Posted on Friday, 26th February 2010 by Dennis Damp

On our latest trip south this winter we discovered some really neat travel aids that helped make the journey enjoyable and safe.  Traveling in the winter months is always a concern and this year we used the web site http://www.trippish.comto determine the best day to leave based on the weather forecasts along the route.

This web site also provides directions and it suggests the best time to start the trip to avoid bad weather. You can review detailed weather forecasts along the route. The Web site even forecasts the weather several days in advance of your scheduled trip.

Whenever traveling  I set up a temporary office at my new destination and hotels along the way to check messages, answer emails, and for calling business contacts and family back home.  This trip I purchased the magicJack (associate link).  I hooked up the device to my computer’s USB port and within minutes had national and local phone service. It worked GREAT and I used it for the entire trip for only the cost of the unit, $39.95.  Prices have gone up a little since I purchased mine. You need high speed Internet service for it to work and after the first year you have to pay $19.95 a year to continue the service, quite a bargain.

You not only receive free local and long distance calling, you get free voicemail, directory assistance, and a phone number that you select from any area code. It also connects to 911 in your area if properly configured. I purchased an inexpensive portable phone to plug into the back of the Magicjack, clicked on install, and within 5 minutes I was making calls. You have to follow the installation instructions carefully and mine didn’t auto install completely. I had to click on the installation exe file that popped up on the screen for the installation to complete.  All in all, it is a cost effective alternative for anyone needing phone service while away on trips. Yes, I do have a cell phone. However, with business calls and long discussions; this was the way to go.  On previous trips I exceeded my cell phone minutes and was hit with heavy additional minute fees.

Our trip took 10.5 hours with three short stops and XM radio made the trip easier and much more enjoyable. This trip I purchased Bill O’Reilly’s A Bold Fresh Piece of Humanity (associate link) audio CDs narrated by the author. It is a 6 CD package and we listened to about 4 hours of the book on the way down and the rest of the story on our return trip. It was well worth the price and Mary and I thoroughly enjoyed his life story, growing up in Levittown, NY. O’Reilly is our age, around 60, and his story brought back many good memories of the times. I highly recommend his book and audio CD series, a great way to make a long trip seem all so much shorter.

Winding Down and Around in Retirement

I am envious of those who are truly retired and can devote time to their many interests and pursuits. I often find myself driven with business interests that keep me fully employed and always working to keep everything on an even keel. That said, I am learning to wind down even while working full time and I’m constantly evaluating ways to improve efficiency, streamlining operations, adding employees and consultants to the mix to make things less hectic and to share the tasks at hand.  Now that I’m 60 it seems a good time to wind down a bit and I’m planning a part time schedule by the time I hit 65.

Federal employees are fortunate to be able to retire at 55 or younger in some cases and still have time to enjoy the many fruits of their labor. I hear from many federal employees who feel trapped and forced to stay working long after their eligibility date.  To retire early you have to prepare and plan your escape, many simply just keep on keeping on without much thought to planning for their future.   Getting started is half the battle and if you find yourself in this predicament check out our “Getting Started” page to give you some ideas on what you need to do NOW!  It’s never too early or too late to start planning your exit.

TSP  Update

I received my 2009 TSP annual participant statement last week and my account has appreciated considerably this past year due to initially selecting a conservative investment mix. When I first retired I had the majority of my account in the G Fund which has performed much better than the S&P Index over the past ten years. After a year or so I switched half to the L 2020 fund and left half in the G Fund. I like the G Fund because it is the only fund anywhere that is guaranteed not to go down in value and over the past ten years it has earned from a high of 6.43 % in 2000 to a low of 2.97 % in 2009.  The 10 year compounded rate of return for the G Fund was 4.62% compared to -0.94% for the C Fund.  About 18 months ago, when the market was close to its bottom, I mentioned in one of my articles that I switched much of my account to the C and S funds and they have performed well. The funds grew respectively 26.69 %  and 34.85% in 2009!

With the run up in prices this past year I’ll be going back to a more conservative mix in the not too distant future.  As always, I don’t recommend anyone changing their TSP allocations based on my personal preferences.

A Roth conversion is of interest to me for several reasons. First, your principal, capital gains, and dividends in a Roth account are tax free and you don’t have to take a minimum withdrawal at any age like you do with a standard 401K or IRA.

