
• Social Security Guide

The advice and strategies contained herein may not be suitable for your situation and 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.

Tags: OPM Death Benefit Processing, Reporting a Death to OPM, Survivor Benefits, Survivor's Annuity
Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

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Posted on Friday, 19th May 2023 by Dennis Damp

Please forward this to others that may find this information helpful.
They can sign-up to receive my free Retirement Planning Newsletter.

Few are prepared for the delays a spouse and heirs will experience after applying for an annuitant’s death benefits. I recently reviewed and updated our estate plans and contacted the Office of Personnel Management (OPM) to better understand the process.

The closer I get to my expiration date, the more time I put into providing additional comprehensive guidance for my heirs. I received an email reply within the week and appreciated their detailed response. The delay from the date you notify OPM of an annuitant’s death to when the survivor actually receives their first monthly check can take from 4 to 6 months or longer!

Electing a Survivor’s Annuity

One of the exceptional benefits federal employees have is their ability to establish a significant lifetime monthly survivor’s annuity for their spouse. Civil Service Retirement System (CSRS) employees can elect to leave up to 55% of their unreduced annuity to their spouse when they submit their retirement application package to OPM. Federal Employees Retirement System (FERS) employees can elect to leave as much as 50% of their unreduced annuity to their surviving spouse.

Survivor’s Annuity Cost

There is a cost for electing a survivor’s annuity, approximately 10% of your full annuity is set aside by OPM to fund your spouse’s survivor annuity. Well worth the cost when you consider the state of affairs today, and the fact that our annuities are adjusted by an annual Cost of Living Adjustment (COLA). My gross annuity has increased 63% from January of 2005 to today thanks to the COLA we receive!

The federal employee’s survivor’s annuity, when added to Social Security and the Thrift Savings Plan distributions, provides a three-tiered safety net for those we will inevitably leave behind. The Office of Personnel Management (OPM) publishes the amount a surviving spouse will receive on the annual “Notice of Annuity Adjustment” that annuitants receive in January. You can also find this information in the Blue Book titled “Your Federal Retirement Benefits.” I request an updated copy every January from OPM and place that copy in my estate binder.

Reporting a Death

The surviving spouse or heirs must notify OPM as soon as possible after the death. You can report the death online or by phone at 1-888-767-6738. It is extremely difficult getting through by phone, expect long wait times if you can even get through.  I checked out the online submission and it is straight forward.

Once they receive either the online or phone death report, they will mail out all required forms to the mailing address provided on the report of passing within 4-6 weeks! If a survivor’s benefit was elected for the deceased spouse their health insurance continues.

Forms Submission

There is a separate “Application for Death Benefits” form for the two retirement systems and another for FEGLI Life Insurance as listed below:

• Standard Form 2800 (CSRS Application for Death Benefits)
• Standard Form 3104 (FERS Application for Death Benefits)
• Form FE-6 (FEGLI Life Insurance – Claim for Death Benefits)

After OPM processes the appropriate form, they will issue payment to the surviving spouse for their survivor’s annuity benefits back to the annuitant’s death. They will also change their health care plan to the Self-Only plan and pay the health care provider for any health insurance premiums since the retiree passed away. This reduces the survivor healthcare premiums significantly.

Until this is completed the surviving spouse continues using the healthcare cards they currently have and OPM advises the spouse not to report the passing of their spouse to the healthcare provider. Their coverage will continue in the interim until they receive their new cards.

After OPM pays the healthcare provider’s premiums for the self only plan, the health care provider will issue new healthcare cards to the surviving spouse with just their name on the cards. After receipt of the new cards destroy the old cards and only use the new cards with your name on it.

Federal Employees Group Life Insurance (Life Insurance Claims)

When you receive the forms from OPM 4 to 6-weeks after they receive the report of passing, complete the FEGLI FE-6 Claim for Death Benefits. OPM sends this form if the annuitant had a life insurance policy with them. Send the completed form back with a certified copy of the death certificate. You should receive the life insurance check within 3 weeks from the date they receive your completed form.

