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THE RETIREMENT REALITY CHECK

Posted on Thursday, 9th August 2012 by

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Little things to keep in mind for life after work.

Presented by Paul H. Risser

Decades ago, there was a popular book entitled What They Don’t Teach You at Harvard Business School. Perhaps someday, another book will appear to discuss certain aspects of the retirement experience that go unrecognized – the “fine print”, if you will. Here are some little things that can be frequently overlooked.

How will you save in retirement? More and more baby boomers are retiring with the hope that they can become centenarians. That may prove true thanks to healthcare advances and generally healthier lifestyles.

We all save for retirement; with our increasing longevity, we will also need to save in retirement for the (presumed) decades ahead. That means more than budgeting; it means investing with growth and tax efficiency in mind year after year.

Could your cash flow be more important than your savings? While the #1 retirement fear is someday running out of money, your income stream may actually prove more important than your retirement nest egg. How great will the income stream be from your accumulated wealth?

There’s a longstanding belief that retirees should withdraw about 4% of their savings annually. This “4% rule” became popular back in the 1990s, thanks to an influential article written by a financial advisor named Bill Bengen in the Journal of Financial Planning. While the “4% rule” has its followers, the respected economist William Sharpe (one of the minds behind Modern Portfolio Theory) dismissed it as simplistic and an open door to retirement income shortfalls in a widely cited 2009 essay in the Journal of Investment Management.1,2

Volatility is pronounced in today’s financial markets, and the relative calm we knew prior to the last recession may take years to return. Because of this volatility, it is hard to imagine sticking to a hard-and-fast withdrawal rate in retirement – your annual withdrawal percentage may need to vary due to life and market factors.

What will you begin doing in retirement? In the classic retirement dream, every day feels like a Saturday. Your reward for decades of work is 24/7 freedom. But might all that freedom leave you bored?

Impossible, you say? It happens. Some people retire with only a vague idea of “what’s next”. After a few months or years, they find themselves in the doldrums. Shouldn’t they be doing something with all that time on their hands?

A goal-oriented retirement has its virtues. Purpose leads to objectives, objectives lead to plans, and plans can impart some structure and order to your days and weeks – and that can help cure retirement listlessness.

Will your spouse want to live the way that you live? Many couples retire with shared goals, but they find that their ambitions and day-to-day routines differ. Over time, this dissonance can be aggravating. A conversation or two may help you iron out potential conflicts. While your spouse’s “picture” of retirement will not simply be a mental photocopy of your own, the variance in retirement visions may surprise you.

When should you (and your spouse) claim Social Security benefits? “As soon as possible” may not be the wisest answer. An analysis is needed. Talk with the financial professional you trust and run the numbers. If you can wait and apply for Social Security strategically, you might realize as much as hundreds of thousands of dollars more in benefits over your lifetimes.

Paul H. Risser is an Investment Advisor Representative with and securities and investment advisory services offered through Transamerica Financial Advisors, Inc. (TFA) Member FINRA, SIPC, and Registered Investment Advisor.  Non-securities products and services are not offered through TFA.  Neither TFA nor its representatives provide legal, tax nor accounting advice. Persons who provide such advice do so in a capacity other than as a registered representative of TFA.

LD044105-07/12

Citations.

1 – www.forbes.com/forbes/2011/0523/investing-retirement-bill-bengen-savings-spending-solution.html [5/23/11]

2 – articles.marketwatch.com/2010-05-19/finance/30729568_1_retirement-period-retiree-spending [5/19/10]

Learn more about your benefits,  employment, travel, and financial planning issues on our site and visit our Blog frequently at https://fedretire.net to read all forum articles.

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This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, FINANCE / TIP, RETIREMENT CONCERNS

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Annuity Calculations for Part Time Service

Posted on Monday, 6th August 2012 by

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Many federal employees had some part time work experience during their careers.  Part-time employees receive full-time credit for retirement eligibility (years of service), but the impact on the annuity can be significant. To determine how your part time service will affect your annuity you have to understand the differences between pre and post April 7, 1986 rules.