Another consideration is that taxes are projected to increase substantially next year.  I’m willing to take the hit and pay the taxes on whatever I decide to transfer to a Roth this year while taxes are still at their current level. You have the option to pay the taxes in two installments starting in 2011 however taxes will more than likely increase after 2010.  There are few tax free earnings options today like the Roth other than state municipal bonds but they are a bit too risky for me because so many States are having major financial difficulties. You can convert all or any portion of a 401K plan including the TSP without any limits on personal earnings like in the past.  One downside is the requirement to hold a Roth for 5 years prior to making qualified withdrawals, withdrawals taken before the five year point may be subject to a penalty.  Contact your financial advisor or Linda Duncan, our benefits and finance forum host, to discuss your options. Most financial management firms like Fidelity and Vanguard offer free retirement advice and can set up ROTH accounts for you. Linda Duncan is writing a comprehensive article on TSP fund withdrawal options for her March column and you will find her article on Roth Conversions highly informative.

Learn more about TSP benefits 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

• http://federaljobs.net (Federal Career & Job Center)
• http://federalretirement.net (FREE Retirement Planning Guide)
• http://federalretirement.net/jobs.htm (Retiree Job Opportunities)
• https://fedretire.net (Retiree BLOG)
• http://fedcareer.info (Career Development Center)
• http://postofficejobs.info (Postal Career Center)
• http://searchfedjobs.com (JOb Search – All Sectors)
• http://ehsjobs.org (Environmental Health & Safety Job Center)
• http://stolenplates.com (What to do if this happens to you)
• Educational Opportunities (Find educational opportunities in your area)

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 reply is not intended nor should it be considered investment advice. Our reply is time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.”

Posted in BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS

Comments (0)|  Print This Post

Posted on Monday, 15th February 2010 by Linda Sherman

“Retirement is wonderful if you have two essentials — much to live on and much to live for.” – Author Unknown

To determine how much you will have to live on estimate your gross annuity and complete our retirement costs spreadsheet. After determining that you have the resources to retire comfortably, the following discussion will help you set your most advantageous retirement date.

Any day can be a great day to retire, provided you meet the eligibility requirements and you are personally ready to retire. The retirement day can be a workday, a non-workday or even a holiday.  Retirement dates often coincide with special dates such as, your birthday, attaining 30 years of service, the holiday season, the end of the year or another personal event. However, the selection of a retirement date can have significant financial consequences.  Some points to consider when selecting the perfect date include:

1. Annuity Commencement. Annuities only start on specific days.  Consider selecting a retirement date that minimizes the days in a non-pay status.  To avoid days in a non-pay status, work until the beginning date of your retirement annuity.

• FERS – The voluntary retirement annuities always begin on the first of the month.  FERS retirees can minimize their days without pay by selecting the last work day of the month as the retirement date.  If a FERS retiree selected a September third retirement date, the first annuity payment would be on November first.  By simply changing the retirement date to August 31^st, the first annuity payment would be on October first – one month sooner.
• CSRS – A CSRS annuity may begin on the first, second, third or forth of the month.  Many CSRS employees retire on the third so the annuity begins on the fourth.  If you retire on the first through the third, your annuity is reduced for that first month to compensate for the days worked.  For example, if you worked on the third, your retirement would be reduced by 3/30’s (10%) of a month.  The annuity on the following month would be the full annuity and is always paid on the first of the month.

Unlike most personnel actions, retirements are always effective at the end of the work day. If you select Friday as your retirement date, and Friday is a scheduled workday, then the retirement is effective after your scheduled hours for Friday.  If you are a CSRS employee working Monday through Friday, and you are considering retirement dates of Friday the first, Saturday the second or a Sunday the third, Friday might be the best day to retire.  This is because Saturday and Sunday are your days off, so you do not receive pay for those days from your job. However, the annuity could begin on Saturday.

2. End of pay period. Consider retiring at the end of a pay period for maximum leave accrual.  If you retire at the end of a pay period, you receive additional hours of leave accrual, four hours of sick leave and eight hours of annual leave (if you earn eight hours per pay period). The eight hours of annual leave is paid in a lump sum after retirement and the four hours of sick leave may be used to increase the amount of service used in the annuity computation.  For retirement purposes, the term “end of the pay period” means the end of your bi-weekly scheduled work hours.  Therefore, if you are working a compressed work schedule and you complete your 80-hour tour-of-duty on Thursday, you can retire at the end of the day on Thursday to receive the maximum annual leave accumulation for the pay period.

