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TSP – Safeguarding Your Heirs Inheritance – Inherited IRAs (Part 2)

Posted on Saturday, 5th September 2015 by

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In TSP – Ways to Safeguard Your TSP, part 1 of this series, I discussed a significant reason why a spouse that inherits a TSP account would want to transfer their TSP account to an IRA.  According to the TSP, “If a TSP beneficiary participant (Annuitant’s spouse) dies, the new beneficiary(ies) cannot continue to maintain the account in the TSP. Also, the death benefit cannot be transferred or rolled over into any type of IRA or plan.” If you are the surviving spouse and inherit your husband or wife’s TSP account, when you die your beneficiaries must claim the full amount as income the year that you die.

I previously discussed what a surviving spouse needs to consider before moving their TSP to an IRA in Survivors Beware – The TSP Trap and in a follow up article I talked about The TSP Advantages (Should I Stay or Go).

If the annuitant or the surviving spouse transfers his/her TSP account to an IRA the heirs can convert their share of the IRA to an “Inherited IRA” which has many benefits. According to Vanguard, “A nonspouse beneficiary has four options when receiving an IRA inheritance: inheriting the IRA, taking a lump-sum distribution, disclaiming the IRA, or electing Vanguard’s pass-through service. Each option has its own tax consequences and some options are irrevocable.”

Most either elect the Inherited IRA or take a lump sum if they need the cash now. An Inherited IRA allows heirs to grow the assets tax-deferred. Vanguard explains that, “When you inherit an IRA, you take the IRA account as a beneficiary (for your benefit) and withdraw from it over a fixed period of time without a tax penalty, regardless of age. Even if you’re under age 59½, you will not be subject to an “early withdrawal” penalty from the IRS.”

Inherited IRAs if not handled properly can trigger large tax bills and you could lose your tax-deferred status. This is especially true for nonspouse heirs and you must take the following actions to maintain your tax deferred status.

  • Properly title your inherited IRA account
  • Take the required minimum distributions
  • Divide the IRA when there are multiple beneficiaries
  • Don’t Ignore charity or non-person beneficiaries

Properly Title Your Inherited IRA account

Titling of an inherited IRA varies between IRA custodians. It is essential that the deceased IRA owner’s name remains on the inherited IRA account and the account title must indicate that it is an inherited IRA by either using the word “beneficiary” or variation there of indicating it is an inherited IRA. Here are three samples of inherited IRA titles:

  • Jane Doe (deceased August 1, 2015) IRA for the benefit of John Doe
  • David Smith, deceased, for the benefit of Jennifer Smith
  • David Smith, beneficiary Jennifer Smith

As long as the deceased IRA owner’s name stays on the account there is no set format. However, it must be clear that the IRA is inherited. It’s important for the beneficiary of the inherited IRA to name successor beneficiaries for their account.

Take the required minimum distributions

Traditional IRAs require the owners of the account to take required minimum distributions at the age of 70 . Non spousal beneficiaries are able to spread out their inherited IRA payouts over their life time and must take their first RMD the year following the year the owner died regardless of the beneficiary’s age. You will pay tax on the distributions from deductible contributions and earnings for traditional IRAs. Non spousal beneficiaries must also take RMDs from inherited ROTH accounts however withdrawals are tax free.

There is a significant penalty for not taking an RMD, a 50% excise tax on the amount that should have been distributed that year. According to the IRS, ” Beneficiaries of retirement accounts and IRAs calculate RMDs using the Single Life Table (Table I, Appendix B, Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)). The table shows a life expectancy based on the beneficiary’s age. The account balance is divided by this life expectancy to determine the first RMD. The life expectancy is reduced by one for each subsequent year.” There are ways to avoid the excise tax if you miss a RMD however you should look at all options before deciding on how to proceed.

Properly divide the IRA

Each non spousal beneficiary should establish their own unique inherited IRA account and titled appropriately as noted above in most cases. For example, we have two children and they are 6 years apart. If they set up a joint account for both beneficiaries they would have to use my son’s age, our oldest child, to calculate the RMD. Another more dramatic example would be if you left your IRA to an older sibling, that for this example is age 70, and to your only child, a daughter age 25. If the account remains intact and isn’t divided the daughter in this example would have to withdraw far more because of the siblings age.

Assuming that you left $200,000 to your heirs, each getting $100,000 you would determine the RMD of each heir by dividing the account balance at the end of 2016 by the appropriate life expectancy from Table I (Single Life Expectancy) in Appendix B. The daughter’s division factor would be 58.2 and your siblings 17! In this example the RMD for your sibling would be $5,882 per year and your daughter’s would only be $1,718. Your daughter would be able to accumulate more tax deferred income and investment growth over her life time and still receive an annual cash benefit. Essentially, the younger the beneficiary the less the account is drawn down and the longer it has to accumulate wealth.