Part-time calculations are complex and the computation rules changed on April 7th 1986.  Unless you dig, the OPM website is extremely vague on this topic.

If you have part-time service before and after April 7th 1986, the retirement calculator used by most agencies computes the figure separately for these periods of time.  The combined basic annuity of a CSRS employee who has any part-time service on or after April 7, 1986, is the sum of two separate computations:

  • A pre-April 7, 1986, basic annuity, using the employee’s total creditable service through April 6, 1986 (plus unused sick leave as of the date of the employee’s separation); and
  • A post-April 6, 1986, basic annuity, using the employee’s service from April 7, 1986, through the date of separation, and leftover days from the length of service used to compute the pre-April 7, 1986, basic annuity. The result of this computation is prorated to reflect the difference between full-time and part-time service.

The CSRS proration factor is a fraction, expressed as a percentage rounded to the nearest percent. It is used in the computation of the post-April 6, 1986, annuity benefit to reflect the difference between full-time and part-time service performed after April 6, 1986.

Compute it as follows:

Actual Hours Worked from 4-7-86 to Date of Separation
Total Full-Time Hours Possible from 4-7-86 to Date of Separation

What basically happens with the proration factor is they compute the annuity as if you worked full-time, however  the annuity is reduced for the period after 4-6-1986 by the amount of hours you worked in comparison to a full-time worker.  If you worked 50% of the time, you will receive 50% of the annuity for that period of time.

FERS Proration

The FERS proration factor is used to compute FERS and FERS component annuities that include credit for part-time service. The factor reflects the difference between full-time and part-time service for the entire period of covered FERS service (including military service credited under FERS). Compute it as follows:

The actual Hours Worked During All Creditable FERS Service
Total Full-Time Hours Possible During All Creditable FERS Service

Visit http://federalretirement.net/annuity.htm#Part_Time_Work for more information and a direct link to OPM guidance.  The OPM guide provides detailed examples for calculating part time service annuity impact. The CSRS part time example is located on page 6 of this guide, see page 21 for a detailed FERS analysis.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator 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. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, RETIREMENT CONCERNS

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The Simplest Things in Life and Making the Right Decisions

Posted on Sunday, 22nd July 2012 by

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Peace of mind, family, good health, and creature comforts are what we all desire throughout our lives. Sometimes the simplest things can make a huge difference.

Peace of mind comes from making the right decisions for the right reasons. I recall several times in my life, pivotal points if you will, that caused me to pause.  To this day I can remember the exact circumstances, the people we were with, and the decisions I made that could have, would have, made more sense had I listened to the significant others in my life and my inner voice. Instead we are often so focused on what we perceive to be the desired outcome, based on our assumptions, and ignore the good advice and counsel that comes our way. Do you recall times like this in your life?

Life is full of decisions and what I’ve learned years ago, and hopefully not too late in life, is that when you are making major decisions listen to your inner voice and especially those close to you no matter how it is presented. When you dismiss others input it is often because you have a preconceived notion of what you want and desire. Wouldn’t it be so much better if we stopped to consider their side of the story without getting defensive?  Ask them for clarification and why they feel the way they do and LISTEN. Instead of being dismissive and getting mad at the messenger maybe, just maybe, it would be a good time to swallow your pride and pause for the cause and the good of the family.

Without peace of mind it’s difficult nurturing your family and maintaining good health.  When making decisions today I try to remember that there are always two sides to every story and it is important to see beyond the obvious.  Your family and friends often have a different perspective that will fill in the blanks and help you see “The Rest of the Story” as Paul Harvey use to say.