3. End of the leave year. Maximize the lump sum annual leave payment by retiring at the end of the leave year.  If you accumulated the maximum annual leave carryover from the prior year (usually 240 hours) and you accumulated additional annual leave in your last year (up to 208 hours if you earn eight hours per pay period and did not take annual leave), the result could be 448 hours of annual leave paid to you upon retirement.  There are two additional benefits to receiving the lump sum annual leave payment at the end of the leave year:

• If there is a pay increase in January, the increased pay is used to compute the lump sum annual leave payment as if you actually worked during the period.  For example, it you retire on December 31^st and federal employees are due to receive a 3% pay increase effective on January seventh, the lump sum annual leave is payable for the first week at your current pay rate and the remaining days at the pay rate including the 3% pay increase.
• Potentially, the taxes due on the lump sum payment will be less if you are retiring at the end of the year.  For example, if you retire at the end of 2010 and the lump sum payment occurs in 2011, then the taxes on the lump sum payment will be due with your 2011 taxes.  Since your taxable income is normally less as a retiree, thus the taxes due on the lump sum annual leave payment would be less.

4. Creditable Service. Maximize the full months of creditable service used in the retirement annuity computation.  The annuity is computed using only whole months of service.  Additional days of service are not used in the computation.  For example, if you are a CSRS employee retiring with 30 years, 8 months and 29 days of federal service, your annuity is computed using 30 years and 8 months of service.  The 29 days of federal service are not used in the computation.  If you worked one additional month and did not use your sick leave for the month, the years of service would be 30 years and 10 months of creditable service.   By working one additional month, you receive two months of service – one month for the extra month worked and an additional month when combining the eight hours of sick leave with the 29 days that would have been lost.  Currently, FERS employees only receive 50% of the accumulated sick leave hours when computing creditable service.  However, by 2014, FERS employees will receive full credit for the sick leave, just like CSRS employees.  For more information on how sick leave is used in the annuity computation see: http://federalretirement.net/sickleave.htm

5. TSP Contributions. Maximize your TSP contributions for increased deferred compensation.  You can contribute up to 100% of your bi-weekly earnings to TSP before you retire to maximize the amount in TSP, as long as the contribution does not exceed the annual contributions limit, currently $16,500 in 2010.  Contributions to TSP, 401ks and IRAs can only come from earned income. The retirement annuity is not considered earned income, therefore, this may be your last opportunity to build this tax-deferred retirement fund.

6. COLA. Consider the Cost-of-Living Adjustment (COLA) for a maximum annuity increase in the year after retirement.  The COLA increases the annuity amount for the next year based on increases in the Consumer Price Index.  The COLAs are effective on December first of every year and are included in the payment the annuitant receives in January.  If you have been retired less than a full year, the COLA is simply prorated by one-twelfth of the COLA for each full month you received benefits. In deciding which day to retire, the COLA consideration is only important if you are not retiring at the end of a month.  If you select the third as your retirement date, you will not receive a full COLA for this month when the COLA is due the following year – hence losing one-twelfth of the COLA increase for this partial month.  This only occurs in the first year of retirement.  In the second year of retirement you will receive the entire COLA.  For more information on COLAs see: http://www.opm.gov/retire/annuity/cola/2009cola.asp

You likely cannot utilize all of these suggestions in selecting the optimum retirement date.  Occasionally, the stars align and you can use several of these suggestions at once. The key to selecting a retirement date is choosing a date that is most beneficial to you; to retire informed and without regret.  Hakuna Matata!

While the publisher and author have used their best efforts in providing retirement and benefits information, they make no representations or warranties with respect to the accuracy or completeness of the content of this article and they specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. The advice and strategies contained herein may not be suitable for your situation. You should consult with a financial professional where appropriate.

Visit http://federalretirement.net often to learn more about retirement options, benefits, and estate planning issues and I suggest signing up to receive my FREE monthly benefits newsletter.