Summary

Part 2 will explain the weak link in the system, ways to reduce the delays as much as possible, and how to report a death to Social Security and the Thrift Savings Plan (TSP). I suggest printing this article and part-2 next week, and place copies in your estate or retirement binder for your heirs to use when needed. Review my 11-part Estate Planning Guide to help you take care of this essential task while still able to do so.

Go to Death Benefit Delays – Don’t Let This Happen to You (Part 2)

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Deciding When To Retire – A 7-Step Guide
• Annuity Expectations – Before and After
• TSP Guide
• Budget Work Sheet
• Medicare Guide
• Social Security Guide

The advice and strategies contained herein may not be suitable for your situation and 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.

Tags: Completing the Application for Death Benefits, Reporting a Death, Survivor Benefits, Survivor's Annuity
Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 5th May 2023 by Dennis Damp

Please forward this to others that may find this information helpful.
They can sign-up to receive my free Retirement Planning Newsletter.

Fixed income investments continue to provide a safe haven for our cash as long as we are Vigilant. With the failure of First Republic Bank last week, the third so far this year, all must ensure deposits at their banks are properly covered by the Federal Deposit Insurance Corporation (FDIC).

Approximately 70% of First Republic Bank’s deposits were uninsured in March of this year and account holders withdrew $100 billion in deposits in the first quarter of 2023. First Republic’s deposits dropped by more than 40 percent. The Wall Street Journal reported this as the second largest bank failure in the United States!

With this latest bank failure, depositors with accounts over their FDIC limit will lose out. The FDIC stated, “customers do not need to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits.”

Many aren’t aware of the extent of their FDIC coverage. It can be substantially more than $250,000 depending on how the account it registered.

FDIC Coverage Overview

To determine if your bank is covered by the FDIC, use their Bank Find online tool to verify your banks participation.

All single accounts owned by the same person at the same bank are added together and insured up to $250,000. Accounts with one or more owners that name beneficiaries are insured as Revocable Trust deposits.

Each co-owner’s shares of every joint account at the same insured bank are added together and insured up to $250,000. Basically, if there are two joint owners each is covered up to $250,000. Therefore, their joint deposits at the bank are insured for up to $500,000.

The FDIC also covers retirement accounts including IRAs for up to $250,000 per owner.

Beneficiary Accounts

There are formal and informal revocable trusts. Informal trusts include Pay on Death (POD) designations used when a single or joint owners specify beneficiaries that inherit the funds after the account owner dies. A formal revocable trust is known as living or family trusts. They are written agreements created for estate planning purposes.

All revocable trust accounts owned by the same person at the same bank are added together, and the owners and beneficiaries are each insured for up to $250,000. A revocable trust can be revoked, terminated, or changed at any time at the discretion of the owner(s). The account title must disclose the trust relationship with phrases such as Living/Family Trust, POD, or In Trust For (ITF).

If the trust account is jointly held with two beneficiaries, that account would be insured for up to $1,000,000!

Beneficiaries must be people, charities, or non-profit organizations, and must either be named in the bank records or identified in the trust document.

Review the FDIC’s Deposit Insurance at a Glance brochure for additional guidance.

Note: The rules for revocable trust accounts (including formal trusts, ITF/POD), irrevocable trust accounts and mortgage servicing accounts will change on April 1, 2024. You can learn more about all the new changes by visiting www.fdic.gov/resources/deposit-insurance/.

I discovered that our FDIC coverage drops considerably without designating our successor trustees as beneficiaries in our joint trust. According to the FDIC, successor trustees aren’t considered beneficiaries. They state, “with formal revocable trusts, the owner is commonly referred to as a Grantor, Trustor or Settlor. Trustee and successor trustee designations are irrelevant in the determination of deposit insurance coverage.”