You can’t have peace of mind without being financially secure in retirement as well and the statistics on retiree’s savings are dire.  Thankfully, federal employees still have a pension plus the Thrift Savings plan to rely on. Will your annuity and Thrift plan provide all that you need? It’s best to be debt free when you retire and to help you prepare financially download our free report titled How to be Financially Prepared When You Retire.

Creature Comforts

I found a creature comfort about a year ago that I can’t do without today.  I tried Dr. Scholl’s Custom Fit Orthotic Inserts that I found at Wal-Mart. They have a unit in the pharmacy that looks like a scale and it analyzes your feet for the proper orthotic fit. I purchased a pair and my feet never felt better.  When I put my shoes on it feels like I’m walking on a cloud. I spent hundreds of dollars on over the counter and custom orthotics over the years without success.  If you suffer from tired sore feet give them a try. Dr. Scholl’s is offering a $10 off coupon on their web site.

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Learn more about your benefits, employment, and financial planning issues on our site and visit our Blog frequently at  https://fedretire.net to read all forum articles.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator 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. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

Posted in ANNUITIES / ELIGIBILITY, FINANCE / TIP, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, WELLNESS / HEALTH

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Best Dates to Retire 2012 and 2013

Posted on Monday, 9th July 2012 by

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There are many issues to consider when setting your retirement date; some personal and others financial. There isn’t a stock answer for when you should retire and whatever date you choose will impact your benefits one way or the other.

For the most part, voluntary CSRS retirements are best the first three days of the month and your annuity will start on the next day. If you retire on the 3rd of the month you will get paid through the 3rd and your annuity will start on the following day. Your first annuity check will be for a partial month, less the three days you worked. However, if you choose to leave on the 4th or later your annuity won’t start until the first of the following month. The end of the month works best for FERS employees in many cases. Under the FERS system your retirement begins on the first day of the following month. This is also allowed for non-voluntary CSRS retirements.

You also need to consider your annual leave accrual and when your 80 hour work week ends. You could end up with additional annual leave that Uncle Sam buys back shortly after you leave. Then mix in your sick leave to determine how many months of additional time will count towards your total annuity calculation. I turned in 2090 hours, a few hours over a full year that added a year to my annuity calculation. FERS employees will only receive a 50% annual leave credit if they retire before January 1, 2014 and the full conversion rate after that date.

If you intend to leave at the end of 2012, the leave year ends January 12, 2013. You can retire as late as January 12, 2013 and still carry over your maximum amount of accrued annual leave. However, if you select this date to retire you won’t receive an annuity payment for January 2013. To maximize annual leave balances and still receive a retirement payment for January 2013, FERS employees should consider retiring on December 31 and CSRS employees January 3, 2013. Review OPM’s Use or Lose Annual Leave Scheduling Date Chart to determine when you must schedule your excess leave.

If you are retiring at the end of 2013, FERS employees will find December 31, 2013 or Jan. 10, 2014 good dates to consider.  CSRS employees can retire as late as January 3, 2014 and still receive a partial January annuity payment. The 2013 leave year ends January 11, 2014.

We just completed the update for our FREE 2013 Excel Pay Calendar that you can use to track your leave and ensure that you have sufficient balances when you retire.  Download it now and keep it on your desktop to help with your retirement planning. Share this free leave chart with others in your organization.

FREE 2013 Excel Leave Chart

Any date is a good date to retire if that is the date you choose after considering the impact on your annuity and benefits.  Awareness is the key and if you do your due diligence before you leave you will know what to expect when the first check arrives in the mail.

Forward this article to anyone in your organization contemplating retirement. For more information about retirement date benefits impact read Linda Sherman’s Best Date to Retire article. Print out copies of these articles and keep them in your retirement planning file.

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Learn more about your benefits, employment, and financial planning issues on our site and visit our Blog frequently at  https://fedretire.net to read all forum articles.

Visit our other informative sites

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator 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. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

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

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An Estate Planning Checklist

Posted on Sunday, 8th July 2012 by

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Things to check and double-check before you leave this world.