Linda Duncan

Visit our other informative sites

http://federaljobs.net (Federal Career & Job Center)
http://searchfedjobs.com (Federal, State, & Private Sector Job Search)
http://federalretirement.net (FREE Retirement Planning Guide)
http://federalretirement.net/jobs.htm (Retiree Job Opportunities)
http://fedcareer.info (Career Development Center)
http://postofficejobs.info (Postal Career Center)
http://ehsjobs.org (Environmental Health & Safety Job Center)
http://stolenplates.com (What to do if this happens to you)
Educational Opportunities (Find educational opportunities in your area)

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

Comments (5)|  Print This Post

Posted on Tuesday, 26th January 2010 by Dennis Damp

Thanks to the 2010 National Defense Authorization Act a number of retirement benefit changes were implemented that will help many federal employees and retirees.  Everything from some retirees being able to keep both their annuity and federal check if they decide to go back to work for Uncle Sam as a rehired annuitant , more advantageous part time service annuity computations for CSRS service, actuarial reduced CSRS annuities rather than paying back your earlier withdrawals, to FERS sick leave computations, and more.

There is a little in this bill for everyone and it will be awhile before OPM regulations are published for all programs. These changes can potentially make a significant difference in your annuity calculations and others provide equitable resolutions to long standing problems. OPM issued general guidance on January 12, 2010 in their Benefits Administration Letter number 10-101.

Depositing refunds under FERS (Now authorized)

Until recently, when a FERS employee left government service and withdrew their employee contributions they were not allowed to redeposit their withdrawals if they returned to federal service at a later date. FERS employees irrevocably lost all previous service.  Now individuals who are subsequently reemployed can make a redeposit of the amount refunded, plus interest, and receive credit for the reinstated service.  Read more about this issue including eligibility dates on our FERS Annuity page.

Part-time service CSRS annuity computations

The two tier system of calculation high three average salary was eliminated for part time employment periods. Prior to this new revision there were two systems used to calculate the average high three years salary for service performed prior to and after April 7, 1986. In accordance with previous law, one high-three average salary was based on the pay actually received and the other was based on pay the individual would have received assuming they worked full-time (the deemed high-three).

Section 1903 provides that the “deemed high-three” average salary will be utilized for all service, regardless of when performed.  This revision doesn’t change the other provisions applicable to calculation of annuities involving part-time service.  The amendment applies only to annuities based on a separation from service occurring on or after October 28, 2009.

Actuarially reduced annuity under CSRS

CSRS employees who received refunds of retirement deductions for a period of service ending prior to October 1, 1990, may make a redeposit of the refund by actuarial annuity reduction in lieu of cash redeposit.  Actuarial reductions are now permitted in lieu of cash redeposit for refunds covering periods of service ending prior to March 1, 1991. The amendment applies only to non-disability annuities based on a separation from service occurring on or after October 28, 2009. Visit our CSRS Annuity page for more information on your CSRS annuity.

Other changes included FERS sick leave credit towards retirement, part-time reemployment with the government without penalties, and non-foreign area retirement equity provisions.

Jobs Update

We continue to receive job postings from employers seeking to hire part and full time retired federal employees. Check out the new listings on our jobs board for federal human resource specialists, engineers and others.  There are also many part time Census jobs available and with the latest changes that allow agencies to rehire federal employees part-time without affecting their annuity, there are many opportunities available.

We now offer a free job search in your local area for part time jobs, consulting jobs, and temp jobs. When you click on the link it will automatically display jobs in your geographic area.

If you are collecting Social Security and under full retirement age you can still earn up to $14,160 a year without impacting your Social Security benefits.  For every $2 over the limit, $1 is withheld from benefits. At full retirement age there are no earnings restrictions.

Learn more about benefits and financial issues from Linda Duncan, our Benefits forum host and visit our Blog frequently at https://fedretire.net to read all forum articles.

Visit our other informative sites

• http://federaljobs.net (Federal Career & Job Center)
• http://federalretirement.net (FREE Retirement Planning Guide)
• http://federalretirement.net/jobs.htm (Retiree Job Opportunities)
• http://fedcareer.info (Career Development Center)
• http://postofficejobs.info (Postal Career Center)
• http://ehsjobs.org (Environmental Health & Safety Job Center)
• http://stolenplates.com (What to do if this happens to you)
• Educational Opportunities (Find educational opportunities in your area)

The information provided may not cover all aspect of unique or special circumstances and federal regulations are 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 reply is not intended nor should it be considered investment advice. Our reply is time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.”