I need to determine if it is acceptable to restate the successor trustee clause when I review my estate documents with my attorney this month. Currently, it lists our children as successor trustees with no mention of beneficiaries. Hopefully, we can change the statement to our children, “and the survivor of them shall be the beneficiaries and become the successor trustees.” Without this change, I believe our FDIC coverage is half of what I originally thought it was.

Electronic Deposit Insurance Estimator (EDIE)

Use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) to determine the level of protection you have for each of your bank accounts. According to their website, “EDIE lets consumers and bankers know, on a per-bank basis, how the insurance rules and limits apply to a depositor’s specific group of deposit accounts—what’s insured and what portion (if any) exceeds coverage limits at that bank. EDIE also allows the user to print the report for their records.”

The calculations provided by EDIE are current through March 31, 2024.

National Credit Union Administration NCUA Insurance Coverage

The NCUA provides all members of federally insured credit unions with $250,000 in coverage for their single ownership accounts. Joint accounts are owned by two or more people who have equal rights to withdraw money from the account and no beneficiaries are named. These accounts can include regular shares, share drafts (similar to checking), money market accounts, and share certificates. The NCUSIF provides each joint account holder with $250,000 coverage for their aggregate interests at each federally insured credit union.

Retirement account insurance protection is separate and apart from insurance coverage on other credit union accounts. For example, if you have a regular share account, an IRA, and a KEOGH at the same credit union, the NCUSIF insures the regular share account for up to $250,000, the IRA for up to an additional $250,000, and the KEOGH for up to an additional $250,000.

NCUA Insurance Estimator

The NCUA Electronic Share Insurance Estimator is available to help members better understand the protection offered by the NCUSIF. This interactive site allows users to input data to compute the amount of NCUSIF coverage available under different account scenarios. This resource is available at www.MyCreditUnion.gov/estimator.

Summary

Check your accounts to ensure they are properly registered with updated beneficiary designations and validate the level of insurance you have with each account.

Use the FDIC and NCAU Insurance Estimators to verify all of your accounts. If you exceed your coverage move the excess to differently registered account at the same bank or move it to another bank or credit union.

Fidelity brokerage accounts offer a program that avoids the potential problems with FDIC coverage. You can elect to have your cash allocated to multiple banks to avoid exceeding the FDIC limit. They do this automatically.

Investors must also be aware of the coverage they have through the Securities Investor Protection Corporation (SIPC) for their brokerage accounts. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. Visit their site for specifics.

Summary

Part 2 will explain the weak link in the system, ways to reduce the delays as much as possible, and how to report a death to the Thrift Savings Plan (TSP.)  I suggest printing this article and part-2 next week and place the copies in your estate or retirement binder for your heirs to use when needed. Review my 11-part Estate Planning Guide to help you take care of this essential task while still able to do so.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Financial Planning Guide
• Deciding When To Retire – A 7-Step Guide
• Annuity Expectations – Before and After
• TSP Guide
• Budget Work Sheet
• Medicare Guide
• Social Security Guide

The advice and strategies contained herein may not be suitable for your situation and 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.

Posted in ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 28th April 2023 by Dennis Damp

Last week’s article titled “Hiring A Financial Planning – How & Why (Part 1)” covered the state of the economy, why it’s essential to manage our retirement savings prudently, and discussed the first steps for finding a creditable financial advisor. This segment outlines the level of support financial planners can provide, how to substantiate their credentials, and their related fees.

Financial Management Fees

Basically, they will offer several levels of support from traditional brokerage accounts, portfolio reviews with quarterly updates, asset management, advisory and managed accounts.

All come with a cost of course. For example, the fees from one of the firms I contacted initially were .25% of the account balance annually for quarterly portfolio reviews and recommendations, 1% of the account balance annually for up to $500,000 under their asset management program, or 1.25% for advisory and 1.65% for managed accounts. The management fees decrease for clients with larger investment portfolios.

The price you pay to a financial advisor under the Assets Under Management (AUM) fee model is determined by the assets they manage for you. Additional services such as the development of a financial plan may be included at no additional cost.