Presented by Paul H. Risser

Estate planning is a task that people tend to put off, as any discussion of “the end” tends to be off-putting. However, those who leave this world without their financial affairs in good order risk leaving their heirs some significant problems along with their legacies.

No matter what your age, here are some things you may want to accomplish this year with regard to estate planning.

Create a will if you don’t have one. It is startling how many people never get around to this, even to the point of buying a will-in-a-box at a stationery store or setting one up online.

A 2011 Associated Press-LifeGoesStrong.com poll of 1,078 boomers found that 64% had no will or health care directive in place. That syncs roughly with statistics from a 2012 poll of 600 U.S. consumers and small business owners conducted by legal services website RocketLawyer.com. It found that 42% of “leading edge” baby boomers (people age 55-64) lacked wills.1,2

A solid will drafted with the guidance of an estate planning attorney may cost you more than a will-in-a-box, and it may prove to be some of the best money you ever spend. A valid will may save your heirs from some expensive headaches linked to probate and ambiguity.

Complement your will with related documents. Depending on your estate planning needs, this could include some kind of trust (or multiple trusts), durable financial and medical powers of attorney, a living will and other items.

You should know that a living will is not the same thing as a durable medical power of attorney. A living will makes your wishes known when it comes to life-prolonging medical treatments, and it takes the form of a directive. A durable medical power of attorney authorizes another party to make medical decisions for you (including end-of-life decisions) if you become incapacitated or otherwise unable to make these decisions.

Review your beneficiary designations. Who is the beneficiary of your IRA? How about your 401(k)? How about your annuity or life insurance policy? If your answer is along the lines of “Mm … you know … I’m pretty sure it’s…” or “It’s been a while since …”, then be sure to check the documents and verify who the designated beneficiary is.

When it comes to retirement accounts and life insurance, many people don’t know that beneficiary designations take priority over bequests made in wills and living trusts. If you long ago named a child now estranged from you as the beneficiary of your life insurance policy, he or she will receive the death benefit when you die – regardless of what your will states.3

Time has a way of altering our beneficiary decisions. This is why some estate planners recommend that you review your beneficiaries every two years.

In some states, you can authorize transfer-on-death designations. This is a tactic against probate: TOD designations may permit the ownership transfer of securities (and in a few states, forms of real property, vehicles and other assets) immediately at your death to the person designated. TOD designations are sometimes referred to as “will substitutes” but they usually pertain only to securities.4,5

Create asset and debt lists. Does this sound like a lot of work? It may not be. You should provide your heirs with an asset and debt “map” they can follow should you pass away, so that they will be aware of the little details of your wealth.

  • One list should detail your real property and personal property assets. It should list any real estate you own, and its worth; it should also list personal property items in your home, garage, backyard, warehouse, storage unit or small business that have notable monetary worth.
  • Another list should detail your bank and brokerage accounts, your retirement accounts, and any other forms of investment plus any insurance policies.
  • A third list should detail your credit card debts, your mortgage and/or HELOC, and any other outstanding consumer loans.

Consider gifting to reduce the size of your taxable estate. Congress has presented you with a remarkable opportunity to do just that – and it may not be available in 2013. At present, the lifetime federal gift, estate and generation-skipping tax exemption is unified and set at $5,120,000 until January 1, 2013. This means that until that date (barring an extension by Congress), you have the ability to gift up to $4.12 million more than the old $1 million lifetime limit. In addition, the gift and estate tax exemptions are currently portable between spouses. This means that for married couples, the lifetime gift tax exemption is set at $10.24 million.6

Think about consolidating your “stray” IRAs and bank accounts. This could make one of your lists a little shorter. Consolidation means fewer account statements, less paperwork for your heirs and fewer administrative fees to bear.

Let your heirs know the causes and charities that mean the most to you. Have you ever seen the phrase, “In lieu of flowers, donations may be made to …” Well, perhaps you would like to suggest donations to this or that charity when you pass. Write down the associations you belong to and the organizations you support. Some non-profits do offer accidental life insurance benefits to heirs of members.