Don’t Ignore charity or non-person beneficiaries

If the IRA you are inheriting has multiple beneficiaries that include charities or other entities other than a person there are strict payout procedures and time lines to follow. These types of beneficiaries must be paid their inheritance by no later than September 30, of year after the owner’s death according to the IRS. The penalty for not complying with the payout is that all of the beneficiaries are excluded from taking withdrawals over their life time in accordance with Table 1 mentioned above. The account must be liquidated (emptied) within 5 years if the original owner of the account died before taking RMDs. If he died after taking his first RMD beneficiaries must take RMDs based on the deceased’s life expectancy tables.

There are also rules to follow if a trust is a beneficiary. You should talk with your attorney, financial planner, or IRA custodian to ensure you follow all of the rules. A copy of the trust must be sent to the custodian of the IRA by October 31 of the following year after the owner died. If the owner died March 1, 2015 the trust document must be sent to the IRA custodian by October 30 of 2016. The penalty for not doing this is the same as mentioned above for charities.

Disclaiming Your Interest

For tax planning and other purposes some choose to disclaim their inherited interest. According to Fidelity Investments, “If you decline to accept all or part of the IRA assets you are entitled to, they will pass to the other eligible beneficiaries. If no other beneficiaries exist, the assets will pass in accordance with the IRA provider’s contractual defaults. For example, with a Fidelity IRA the assets will pass to the original IRA owner’s surviving spouse and, if none, to the estate. A decision to disclaim IRA assets must be made within nine months of the original IRA owner’s death and before you take possession of the assets. This is an irrevocable decision. Therefore, as with any tax-related matter, it’s critical that you consult a tax adviser or attorney before disclaiming IRA assets.”

Custodians

Most custodians of inherited IRAs offer counseling and will help you set up your inherited IRA account. You can elect to establish your IRA at any custodian that you choose. Don’t hesitate to contact them for guidance when setting up your inherited IRA. Most large brokerage houses also will set up an account for you and they provide guidance on these matters, talk with their specialists if you have any questions about your inheritance. Here are two of the largest IRA Custodians that can provide guidance.

Conclusion

The problem with converting your easily managed TSP fund to an IRA is finding suitable fund replacements that will replicate the TSP funds that we now have available. The final article in this series, part 3, will discuss indexed mutual fund and ETF alternatives to the various TSP funds.

Another consideration is can you do it on your own or do you need a financial adviser to help you along the way. Read my article titled Have You Considered Hiring a Financial Adviser to help you decide what road to take.

Retiree Job Center Update

Check out our Job Center if you are interested in finding employment in retirement. Employers looking to recruit federal retirees and those soon to retire post job vacancies on our site. Recently Sterling Bank Services in Texas is looking for part time Alarm Inspectors and ATM Technicians If you are approaching retirement or a recent retiree with a security clearance visit the Security Clearance jobs board to find lucrative employment opportunities.

Request a Retirement Benefits Summary & Analysis. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections.

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Visit our other informative sites

The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice and our articles and replies are time sensitive. 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.

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

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2016 FEGLI Open Season – Take Advantage of this Opportunity

Posted on Thursday, 13th August 2015 by

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Even if you think, like I did in 2004 when the last open season was offered, that you have sufficient coverage you may be surprised at what you discover. I wish I knew then what I know now about these attractive low cost options.

OPM recently announced that a 2016 Federal Employees Group Life Insurance (FEGLI) Open Season will be available to change your coverage starting September 1, 2016 through September 30, 2016. If you are approaching retirement this is an excellent time to take advantage of low cost insurance options that you may not have thought of when you first signed up. FEGLI rate changes will also take effect the first pay period beginning on or after January 1, 2016. Employees’ basic insurance premiums won’t change and most rates for Option A, B, and C will decrease. Rates will increase for older Option A, B and C age bands and the 50% reduction and the no reduction rates will increase for retirees.

Active federal employees can increase their coverage at any time however they must take a physical to qualify. They can also add coverage for Qualifying Life Events. The benefit of increasing coverage during an open season is that you aren’t required to take a physical. Unfortunately, retirees can’t increase their coverage even during an open season, they only have the option, at any time, to reduce their coverage.

The Federal Register announcement states , “Open Seasons are one method by which healthy individuals can be attracted to join and reduce the risk profile of the program. Some less healthy individuals may elect coverage during Open Seasons. To mitigate this risk, the effective date for employees in active pay status who make an Open Season election would be delayed one full year to October 1, 2017, subject to FEGLI law and regulation, including applicable pay and duty status requirements.”

Now is a good time for all participants to evaluate their insurance needs and to take advantage of low cost insurance FEGLI options for you and your family. Basic and Options A, and C are reasonable. Option B, multiples, can get very expensive as you age and many seek to replace B with lower cost private insurance providers. If you do this be sure to check out the insurance provider’s rating first.

CAUTION: Prior to my retirement, in my mid forties, I was approached by an insurance company that offered to beat the FEGLI rates. Their projections showed considerable cost savings as I aged and I decided to drop Option A, and the Family Part C Option. The insurance company, due to lower than projected interest rates, reduced the insurance coverage unless we agreed to more than double our premiums! Fortunately I kept Basic coverage which at age 65 is free if you elect the 75% reduction. Option A and C have similar features. You can add or increase Part C family coverage and the inexpensive Option A this open season if desired. Family coverage can be kept for as long as you need it. For more information on Basic, Part A, B, and C coverage read the article titled FEGLI Insurance Options (Part 2) – Options A, B & C.