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, EMPLOYMENT OPTIONS, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE

Comments (3)|  Print This Post

Posted on Sunday, 24th January 2010 by Chuck Jumpeter

HAPPY NEW YEAR! It seems like just yesterday that we were all concerned about the “Y2K” bug and now, here we are, a full decade later and Y2K is nothing more than an old joke. We were also challenged with another bug, swine flu, and that too, while creating some problems, did not have the severe impact we all braced for.

This last decade also brought us numerous challenges that, while we’ll never forget, we certainly won’t dwell upon them here. Suffice it to say that the first decade of the 21^st century is behind us and now we must focus on moving forward and creating the future we all want.

Concerning our wellness, as we ended 2009, I asked the question, “Did we miss the bus?” Over this past decade, it seems that the only thing that grew more than the cost of health care was the size of our waistlines. While medical science has provided us with better treatment options, heart disease and cancer still top the list of what kills us. Amazingly, the proper usage of prescription medication has now become one of the leading causes of death. Cardiovascular diseases are being diagnosed in children, type II diabetes is still on the rise and numerous other indicators tell us that in spite of technological and treatment advancements which may help us live longer, we are not getting healthier.

Starting this month, I am going to take a page out of David Letterman’s playbook. Over the next months, we’ll take a ride On the Bus to Great Health. I’ll highlight 10 stops along the way to help us all meet our wellness goals. While I’ll present them as #10 through #1, the importance and significance of each will depend upon your own individual circumstances. I’d encourage each of you to keep this list handy and incorporate these suggestions into your daily routine as much as possible. Ready? Let’s ride!

#10 – Plan Your Journey. It is virtually impossible to reach a goal that you haven’t set. During our careers we’ve all had goals and objectives that we had to meet. We developed matrices to track our progress and had specific outcomes to achieve in order to determine if we were successful. Why should we treat our health and wellness any differently?

In order to help you plan your journey, I’ve created the acronym GETFIT. Let’s see what it means.

G is for Goals. How appropriate to set goals in January – can you say New Year’s Resolution? Identify your fitness goals in specific terms. Saying “I want to lose weight” is not a goal, it’s merely a wish that will never come true. If weight loss is your goal, pick a number and a time. “I will lose 20 pounds by March 31^st” is an example of a properly stated goal. While doing this for some topics may seem tricky, you can always drop me a note with what you are trying to do and I can help you craft an appropriate goal.

E is for Evaluation. This step is critical before, during and after each activity. When dealing with your health, knowing where you stand prior to making changes is critical. Getting a physical and consulting your physician prior to starting a wellness program will identify your limitations as well as help you establish responsible goals. Your doctor can also help you track your progress. I like to set up a spreadsheet listing specific, measurable data to help me keep track of my progress.

T is for Time Frame. Unrealistic time frames are a leading cause of failure to meet a goal. E.g. if we use the weight loss example, saying you want to drop 20 pounds by the end of the week will only set you up to fail since your body simply can’t do that. Losing 2 – 4 pounds/week, depending on your current weight, is a more realistic goal. In order for a time frame to be met, it must be reasonable, responsible and measurable.

F is for Fitness. This may sound a bit counter intuitive, but you have to get fit in order to get fit. Huh? Let me describe it this way. I enjoy cycling in the summer, but I would never consider riding my bike to get into shape, rather I get into shape so I can ride my bike. We all should be getting about an hour a day of physical activity. Those 60 minutes do not necessarily have to be consecutive, but that would help. Identify where you have time during your day and get busy.

I is for Information. Remember that matrix we mentioned earlier? Well, now is the time to create it. Whether you use your computer and a spreadsheet or you like a pencil and paper, it really doesn’t matter. Like the Nike commercials say, “Just do it!” Use the information from your evaluation stage as a baseline and then track your progress. I’d recommend a weekly check. Too often may not show the results and too seldom will cause a loss of interest. E.g. tracking your weight on a daily basis could be discouraging since your weight may actually go up occasion as your body adjusts to your new eating habits while monitoring cholesterol too often is not even practical.