Select a reliable executor. Who have you chosen to administer your estate when the time comes? The choice may seem obvious, but consider a few factors. Is there a stark possibility that your named executor might die before you do? How well does he or she comprehend financial matters or the basic principles of estate law? What if you change your mind about the way you want your assets distributed – can you easily communicate those wishes to that person?

Your executor should have copies of your will, forms of power of attorney, any kind of healthcare proxy or living will, and any trusts you create. In fact, any of your loved ones referenced in these documents should also receive copies of them.

Talk to the professionals. Do-it-yourself estate planning is not recommended, especially if your estate is complex enough to trigger financial, legal and emotional issues among your heirs upon your passing.

Many people have the idea that they don’t need an estate plan because their net worth is less than X dollars. Keep in mind, money isn’t the only reason for an estate plan. You may not be a multimillionaire yet, but if you own a business, have a blended family, have kids with special needs, worry about dementia, or can’t stand the thought of probate delays plus probate fees whittling away at assets you have amassed … well, these are all good reasons to create and maintain an estate planning strategy.

LD043918-06/12

Citations.

1 blog.aarp.org/2012/05/01/many-boomers-dont-have-wills-poll-finds/ [5/1/12]

2 visual.ly/got-wills-rocket-lawyer-make-will-month-survey-results [5/23/12]

3 www.knoxnews.com/news/2012/may/07/retirement-accounts-not-governed-by-wills/ [5/7/12]

4 www.investopedia.com/university/estate-planning/estate-planning5.asp#axzz1vjRm6aPe [5/23/12]

5 www.montoyaregistry.com/Financial-Market.aspx?financial-market=reasons-not-to-write-your-own-will&category=30 [5/23/11]

6 www.smartmoney.com/retirement/estate-planning/estate-tax-tips-for-married-couples-1300466869017/ [1/30/12]

Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Security products and services are not offered through TFA.

Learn more about your benefits,  employment, travel, and financial planning issues on our site and visit our Blog frequently at https://fedretire.net to read all forum articles.

Visit our other informative sites

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

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Posted in ANNUITIES / ELIGIBILITY, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS

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Retiree Reflections – the Way it Was Then and Why

Posted on Monday, 18th June 2012 by

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My wife and I moved last month and in the process we went through everything to purge what we didn’t need.  We ended up donating, giving away or throwing out many things we accumulated over the decades. I kept all of our check registers back to the late 1960s and as we went through them, Mary and I were amazed at just how things have changed these many years later.

The changes I’m referring to aren’t subtle. I remember my mother telling me that in the early 1930s she could buy an entire meal at a restaurant including a drink for 35 cents! Our Aunt Mamie’s mother, Mary’s grandmother, lost their home in the 1930s because she couldn’t pay the $11 a month mortgage!  In the early 60s I vividly recall stopping at a local drugstore in our neighborhood to order a cherry phosphate for 5 cents.

Back in December of 1971 we paid $15 a week for 5 day a week 9 hours a day childcare; my wife worked while I was in the Air Force.  A typical gas station fill up for our 1963 Chevy Impala with a 20 gallon tank cost $4.60 to $8.70. Here is a list of some of our 1971 typical expenses:

  • Rent  $113
  • Telephone  $15.36
  • Gas (heating) $5.00
  • Electric $7.79
  • Trip to grocery store $8 to $15
  • Doctor visit $5

Our 1971 check register’s balance ranged from $6 to $300 with most days well below $100. In 1975, when I first transferred to the FAA, I was living in a boarding house in Phillipsburg PA, paying $20 a week for rent. A local restaurant offered a breakfast of 2 eggs, home fries, toast, and coffee for 75 cents!