Typical Financial Management Fees

Fees that you may have to pay for financial & investment guidance include but are not limited to:

• Asset management
• Certified Financial Planner (CPF)
• Financial management
• Fund management
• Investment advisor
• Money management
• Managed account
• Portfolio management
• Wealth management

Fee structures vary from one financial advisory firm to another. Some firms charge a percentage of assets under management, others charge a flat rate. You will find firms also using a mix of both fee arrangements.

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The Bottom Line

How much is this going to cost me over my current expenditures? Yes, it is going to cost more in most cases than what you are paying now to trade and manage your accounts personally. That’s not necessarily a bad thing, but it is something you have to contend with. If the results are what your adviser projected and you expect, and you achieve the level of desired services, then the cost will be worth it. Plus, your time is valuable, and it will be freed up to do other things.

Not all brokerage accounts are alike. The first financial planning firm that I sat down with charged a trading commission of 1%! Purchasing 100 shares of Apple stock at $166 a share would result in a commission of $166! That is excessive by any standard considering that Fidelity offers zero commissions for many stock, ETF and options trades with no minimums to open an account. They also offer zero expense ratio indexed funds!

You may want to keep your trading account with your current brokerage firm if you are an active trader.

Review SEC Reports

Visit the Securities and Exchange Commission’s site to check out a brokerage firm, individual broker, investment adviser firm, or individual investment adviser. The SEC and FINRA provide abundant information on advisers and firms that you can use to start your search.

When I was searching for an adviser, I wanted one that could purchase any and all investments for my account not just one family of funds or investment options. Firms that offer limited investment selections may be more interested in selling you a product rather than being a fiduciary and providing sound investment advice.

I also suggest asking the adviser, before sitting down with them, for an updated copy of their Part 2A Form ADV. The Form ADV is used by investment advisers to register with both the Securities and Exchange Commission (SEC) and state securities authorities. The form consists of two parts.

The second part requires investment advisers to prepare narrative brochures written in plain English that contain advisory services offered, the adviser’s fee schedule, disciplinary information, conflicts of interest, and the educational and business background of management and key advisory personnel. The brochure is the primary disclosure document that investment advisers provide to their clients.

If you are considering talking to a financial adviser, contact several firms to compare options, costs and services before making a decision. The ADV forms will help you readily compare firms and advisers.

Once you sign up, stay in touch and monitor results to ensure they meet or exceed your expectations. If you start small, as they prove their worth you will feel comfortable expanding their role in managing your finances. It takes considerable due diligence to settle on an adviser. It’s a very personal decision and one that will hopefully make your life easier as they manage your investments in an ever-changing world.

Summary

I explored working with a financial advisor when I wrote the first article on this subject 8 years ago. Even though we didn’t take advantage of their services, we did find an attorney to update our wills and joint trust. A must for everyone to avoid probate and confusion when the inevitable happens.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Medicare Guide
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, 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 advice and strategies contained herein may not be suitable for your situation and 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.

Tags: Financial Advisors, Financial PLanning
Posted in ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 21st April 2023 by Dennis Damp

Forward this to others that may find this information helpful.
They can sign-up to receive my free Retirement Planning Newsletter.

The Federal Reserve intentionally kept interest rates artificially near ZERO for many years. Now that interest rates and inflation are soaring in 2023, do we ladder CDs, buy short term Treasuries and corporate bonds, and/or invest in the market with its inherent risks?

If we do invest in the market, what stock and bond mix will not only preserve but grow our nest egg? If we are doing this on our own, do we buy individual stocks and bonds or invest in indexed mutual funds or exchange traded funds that often have lower management fees.

Years past, many retirees were able to ladder CDs making 5% or more with 48 month or longer maturities. That may be happening again soon as the Treasury raises interest rates to fight inflation. Those in the Thrift Savings Plan (TSP) are able to allocate a portion if not all of their account to the G-Fund to take advantage of rising yields. Unfortunately, we don’t know what lies ahead and many seek out professionals to help them navigate the investment world.