In the above mentioned article I state,” After retirement you can’t increase coverage, you can only reduce your coverage. If you remotely think you or your spouse will need insurance it’s best to elect that coverage now and if you run into a bind down the road you can always reduce multiples or certain options altogether if desired. If you do decided to obtain quotes from private insurance companies for Part B alternatives consider keeping your Basic, Part A and C options. They may try to talk you into dropping all of your FEGLI coverage and they can be convincing. From my perspective the FEGLI insurance costs for Basic, A, and C are reasonable and depending on what you elect in retirement two of the three are FREE when you reach age 65.”

The last FEGLI Open Season was in 2004 and prior to that 1999. Open seasons are few and far between. Take the time NOW to evaluate your insurance needs and take advantage of this opportunity.

Request a Retirement Benefits Summary & Analysis. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice and our articles and replies are time sensitive. 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.

Posted in BENEFITS / INSURANCE, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Career Development & the Retirement Connection

Posted on Wednesday, 5th August 2015 by

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I was asked by the Federal Energy Regulatory Commission (FERC) to be a guest speaker at their Washington DC headquarters on July 29th 2015. I discussed ways for employees to enhance their careers through the development and implementation of realistic and obtainable individual Development Plans (IDPs). In the afternoon I presented a similar program at the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to help launch their new Career Development Toolkit program for their Leadership and Employee Development (LED) team.

I haven’t visited Washington DC for over a decade and things haven’t changed much since my last visit. The food was excellent, major construction projects everywhere, and the traffic as always a challenge. The people attending the sessions were attentive and interested and I met many new people and hopefully forged new friendships.

One thing that has changed is how one navigates around the DC beltway and traffic in general. My taxi driver and booking agent’s author escort service used an app called WAZE that allows drivers in the area to share real-time traffic and road information that routes you around traffic jams and accidents in the area. You don’t have to watch the screen on your iphone, it gives you audio warnings and announces the route, turn by turn, around the traffic. You can find out more about this app on their web site at https://www.waze.com. My driver suggested that if you use WAZE it tends to deplete your phone’s battery resources rather quickly so use a car charger to keep your phone charged.

The connection between career development and retirement is significant and can be life changing. The primary benefit of a career development plan is that viable and well thought out Individual Development Plans (IDPs) often lead to recognition, promotions, and Quality Within Grade (QWI) awards. Your annuity (retirement checks) are based on your high-3 average pay including locality pay and annual premiums for standby duty and availability if applicable. A well thought out plan offers many benefits including the potential for a substantial increase in your federal retirement annuity!

Many IDPs also include a stint at regional or Washington DC headquarter offices especially towards the end of your active career. Regional offices and headquarters are typically in higher paying major metropolitan areas. These are high cost areas and the locality pay may be significantly higher than where you are currently working. For example, if you worked in a location under the Locality Rest of US (RUS) schedule a GS-14 step 4 makes $108,497 a year compared to $128,445 if you work in the San Francisco area. Your high three would increase dramatically. The cost of living would be higher however Uncle Sam does pay generous relocation allowances and your stay would only be for a few years to boost your high three annuity calculation.

Other ways to increase your pension is to buy back your military time if you served in the armed forces of the United States. When you pay your military credit you are able to add your military time (years and months of service) to your pension (annuity) calculation that will increase your retirement check. If you are under the Civil Service Retirement System (CSRS) and eligible to collect social security (you paid into Social Security for at least 40 quarters) your annuity will be decreased at age 62 by the number of years that you served if you don’t buy back your military time. Many CSRS employees retire in their 50s and often work in the private sector where they will accumulate enough social security quarters to qualify. Also, if you don’t buy back your military time shortly after entering federal service you have to pay a significant interest penalty.

A realistic and actionable career development plan has many benefits including those that you may not realize at the time such as a dramatically increased retirement annuity down the road. During my career, using the techniques I describe in Take Charge of Your Federal Career I earned two Quality Within Grades and numerous promotions. All resulting in a substantially higher retirement pension. All federal employees should consider initiating a career development plan and be aware and educated about their federal retirement benefits. They go hand in hand and you can lose substantial retirement funds if you aren’t prepared and don’t understand your options.

Retiree Job Center Update

If you intend to work in retirement for whatever reason check out our Jobs Center. Employers looking to recruit federal retirees and those soon to retire post job vacancies on our site. Recently Blue Square Resolutions posted a Help Desk Technician position for the New York area and Adams Consulting Group is looking for a Paralegal/Analyst-Class Action/ Securities or Anti-trust specialist. Visit our Job Board for complete details. Another recent posting is for an accountant / bookkeeper.

Request a Retirement Benefits Summary & Analysis. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections.

Helpful Retirement Planning Tools Distribute these FREE tools to others that are planning their retirement

Visit our other informative sites

The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice and our articles and replies are time sensitive. 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.