Today prices are something to marvel at especially for those of us who remember the cost of things 40 plus years ago. Many today, especially the young, think nothing of paying $5 for a cup of coffee or $50 for a manicure. We are numb to the cost of things as we pay $70 to fill up our cars and shell out $200 at the grocery.

The reasons for the obvious inflation are diverse and difficult to understand for many. Retirees and savers of all ages get it on both ends. As prices continue to escalate our savings are worth less each day as government continues to print money without any thought to the long term consequences.  Many long for the days when they could get 5% on bank savings accounts and CDs paid more than enough to compensate for inflation.

What many don’t understand is that the low interest rates are a tax. I listen to Hefren Tillotson’s “Your Money and You” show each Sunday morning, hosted by Jim Meredith. Their June 3rd show explained just why interest rates are low and are in effect an onerous tax on all of us.  If you listen to the June 3rd pod cast he addresses this when he answers the first caller’s questions, about 10 minutes into the show.

Jim explains that a tax is a transfer from you and me to the public sector. The loss of earnings on bank deposits is effectively a silent tax. If you had $10,000 in the bank you made 5% ($500 a year) several years ago. The earnings on that $10,000 today is lost due to the artificially low interest rates and is transferred to federal government in the form of lower borrowing costs. This is basically a way for the government to transfer your wealth to them.  The government is keeping interests rates low so they can continue to sell bonds (borrow money) at extremely low interest rates thereby reducing the amount they must pay bond holders (creditors).

Jim also explained that each day the federal government borrows around 5 billion dollars and 3 billion is  purchased by the Federal Reserve with money they simply print out of thin air to reduce the deficit! If interest rates reset to normal levels the deficit would double to 2 trillion a year. The impact is that the federal government is paying less to borrow money and you are earning much less on your money so they can borrow more and pay less.

Here are ways to be better prepared and possibly earn higher yields:

The long and short of it is that we all have to be cautious and watch what we spend to ensure we have a safe and secure retirement. Can you imagine how bad it will get for retirees if costs continue to rise and the value of our savings shrinks drastically with inflation?

The best way to protect ourselves is to have little to no debt and savings and investments available for when you will need them. Hopefully this country will change course and stop trying to borrow its way out of debt, only time will tell.

Recent Forum Host Articles:

Request a Retirement Benefits Summary & Analysis from a local adviser. A sample analysis is available for your review. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections. This service is not affiliated with www.federalretirement.net.

Learn more about your benefits, employment, and financial planning issues on our site and visit our Blog frequently at  https://fedretire.net to read all forum articles.

Visit our other informative sites

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

The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator 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. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

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

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Important issues regarding your benefits

Posted on Friday, 8th June 2012 by

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Over these last couple of months I’ve had the opportunity to correspond with a number of federal employees and these two concerns were at the top of their list:

  1. the length of time it is taking OPM to finalize annuity payments, and
  2. the desire to obtain life insurance in the private sector, but neglecting to do so in a timely manner.

When it comes to financial planning, one of the main considerations advisors plan for is the need for liquid cash reserves, or what we refer to as your emergency fund.  Emergency funds for the private sector have generally been recommended at 3-6 months of income.  After the downturn in 2008, with the decline in net worth, job losses or both, that number has now been increased to 6 months to a year of income.

In the federal market, the need for a larger cash reserve fund has increased as well; due to the length of time it is taking the Office of Personnel Management (OPM) to calculate your income.  After speaking to a number of federal employees over the last couple of months, it has become apparent that many employees are not receiving their full federal retirement annuity in a timely fashion. I say this with no disrespect to their actuaries, but with concern for the employees and the financial planning perspective of having an adequate emergency fund to tie you over should indeed this should happen to you.