I received a number of questions from site visitors recently about this subject and thought it was time for an update. The original article I wrote on this subject was published in 2015.

Who Controls What?

Often, one or the other spouse takes control of finances and manages investments for the family. If the person in control knows what he/she is doing, and has the time and energy to invest wisely, that often works fine. I basically assumed this responsibility with my family and have done this for years.

For situations where neither partner is knowledgeable about investments federal employees and annuitants often rely on the TSP Life Cycle Funds to steer them towards retirement. Annuitants often consider investing in the L Income fund, a conservative choice with the majority in the G-Fund yet enough in the other funds to partially compensate for inflation.

Other investments must be managed such as IRAs, private sector 401(k)s, brokerage accounts, CDs, savings bonds, savings and money market accounts, and so on.

The tide is turning in 2023, and higher yields are finding their way into most fixed income investments. Many are abandoning riskier investments for this safe harbor.

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One is the Loneliest Number That There Ever Was

The problem with having one person managing investments, when that person becomes infirm or dies the surviving spouse is generally at a disadvantage. They will have to turn to another family member or financial adviser to help manage and preserve what has taken a lifetime to accumulate. Hence the need to establish a relationship with a knowledgeable financial adviser while both are alive and healthy, especially if you don’t have a family member to rely upon.

When you need assistance with finances, you require a professional who knows how to balance your need for trustworthy advice with his or her need to make a living providing it. I’ve researched adviser options over the years, and if you aren’t careful, you can lose a lot through high management fees, front end loads, and transaction fees.

Find a Trustworthy Fiduciary 

A fiduciary is a person or organization that acts on behalf of another person or persons, putting their clients’ interests ahead of their own, with a duty to preserve good faith and trust. This person must take the time to truly understand your goals and strives to achieve them without churning your account or focusing on certain investments excluding other more advantageous options.

Many suggest using a registered investment adviser because they assume a fiduciary roll and are legally required to put your interests first in the relationship. Yet, I’m still concerned because you are trusting a third party to manage your assets or at least a good portion of them. It is much harder to recover from a loss after retirement when most are on fixed incomes.

One of the first questions an adviser typically asks is who you are investing for, yourself or your heirs. More risk can be tolerated if you are investing longer term for heirs. Personally, it seems a moot point, I don’t want to lose a significant portion of my investments no matter who I’m investing for even though, long-term, things may, and I reemphasize MAY improve. Once you’ve accumulated a lifetime of savings, I personally don’t want it to diminish significantly.

Unlike many in the private sector, federal employees have a substantial annuity to rely on in retirement. Add to that your TSP 401 (a) Savings, Social Security for all FERS employees and for many CSRS employees. When I first approached an adviser, I informed him that I didn’t need someone to establish a plan for retirement, I was already there and able to live within our means.

What I wanted was to set up an initial relationship with them so that when I’m not able to manage our accounts due to advanced age or death, my wife and heirs can rely on them for assistance. I like to take things in baby steps, start small, learn about a new relationship, and then progress from there.

The First Step

The adviser we first met with reviewed our personal situation and introduced us to an attorney to update our wills and trusts. They collected a considerable amount of data from us. Personally, I dislike giving out confidential information.

Many federal employees may be able to limit the information to account summaries and balances. If you need a plan to achieve financial security, then you may have to provide the additional information.

Most advisers request any and all information about every account, loan, asset, insurance policies, annuities, income from all sources, including copies of income tax returns.

In turn they offer to prepare a plan describing how, from their perspective, you can achieve financial independence in retirement. These plans are often free of charge and introduce you to the services they can provide to help you achieve your goals.

Wealth Management Advisors

Here is a short list of advisory firms that you can explore. These firms range from the two largest mutual fund companies to large asset managers and banks.

The minimum amount required for a company to provide assistance varies. PNC provides assistance with as little as $5,000 invested and $50,000 to manage certain accounts.