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

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TSP – Ways to Safeguard Your Heirs Inheritance

Posted on Saturday, 4th July 2015 by

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Updated 6/22/2023

When a spouse is designated the beneficiary of a Thrift Savings Plan (TSP) account, the TSP establishes a beneficiary participant account in the spouse’s name. The 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.

Money from the mutual fund window will be reinvested in TSP funds according to the deceased participant’s investment election on file. The money in a beneficiary participant account is not subject to federal income tax withholding until it is withdrawn. No taxes would be due unless you withdraw funds or are required by age to take a minimum distribution.

Beneficiaries

The TSP’s Death Benefits brochure states  that, “A beneficiary who is not a surviving spouse cannot retain a TSP account. The death benefit payment will be made directly to the beneficiary or to an ‘inherited‘ IRA.” There are distinct benefits for non-spousal beneficiaries to have their inheritance transferred to an inherited IRA. When a death benefit is paid directly to a beneficiary they may be subject to a 20% mandatory federal income tax withholding and the entire amount will be taxable in the year it was inherited. This may create a significant tax burden, depending on the account balance, that can be deferred if the funds are transferred to an inherited IRA with a financial institution such as a brokerage house, financial planning firm, or mutual fund family.

The Surviving Spouse

In my article titled “Survivor’s Beware – The TSP Trap“ I discuss what a surviving spouse needs to consider before moving their funds to a private equity firm, precautions they should take, the advantages of the Thrift Savings Plan, the ease of managing their TSP account, and recommendations to safeguard their TSP assets with little to no market risk.

These same considerations should be evaluated by retirees and those approaching retirement who are often approached by financial planners with recommendations to move their funds from the TSP to higher market risk investments. There are also some disadvantages to consider for inherited spousal TSP account holders that could negatively impact their heirs.

I kept my TSP account in retirement because of the many TSP advantages that I discuss in the above mentioned article and in The TSP Advantage (Should I Stay or Go). I like the simplicity of the TSP, low management fees, and the fact that the G-Fund has NO MARKET RISK and its one year return is 3.74 percent and 4.66% since inception as of 6/7/2023. The L-Income Fund, that has approximately 30% allocated to equity and non-government bond investements, its return is 3.92% for the last year and 4.05% since its inception. However, there are good reasons to move our funds to an IRA for the benefit of our beneficiaries longterm.

Beneficairy Accounts

According to the TSP, “If a beneficiary participant dies, the new beneficiary(ies) cannot continue to maintain the account in the TSP.”  If the surviving spouse’s beneficiaries neglect to transfer the temporary account the TSP sets up for them within 90 days or they die before distirbuting the inheritance, all of the funds are distributed that year to the beneficiaires of the temporary account and the heirs must claim the full amount as income the year that the survivor beneficiary dies.

TSP accounts, especially for FERS annuitants, can be hundreds of thousands of dollars and some exceed a million or more. Because your beneficiaries would have to claim all of that income the year it is inherited if they don’t elect to roll over the account to an inherited IRA at another financial institution, they could end up in the top tax bracket. If they transfered the funds to an inherited IRA account they can spread out or defer payments for years.

Transfering Accounts to an IRA

Anuitants and spouses of a deceased annuitants that have a Beneficiary Participant Account (BPA) can transfer (roll over) their TSP account to an IRA with either a financial planner, brokerage house, or mutual fund family. If you transfer to an IRA account, your heirs can, if desired, transfer their share to an inherited IRA at that institution or another and won’t have to claim the entire amount the year of the inheritance. Non-spousal beneficairies of an annuitant’s TSP acounts must elect a transter to an inheristed IRA within 90 days or they will receive the lump sum distribution that will be taxable the year of the death.

Unfortuntely, beneficiaries of a BPA, the spousal account of a deceased annuitant, can’t transfer their inherited funds to an inherited IRA, their only option is to take a lump sum the year the funds are paid out.

TSP Alternatives

You can closely match TSP funds to private sector indexed funds with companies like Fidelity and Vanguard mutual funds or exchange traded funds (ETFs). Indexed funds generally have very low management fees, far less than managed funds charge and ETFs mirror the performance of many indexed mutual funds and they are traded like stocks. These two companies are the giants of the mutual fund industry and will assist you with the transfer and recommend funds that closely match the TSP fund options with some exceptions.

Most mutual fund families and brokerage houses can establish inherited IRAs for their clients however you need to be aware of front and back end loads (fees) that some mutual funds charge that can be as high as 5% or more. I don’t believe there are any mutual funds that can guarantee that your investment will never decrease in value like the TSP G-Fund does. However, there are many government bond fund options to choose from.

You don’t have to invest in stocks or mutual funds. You can invest your funds in Certificates of Deposit, maintain a cash account, buy municipal bonds, U.S. Treasury bills, notes or bonds, corporate bonds of all types, or any other investment that you choose in an IRA.

I left instructions with our estate plan advising my wife and successor trustees about the beneficiary time line to transfer to an inherited IRA. I may reconsider transferring my TSP account to an IRA to simplify things down the road.