As an advisor, I strongly recommend that you have at least one year of income in your cash reserves account (emergency fund).   Then, if it does take a year or more to finalize your monthly annuity, you’ll have the cash required to meet your monthly income need.   Without that cash reserves, where would you go to get the money you need to meet your monthly bills?   You may look to Roth IRA accounts, Traditional IRAs, TSP assets, or other non-qualified accounts.  Unfortunately, depending upon your age at the time, it may cost more due to taxes and penalties and not be a prudent option.  Each type of account is treated a little differently by the IRS. The important thing is to have a plan and know the rules.   You may want to consider speaking to a financial consultant when determining which assets to liquidate first?

Secondly, is the need for life insurance planning. Most federal employees know they have life insurance options A, B, and C and may need to consider alternative life insurance options in the future. One of the best solutions to the higher cost of insurance benefits from the federal government later in life or at retirement, is to consider a permanent life insurance solution when you are young and healthy.  It saddens me greatly to see federal employees get turned down for life insurance in the private sector due to a health issue that developed later in life. You can avoid this by planning ahead and I can’t stress enough that it’s never too soon to start.

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Paul H Risser, host of this site’s Financial Planning Forum, is an Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor. Non-Security products and services are not offered through TFA. TFA and Risser Financial Services are not affiliated.

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All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

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

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Early Out Offers Revisited Plus Updates

Posted on Monday, 4th June 2012 by

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I wrote an article titled “Is a Voluntary Early Retirement (VERA) in Your Future” last July about the impending early retirements and the VERA and VSIP programs. We continue to receive questions about these programs and we expanded our Voluntary Early Retirement Authority (VERA) and Voluntary Separation Incentive Payment (VSIP) guidance to help you decide what to do if an offer comes your way.  It is never an easy decision to make because there are so many variables to consider.

There is an expanding list of agencies now offering early outs including the DOA, DOE, FTC, GPO, Postal Service, the Air Force and others. More may be coming as government prepares to address the debt crisis. Are you prepared?

I was offered and applied for a VERA in the mid 1990s without a VSIP.  I had 25 years service and was eager to expand my business. My application was rejected and I retired 10 years later with 36.5 years of service including my sick leave. The annuity I would have collected with the VERA was approximately 65% less than what I eventually received at age 55; not counting the impact of ten years worth of COLAs! That is a dramatic decrease in annuity benefits especially considering that your last 10 years are typically your highest earning years.  Are you financially prepared?

If a VERA is something you would consider start planning now.  Here is an index with links to helpful information and reports for various issues that you may need to consider:

The Move – Continued

In my last article titled “Are You Considering A Move or Vacation Home Purchase After You Retire” I discussed my recent move and the options retires have to look forward to. Cynthia, one of our newsletter subscribers, provided some insightful advice to anyone contemplating a move in retirement.  Her husband retired 5 years ago and she is still working in federal service and hopes to retire soon.

She and her husband were considering a move to a 55 and older retirement community sometime in the next 5 years. They weren’t in any rush until her husband started cleaning out their garage in Florida and discovered their home had a “very large sink hole” under it.  After living in their home for 25 years they had to vacate on short notice after settling with their insurance company. Cynthia lamented, “Try packing up everything you’ve accumulated after 25 years in such a short period of time!

I can only imagine the heartache, trials and tribulations they had to go through.  They had to move in August one of the hottest months of the year in Florida!  During the move Cynthia fell and ended up with black and blue chin, scraps on her hands and arms, and a big bruise on her knee. She was sore for three weeks! She advises everyone to be careful and pay attention to where you are walking during a move.  Her advice to anyone planning a move is to:

  • Plan, plan, plan
  • Purge, and purge now
  • Prepare mentally and physically
  • Save money for the moving expenses
  • And be kind to your partner during the stress

Good advice for all

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Request a Retirement Benefits Summary & Analysis from a local adviser. A sample analysis is available for your review. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections. This service is not affiliated with www.federalretirement.net.

Learn more about your benefits, employment, and financial planning issues on our site and visit our Blog frequently at  https://fedretire.net to read all forum articles.

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator 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. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, FINANCE / TIP, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS

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