Fidelity’s digital investment management and planning includes unlimited access to 1-on-1 coaching with Fidelity advisors once your balance reaches $25,000 to $250,000 for a fully managed account.

Vanguard’s personal advisor offers a hybrid service with as little as $50,000 and includes access to professional advisors and financial planning. With $500,000 invested they provide custom investment and financial planning strategies with a Certified Financial Planner™ (CFP®).

Baird offers a wide range of entry points for clients. Fisher Investments requires a minimum of $500,000 to sign up for their account management services.

Each firm offers a broad spectrum of services from equity investments to fixed income. Many have local offices nationwide including Fidelity.

• Fidelity Wealth Management
• Vanguard Personal Advisors
• Baird Private Wealth Management
• Fisher Investments
• PNC Managed Accounts

Summary – More to Come

Part two will cover typical financial management fees, the bottom line, and how to review an advisor’s SEC report to ensure your are in good hands. There is much to consider when hiring a financial advisor and you have to be totally comfortable with your selection. Go to part 2:

• Hiring a Financial Manager – Credentials and Fees (Part 2)

Secondly, this is just the beginning. You will also need to package a comprehensive estate plan to protect you and your loved ones. Use our Estate Planning Guide to help you through the process. This step includes compiling a personal “Survivor’s Guide,” including wills and trusts, powers of attorney, health care directives, final arrangements, and data collection.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Medicare Guide
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, 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 advice and strategies contained herein may not be suitable for your situation and 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.

Tags: CFPs, Financial Advisors, TSP Considerations, Wealth Management
Posted in EMPLOYMENT OPTIONS, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Saturday, 15th April 2023 by Dennis Damp

Last year’s 8.7% COLA increase was the highest in over 40 years. Civil Service Retirement System (CSRS) annuitants received the full 8.7% while Federal Employees Retirement System (FERS) annuitants received 7.7%. Next year’s COLA may be disappointingly low even when it seems our costs for just about everything continue to skyrocket.

I just returned from the grocery store and can’t believe how high prices are for even the basic food staples. A can of Campbells soup was $2.48! I recall going to the store in my youth and buying ten cans of tomato soup for one dollar!

Home owner’s insurance premiums are rising, coastal properties are expecting increases of 50 to 200% or more this year. Gasoline costs more, my natural gas bill doubled last winter and electric followed suit with a substantial increase. The average consumer, and especially retirees on fixed incomes are suffering through this with little if any relief coming their way.

The U.S. Bureau of Labor Statistics (BLS) reported on 12 April 2023 that the US National Inflation Average increased by 5.0 percent over the past 12 months.

2024 COLA Estimated Increase

According to Wilbert J Morell III, a retired Navy Engineering Project manager that tracks these statistics monthly, “If the CPI-W remains constant at 296.021 between now and 30 September 2023, the 2024 COLA for Social Security, CSRS, and FERS effective on 1 December 2023 will be 1.4%. If the CPI-W trend continues to increase at 0.3% every month through 30 September 2023, the CPI Average for July-August 2023 will be 301.390 and the 2024 COLA for Social Security and CSRS will be 2.9%, and the FERS COLA will be 2.0%.”

The Senior Citizens League states, “If inflation continues to fall at the current rate, it appears that the Social Security cost of living adjustment (COLA) for 2024 will be lower than 3%.”

New Beneficiary Designation Form

OPM issued an updated Beneficiary Designation Form SF-3102 in October of 2022. The new version replaces the previously issued SF-3102 form used exclusively for FERS employees, and the CSRS SF-2808 forms. All employees and retirees must use the new consolidated form after April 30^th of this year.

OPM will accept pending retirement applications with the properly completed previous version of this form and the SF-2808 until April 30, 2023.

This Designation of Beneficiary Form is used to designate who is to receive a lump-sum payment which may become payable under CSRS or FERS.