My next article will discuss inherited IRAs and how they are established and function and a final article in this series will discuss indexed mutual fund alternatives to the various TSP funds.

Related TSP Articles

Helpful Retirement Planning Tools Distribute these FREE tools to others that are planning their retirement

Visit our other informative sites

The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice and our articles and replies are time sensitive. 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.

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

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Smart Retirement Decisions, FEHB Discussion, & Updates

Posted on Thursday, 11th June 2015 by

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Wow, going on eleven years retired and I’m still learning valuable life lessons! There are so many times in my life when I reflect back on certain events and realize the err of my ways or the good judgment that was made at the time with the knowledge at hand. The reflections that really stand out are the times that I could have, should have, made a different decision.

Recently we had a fence installed in our back yard and they had to drill 54 fence posts. I was concerned about the installation for a number of reasons. First and foremost, you never know what’s underground especially when you have a lawn sprinkler system, drainage pipes, electrical runs for outside lighting and whatever else may be lurking underground. The Call One service, where the utilities come out and mark all of their lines, went smoothly and fortunately we didn’t have any gas, sewer, main power or water lines to deal with.

I was fairly certain where one of our 4 inch PVC downspout drains was located in the back yard and advised the work crew where they needed to be cautious. When I told the crew chief that a 4 inch Schedule 40 drain pipe was probably about 24 inches below grade directly under a fence post location he stated that the dirt in that area hadn’t been disturbed and he thought otherwise. Even though I felt strongly that I was right, and after extending a 6 foot rod in the drain where the water existed the pipe and lining up the path the pipe would take, I let it go. Sure enough 20 or so inches below grade they broke the scheduled 40 drain pipe. The crew chief apologized and It took them several hours to dig out the area and repair the break.

How often have you ignored the obvious because either someone else suggested otherwise or you just let it go because you felt it wasn’t worth arguing about or simply didn’t want to make waves? This situation happens a lot, especially with contractors, and I’ve dealt with them for many years yet I still find myself in these situations from time to time. When we know we are right we have to insist on what makes sense to us unless or until someone else can persuade us differently. Otherwise we lose if we stand by and just let things happen. Retirement and estate planning is like that, you have to take control, find the right answers and solutions you need to make retirement work for you and your family.

I’ve been working with an attorney on and off for about a year to revise our estate plan’s wills and trusts. I thought it time to get a professional involved. Originally I drafted our family’s wills, trusts, and other documents using NOLO WillMaker Plus software in 2004. I ignored my gut feelings and initial reservations about our attorney’s proposed plans. After asking for numerous clarifications I deferred to his expertise. A huge and very costly mistake. Instead of making our plans easier to administer for my wife and heirs it ended up far too complex than I and my wife desired.

The long and short of it is that if I don’t understand something I generally won’t proceed until I do and it seems the more I research and dig into the subject the more questions arise. The more questions you ask an attorney the bigger the bill! What should have been a fairly easy and straight forward plan, considering my wife and I have been married for going on 47 years became unwieldy.

I suppose it’s like reading the fine print on a contract such as an insurance policy. If you don’t understand the intent you or your loved ones could suffer the consequences. For major things like this you shouldn’t leave things to chance.

I don’t know why most attorneys insist on writing wills and trusts in 17th century language that only lawyers and professors understand! The Wills and Trusts that I completed in 2004 using NOLO’s WIllMaker Plus and their Revocable Trust software are written in everyday language and they provide summary documents for your estate executor, trustee, heirs, and/or administrator. The good news is that most can use NOLO’s software to draft wills, trusts, health directives, numerous estate documents, and various powers of attorney. The program explains the process and asks you questions. Your replies and expressed desires are used by the software program to write your will, estate documents, and a revocable trust if desired that is designed specifically in accordance with your State’s laws. If you have special situations such as owning a business, have a large estate, or your heirs have special needs it is suggested you hire an attorney to help you through the process. NOLO has a special offer for WillMaker Plus 2015 purchasers. They are including a free revocable trust program with your purchase.

I am working with my attorney to revise our documents. If I’m not satisfied with the new proposals and additional costs I’ll have to look at other options or possibly go back to NOLO and do it on my own again. My main reason for going to an attorney in the first place was to handle the transition of my business upon my death and to simplify things for my wife and heirs when I’m gone. I discovered too late, after researching the subject, that a simple revision to my company’s operating agreement was all I needed for the business.

Stop, Look & Listen

I leaned over the years to research, observe, and listen first before proceeding. This approach has served me well over the years and saved me a lot aggravation. I did use this technique with our estate plans but somehow we got off track.

Another technique I use to avoid making bad decisions is that when I feel that something isn’t right, question when or If I should proceed or am just emotionally charged, I don’t make an immediate decision. I sleep on it and revisit the matter at a later date when I’m refreshed and able to be truly objective.