T is for Tenacity. Wellness goals require focus, commitment and dedication. Without a tenacious resolve, minimal success may be all you can expect. To fully realize your goals and meet your expectations, you need to remain tenacious and dedicated. The old adage says that if you stick to something for 28 consecutive days it will become a habit. Don’t give up when it gets tough. Push through it and turn your new activities into habits and you’ll be successful in your wellness endeavor.

Well now we’ve taken the first stop along our bus trip to great health. Next month we’ll explore #9 – Back to Basics. In the meantime know that we have numerous products to help you with your trip. Simply visit either of our web sites, www.shaklee.net/jumpeter and www.createyourfuture.com/jumpeter, or drop me a note and I’ll be glad to help you plan your journey along the road to good health.

Visit http://federalretirement.net often to learn more about retirement options, wellness and health issues, benefits, and estate planning guidance and I suggest signing up to receive my FREE monthly wellness newsletter.

Yours in Good Health,

CJ

Visit our other informative sites

http://federaljobs.net (Federal Career & Job Center)
http://federalretirement.net (FREE Retirement Planning Guide)
http://federalretirement.net/jobs.htm (Retiree Job Opportunities)
http://fedcareer.info (Career Development Center)
http://postofficejobs.info (Postal Career Center)
http://ehsjobs.org (Environmental Health & Safety Job Center)
http://stolenplates.com (What to do if this happens to you)
Educational Opportunities (Find educational opportunities in your area)

Posted in LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, UNCATEGORIZED, WELLNESS / HEALTH

Comments (1)|  Print This Post

Posted on Saturday, 16th January 2010 by Linda Sherman

What’s all the hoopla about the Roth retirement accounts?  Traditional and Roth retirement accounts have been around for years, but recent changes in IRS tax laws, and the TSP-Roth option available in 2011 have created renewed interest in Roth investment opportunities.  With these new opportunities, it is important to evaluate which option is best for you. This is just one of many financial planning issues federal employees and retirees need to consider.

The main advantages of a Roth retirement account are:

• Tax planning
• Retirement income planning
• Inheritance planning

Tax planning: The tax implications are the most easily recognized difference between a Roth and a traditional retirement account.

Traditional IRA: This is a tax deferred account, which means the money deposited into a traditional retirement account is subtracted from your taxable income and potentially decreases your taxes payable in the year the deposit is made.  In addition, the earnings on the funds also grow tax-deferred. Thus, you pay no income taxes on the deposit or the earnings until the funds are withdrawn from the account.

Roth IRA: Money is deposited in a Roth account after income taxes are paid. It will not lower your taxable income in the year of the deposit. The Roth features tax-free withdrawals on the deposit and earnings for qualified distributions.  A qualified distribution is generally a distribution made after the Roth is established and funded for at least 5 years and is either:

1. Made on or after you turn 59½ ,
2. Made to a beneficiary after your death, or
3. Made because you are disabled.

Sounding a little like a pay me now or pay me later argument, with little difference in the Roth and traditional options?  The key is predicting whether your tax rate will be lower now or in the future.  Often people make less money in retirement.  It would seem logical if you make less money, then your tax rate is lower too.  However, income earned is only a part of the taxable equation.  With fewer personal exemptions and deductions, taxable income can increase.  Your effective tax rate is often lowest when you have a house full of kids, deductible education expenses and a large mortgage.

In addition, many experts forecast tax rates will increase because of the exploding federal deficit and the possible expiration of the tax cuts enacted in 2001.  If you expect your effective tax rate to be higher in the future because of higher income or higher tax rates, then a Roth contribution, or a Roth conversion, may be something to consider.

Retirement Income Planning: So much attention is paid to the tax differences between the Roth and traditional retirement accounts that the other advantages are rarely mentioned.  A significant advantage of a Roth retirement account is in retirement income planning.  Traditional retirement accounts require you to begin Required Minimum Distributions (RMD) when you reach age 70 ½, whether you need the money or not.  There are no RMDs with a Roth account.  You decide when to take the money out and how much to withdraw, provided you are at least 59 ½ and the money has been in the Roth for at least five years.

RMDs are based on the average life expectancy on actuarial charts.  If you are not necessarily “average” – because your grandma lived to be 102, or you plan to continue working well beyond the normal retirement dates – the Roth may give you more options for planning your income disbursements.   Perhaps you anticipate needing the funds as you age for medical expenses, or you would like to provide an inheritance for your children.  A Roth account allows more flexibility for financial planning options.