Previously Certified Forms

Certified versions of the SF 3102 and SF-2808 Forms submitted on or before April 30, 2023, are acceptable. For example, a CSRS or FERS employee that retired before this cutoff date doesn’t have to submit new forms unless changes are necessary.

Other Beneficiary Election Forms

Don’t confuse this form with designation forms used for other types of benefits: Standard Form 2823, Designation of Beneficiary – Federal Employees’ Group Life Insurance Program; TSP-3, Thrift Savings Plan Designation of Beneficiary; or Standard Form 1152, Designation of Beneficiary – Unpaid Compensation of Deceased Civilian Employee.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Medicare Guide
• Social Security Guide
• Master Retiree Contact List

The advice and strategies contained herein may not be suitable for your situation and 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.

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 31st March 2023 by Dennis Damp

The economy continues to heat up. Employers added 311,000 workers in February, a sign that the pace of hiring continues to rise, economists predicted 225,000 new jobs!

The Federal Reserve continues to raise interest rates to fight inflation. Their intent is to slow down the economy and raise the unemployment rate that is currently sitting at 3.6 percent, a slight increase from the previous month.

Treasury bills and savings bonds continue to provide a safe harbor for our savings along with rising CD rates at most banks and credit unions. However, with the cost of everything rising dramatically this past year, many retirees are looking for jobs to compensate for higher prices.

Our electric and gas bills more than doubled this year and visits to your local grocery store brings the reality of the situation to the forefront. Our Cost of Living Adjustments (COLAs) aren’t keeping up with the runaway inflation that shows no signs of abating.

The Labor Participation Rate

The labor force participation rate remains below the pre pandemic rate by approximately 2.5 million workers. Many retired early and signed up for Social Security and company pensions during the pandemic.

Job Opportunities

Companies continue to submit job vacancies to our Jobs Board to attract federal retirees. Opportunities exist for those looking to supplement their retirement income or to start a second career.  We provide this job listing service specifically for companies that are seeking to hire experienced retired federal workers.

Currently Lockheed Martin is seeking a Cyber Security ISSO to support the F-35 Reprogramming laboratories at Eglin Air Force Base, Florida. Performs mandatory information system security tasks on assigned information systems.

For those looking for part time positions, many are available and pay well these days. Job vacancies are advertised at most establishments.

Security Clearance Jobs

If you are a U.S. citizen and have an active security clearance, or recently retired, explore positions with major corporations worldwide. ClearanceJobs is the largest security-cleared career network. Only pre-screened defense and intelligence recruiters can access your candidate profile.

There services are used by over a thousand defense and intelligence contractors like Northrop Grumman, Booz Allen, Raytheon, General Dynamics, and RAND, as well as federal government agencies including the CIA, FBI, Federal Reserve and National Laboratories. Click on the banner below to sign up.

Annuity Impact

A federal retiree’s annuity is not reduced when returning to work for private sector employers. Federal retirees can return to federal service under the Rehired Annuitant Program. In most cases this will impact and reduce their annuity. However, certain rehired annuitant positions offer waivers for critical hard to fill positions, allowing the applicant to retain their annuity and new salary in full.

There are additional opportunities to work for contractors. I’ve seen first-hand, while working with the FAA, retirees coming back to work as contractors with companies such as Booz Allen, Lockheed Martin, and others.  Here is a list of the Top 68 Contractors Working for the Federal Government. If you are interested in working for a contractor after retirement, explore your options early and look for opportunities on their website.

Summary

Jobs are plentiful and there is a broad spectrum of occupations to consider. Many related to your federal employment. If you are thinking of going back to work, use our jobs board and job-hunting resources to get started and search for opportunities that interest you.

Helpful Retirement Planning Tools

• Jobs Board
• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Which Way is Up – A Retiree’s Conundrum
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, 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 advice and strategies contained herein may not be suitable for your situation and 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.

Tags: Federal Annuitants, FERS Retirees, Retiree Jobs, Security Jobs, Writing Jobs
Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, EMPLOYMENT OPTIONS, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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