Rely on Your Partner

I’ve learned over the years that my wife has tremendous insight. It has taken me a lifetime to truly appreciate my wife’s profound good sense and ability to see things that I’m too caught up with at the moment to appreciate. Use your partner as a sounding board and step back and understand the true intent of their concern without becoming defensive. Retirement is a two way street and your partner is impacted just as much as you are and they need to share in the decision making process and be an active participant.

Approaching Retirement

When approaching retirement employees are concerned about the best date to retire, how to maximize benefits, and if they can in fact afford to maintain their lifestyle in retirement. Retirees are faced with many decisions; when to take Social Security, sign up for Medicare, change our benefits, establish a will and living trust, and a number of other estate planning tasks such as power of attorney, health directives and so much more! It can be intimidating and confusing to say the least. We have to rely on others to provide succinct advice and counsel from those who we can trust and the key is to find someone trustworthy to help us through these hurdles. I call them hurdles because they can be difficult to navigate and much research is needed to make informed decisions or to find a competent advisor to help us along the way. This is why I launched www.federalretirement.net, a federal employee and annuitant’s retirement planning website and blog at http://www.fedretire.net prior to my retirement in 2005. I wasn’t able to find the information I needed to make informed retirement and benefit decisions and as I researched each facet of my pending retirement I posted what I learned, and continue to learn, on these sites.

FEHB Discussion

Recently Jackie, one of our newsletter subscribers, asked me why I have Blue Cross and Blue Shield Basic opposed to the Standard option. She is 62 and her husband is on her policy as well. Over the years she reviewed the Basic option but was concerned about the coverage compared to the Standard Option.

This is just one of the many benefit’s decisions we have to make. I explained that my wife and I have had Blue Cross Blue Shield basic for years without any issues. Basic works more like an HMO with some co- pays and it is less confusing than Standard. The big difference between the two is that you have to use Blue Cross and Blue Shield (BC/BS) preferred providers with the Basic plan and they pay nothing if you decide to go to a physician that isn’t one of their providers. Over the years we have easily found and used their preferred providers and the vast majority of hospitals and physicians are already in the BC/BS nationwide network. Neither of us take prescription drugs so we didn’t need the 3 month mail supply feature that the standard option offers.

Also, when you are age 65 and sign up for Medicare, BC/BS pays all co-pays, co-insurance, and deductibles except for prescriptions. Medicare is our primary provider now that we are 65 and BC/BS is our secondary provider. Many at age 65 look for lower cost FEHB plans because at 65 you start paying for Medicare Part B; Part A is free. Here is more information on changing to a lower cost FEHB plan when you sign up for Medicare.

Once you sign up for Medicare Part A and B Blue Cross and Blue Shield, along with most other FEHB plans, pay all co-pays, co-insurance, and deductibles ─ except for prescription co-pays ─ because of the savings your FEHB plan receives by not being the primary provider.

Please pass this article on to your friends and associates and I would appreciate any mention of our articles and web sites on your Facebook, Twitter, and other social media accounts.

Retiree Job Center Update

If you intend to work in retirement for whatever reason check out our Jobs Center. Employers looking to recruit federal retirees and those soon to retire post job vacancies on our site. Recently THOR Solutions, LLC of Norfolk Virginia posted an opening for a Human Resource , Staffing and Recruiting Specialist. Visit our Job Board for complete details. Another recent posting is for an accountant / bookkeeper.

Request a Retirement Benefits Summary & Analysis. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections.

Helpful Retirement Planning Tools Distribute these FREE tools to others that are planning their retirement

Visit our other informative sites

The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice and our articles and replies are time sensitive. 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.

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

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FEHB Self Plus One Implementation Update

Posted on Thursday, 28th May 2015 by

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Many retirees and active federal employees have been waiting for this for some time now. Starting this fall you will be able to enroll in any of the FEHB health plans under the new Self Plus One rate schedule. This year’s annual open season begins November 9th and the new rates will be effective January 1, 2016.

Self Plus One is a new enrollment type in the Federal Employees Health Benefits (FEHB) Program that allows you to cover yourself and one eligible family member you designate to be covered. Starting in 2016, all FEHB plans (your health insurance plans) will offer a Self Only, a Self Plus One, and a Self and Family enrollment type. Employees and annuitants will be able to select a Self Plus One enrollment beginning in the 2015 Open Season.

 

Self Plus One Health Insurance Election

Self Plus One Health Insurance Election

The Self Plus One option isn’t automatic. In other words if you are currently enrolled in a Self and Family option, and there are only two of you to be covered, you must change your enrollment during open season to the new Self Plus One option. There are other restrictions and additional guidance is available on OPM’s Self Plus One Special Initiatives page.

The new plan information and premiums won’t be published until later this year. If you compare the savings from the Dental and Vision program in 2014 that has offered the Self Plus One option since its inception the average savings could be significant. For example, the Met Life Federal Dental Plan premium for rating area 1 Self Plus One was $17.38 in 2014 and their Standard Option Self and Family was $26.06. The Self Plus One premium was 33.3% lower than the Family option! Quite a savings especially for retirees that are living on a fixed income. My Blue Cross Blue Shield Basic Family option premium is $321.67. A 33% decrease would bring this down $106.15 to $215.52. This decrease would cover most retirees Medicare Part B premiums except for those who have income adjusted Part B premiums.

We won’t know the actual savings for several months and the savings could be more or less than what the Dental and Vision programs offer.

Retiree Employment Update

Many job opportunities are available for retirees − and those planning to retire − to earn additional income in retirement. Many retirees work full or part time, for many reasons; social, financial, and to keep active. Federal retirees can go back to work in the private sector without any impact on their federal annuity or benefits. Our Jobs Board offers free job postings to companies that are looking for highly qualified, reliable, and skilled federal employees approaching retirement and active federal retirees. We have several new jobs listed for accountants and bookkeepers, financial officer and data manager. Visit our Jobs Board frequently to check out new listings in your area. The job postings are geo targeted to your search location.

Request a FREE Retirement Benefits Summary & Analysis. A sample analysis is available for your review. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections.

Helpful Retirement Planning Tools Distribute these FREE tools to others that are planning their retirement

Visit our other informative sites

The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice and our articles and replies are time sensitive. 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.

 

Posted in BENEFITS / INSURANCE, EMPLOYMENT OPTIONS, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Survivor’s Beware – The TSP Trap

Posted on Saturday, 16th May 2015 by

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(Updated 2/26/2023) I received a call from the wife of a friend who passed away. She was concerned about her options after being notified by the TSP that her husband’s account was converted to the G Fund upon his death. She was approached by a financial planner that suggested she transfer her husband’s TSP account to them, and they would manage it for her. Her husband was an astute investor and knew the ins and outs of the stock market and personally managed all of their investments.

 

Don’t Break the Bank.

Before Making a Change

Before considering moving your TSP to a financial planner read Have You Considered Hiring A Financial Planner that discusses the pros and cons that are involved with such a move. A financial planning firm will often charge 1.65% a year of your total account value or more to actively manage your funds. For example, if you have $300,000 in your TSP G Fund, and transferred it to a financial planning firm, they can charge you up to $4,950 a year, with a 1.65% annual fee, for their services plus individual fund management fees and in some cases transaction fees.

The TSP G-Fund charged $177 in 2023, .057% for that same amount, 57 cents per thousand dollars in your account in 2023, and there aren’t any transaction fees! The financial planning firm would have to achieve much higher gains to offset their fees. Typically, higher gains often come from higher risk investments.

Often when a spouse who managed the finances for the family dies, the surviving spouse is caught unawares and doesn’t know how to proceed. This is why a financial plan and estate plan are so important. Not just for annuitants but for all federal employees as well. How would your family cope and survive if something tragic happens to you! I have always been a planner and enjoy the process because it creates order out of potential chaos.




A survivor is vulnerable at the time of loss and for many months thereafter. It’s best to not make any major financial decisions for at least 6 months or more to give you time to grieve and deal with all of the issues at hand. The G-Fund is a safe haven that gives you time to evaluate your options and plan you next step.

TSP Advantages

The TSP is one of the lowest cost plans available anywhere and it can be easy to manage especially for retirees where they, for the most part, want to conserve and not risk their life savings. The G-Fund has NO MARKET RISK and Uncle Sam guarantees that the G-Fund will never decrease in value unlike all other funds. An article that I wrote titled The TSP Advantage (Should I Stay or Go) outlines the advantages of the THRIFT Plan. They charge extremely low management fees that average 69 cents per thousand dollars invested for the traditional G, C, I, F & S funds and 64.8 cents for the Life Cycle funds.

Bond Fund Facts

The disadvantage of bond funds in general right now is that the Federal Reserve is aggressively increasing interest rates, bond funds typically decrease in value because the bonds they hold in their account have a lower yield than the newer issued bonds. That won’t happen with the G-Fund since it is guaranteed not to decrease in value as noted above. When you compare the G-Fund to any Certificate of Deposit (CD) or most other bond funds it’s rate of return is higher than most would expect.

In 2022 the G-Fund rate of return was 2.9%, the same year it was difficult finding a CD paying close to that rate until recently as the short-Term Treasury Bill’s rate skyrocketed to 5%. If the current rate of return stays on track, the G-Fund return in 2023 will exceed 4% and higher if the Federal Reserve continues to raise rates to fight inflation.  Your account will never decrease in value if you retain 100% of your account in the G-Fund.

The L-Income Fund

The problem with keeping everything in the G-Fund is that, for the most part, it won’t keep up with inflation long term. There is another option for annuitants that many select, the L-Income fund. This fund is designed to achieve a low level of growth with a high emphasis on preservation of assets. Unlike the other L Funds, the L Income Fund’s asset allocation does not change quarterly. However, like the other funds, it is rebalanced daily to maintain the following target investment mix:

  • 59.84% G-Fund (Government Bonds)
  • 5.66% F-Fund (Fixed Income)
  • 12.81% C-Fund (S&P Index)
  • 3.11% S-Fund (Small Cap)
  • 8.58% I-Fund (International)

The L Income fund averaged -2.77% in 2022 compared to +2.98% for the G Fund. There is market risk to 26% of your total investment and the tradeoff for that risk is a higher yield overall as long as the market doesn’t tank again like it did in 2008 and 2009. The ten-year rate of return for the L-Income fund was 3.93 to 2.11% for the G-Fund. The key to determining if you can tolerate the risk is whether or not you need the funds now to live on and when you anticipate taking withdrawals to maintain your lifestyle in retirement.

There are TSP options to consider with your THRIFT plan and the more you know about it the better prepared you will be when the funds are needed. Explore your options carefully and take time to understand exactly what impact your decisions will have on your account balance, the bottom line.

Helpful Retirement Planning Tools 

The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended, nor should it be considered investment advice and our articles and replies are time sensitive. 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.

 

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

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Retiree Identification Cards & Hearing is Believing

Posted on Wednesday, 29th April 2015 by

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Up until recently the only way you could obtain a federal retirement ID Card, officially referred to as a “Retirement Services Reference Card,” was to call OPM and request a copy. They would send it in the mail and you would receive it in 5 to 7 business days. Recently OPM Services Online added a Retirement Services Reference Card printout function to their service. My card was damaged and instead of calling OPM I simply signed on to OPM Services Online and printed out a new copy. It only took 5 minutes. Here is a screen shot of my card with my name and ID number removed.

When I first printed the card it was too small. My print scale was set at 70%. If you reduce the size of your prints be sure to change it back to 100% before printing your card.

 

Retiree ID Card

Retiree ID Card

 

Herb Casey, one of our quest writers, wrote a comprehensive article titled “Connect to OPM Retirement Services Online” that walks you through the site and explains how to get connected. I use this service to printout my 1099-R income tax form at the end of the year. It is sent in the mail but I like to get a jump on my taxes and it is available online and easy to print out. It is often difficult getting through to OPM’s retirement hot line so I use this service whenever I can to change allotments, print out annuity statements and verification of your FEGLI insurance coverage, and other features.

Hearing is Believing

In my article titled “Did You Hear That? A fitting End to a Frustrating Problem” I discuss how it is difficult for many, especially retirees – older folks, to hear the TV clearly and the solution I discovered. Basically I purchased wireless capable hearing aids through Costco and a TV streamer that sends the TV sound direct to your hearing aids. The TV streamer works fine however the downside is that it drains the hearing aid batteries to the point that I was changing the batteries every other day! Also the fidelity of the streamer isn’t nearly as good as what a headset provides.

While researching alternatives online I discovered a sound solution. The web site 4homespeakers.com, a division of JMJ Supply LLC, specializes in the sale and support of wireless speakers, headphones, and hearing impaired devices. They tailor systems to provide a vast array of unique options to suit all of your hearing needs and more. I purchased their RCSA RF Wireless TV Speaker and Headphone Combo about six months ago and my wife and I use it daily. This package offers a wireless 900 MHZ transmitter system that allows you to hear the audio up to 150 feet away from the source. You get a headset with cradle and a small tower speaker for $129.99, now on sale for $79.99. I like the option of having the wireless speaker and headset for my wife and I. If you have dexterity or poor eyesight issues you may want to upgrade to a system with a charging base that you just set the headsets into and they automatically charge. With the system we have, that’s currently on sale, you have to plug in a small charging cable to the headset from the headphone cradle and the connection may be difficult to make if you have sight or dexterity issues.

 

Headphone & Speaker System

Headphone & Speaker System

The system we have, one of many they have available at very reasonable prices, is suited to our needs. My wife uses the headphones and I often use the speaker that is small enough to sit on an end table or on the floor by your chair. You plug the headset cradle into your TV’s audio out RCA jack and it drives both speaker and headset. If you don’t have a RCA audio out jack on your TV they have an analog to digital converter that connects your headset to the Toslink output and another options will connect your audio through a HDMI output. The converters are not included with the package. Check your TV to confirm what connection options you have before ordering. Their tech support can walk you through the setup if you are having problems.

Our TV has an RCA jack and it works fine as long as you turn up your TV audio so that the audio out of the RCA jack is sufficient to power the remote headset and speaker. When you plug in your headset to the RCA jack your TV speakers are turned off.

If you need two headsets or prefer separate small speakers at multiple locations they offer that as well. You will also find high fidelity options available that some prefer. I also purchased a RCA audio splitter that allows us to use two headsets if desired. The reason I ordered the headset and speaker combination is that I can turn off my speaker and read in the same room that my wife is watching TV without distractions. Another benefit of having a speaker is that when both of us have headsets on we can’t hear the phone or doorbell ring.

Check out their site to see what options are best for you. They have numerous videos that demonstrate how each system operates and connects to your TV.

Request a FREE Retirement Benefits Summary & Analysis. A sample analysis is available for your review. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections.

Helpful Retirement Planning Tools Distribute these FREE tools to others that are planning their retirement

Visit our other informative sites

The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice and our articles and replies are time sensitive. 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.

Posted in BENEFITS / INSURANCE, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS

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