Inheritance Planning: Would you rather pay the taxes on your retirement account assets, or have your beneficiaries pay the taxes on the assets? Since the taxes are not due until the money is withdrawn from a traditional retirement account, the beneficiaries who inherit the funds pay the tax. To learn more about inheritance issues and to explore estate planning techniques visit http://federalretirement.net/estate.htm.

With a Roth, income tax is pre-paid on the contribution and the earnings are not taxable.  Therefore, a Roth IRA is received free of income tax by the person who inherits the account, but a Roth account may be subject to estate taxes. If you have a large estate that is taxable, the size of your estate is reduced by the amount of income tax previously paid. The result is a smaller estate to be taxed, and the end value of the inheritance may be greater. RMDs are mandatory for the person who inherits either a Roth or a traditional retirement account.

2010 Roth Conversion Opportunity: Converting a traditional account to a Roth account has been limited to those individuals with a modified adjusted gross income of $100,000 or less.  In 2010, however, the income exclusion has been removed and people of all incomes can convert their traditional IRA to a Roth IRA.  The tax, retirement income and inheritance planning advantages also apply to Roth conversions.  Keep in mind, when you convert money from a traditional to a Roth account, taxes are due on all funds transferred.  For funds converted in 2010, you can elect to include the entire amount converted as income in 2010, or have the income amount split between the 2011 and 2012 tax year.

Both the Roth and traditional retirement accounts are fantastic methods to save for retirement.  Consider funding both a Roth and a traditional retirement account for maximum benefits and retirement planning options.  If you are considering contributing or converting to a Roth account, plan to do so in years when your effective tax rate is the lowest for the greatest tax benefit.

If you have questions or concerns about your retirement plan, or want to discuss your personal situation with a financial advisor, please contact me toll-free at 1-877-346-3434.

Visit http://federalretirement.net/tsproth.htm for updates, clarifications, and questions and answers concerning Roth IRAs.

Need more information to evaluate your options, try the calculators available at:  http://www.dinkytown.net/java/RothvsTraditional401k.html.

TSP – Roth option: http://www.tsp.gov/forms/oc06-5.pdf

For tax information about converting to a Roth IRA: http://www.irs.gov/pub/irs-pdf/p590.pdf

While the publisher and author have used their best efforts in providing retirement and benefits information, they make no representations or warranties with respect to the accuracy or completeness of the content of this article and they specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. The advice and strategies contained herein may not be suitable for your situation. You should consult with a financial professional where appropriate.

Visit http://federalretirement.net often to learn more about retirement options, benefits, and estate planning issues and I suggest signing up to receive my FREE monthly benefits newsletter.

Linda Duncan

Visit our other informative sites

http://federaljobs.net (Federal Career & Job Center)
http://federalretirement.net (FREE Retirement Planning Guide)
http://federalretirement.net/jobs.htm (Retiree Job Opportunities)
http://fedcareer.info (Career Development Center)
http://postofficejobs.info (Postal Career Center)
http://ehsjobs.org (Environmental Health & Safety Job Center)
http://stolenplates.com (What to do if this happens to you)
Educational Opportunities (Find educational opportunities in your area)

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

Comments (5)|  Print This Post

Posted on Saturday, 9th January 2010 by Linda Sherman

This article, updated 2/17/2023, will help you evaluate your total insurance needs and costs.

Inevitably during a new employee orientation, someone would ask, “How much life insurance do I need?”  And another classmate would shout back, “As much as you can get.” Or, “Five to ten times your income.”  As an HR Specialist, I could not advise employees on the amount of insurance they may need – offering benefit advice is specifically prohibited.  However, as a financial planner, I have an opinion, not just for the new employee, but for anyone throughout their career.  Retiring employees often have not evaluated their insurance needs since they began their employment.  Insurance coverage and costs need to be evaluated periodically, especially when there are significant changes such as marriage, divorce or you have a child.

Purpose of the Life Insurance

In determining how much life insurance you need, first ask yourself, “What is the purpose of the insurance?”  Do you need to pay off debts, provide monthly income for a surviving spouse, provide for your child’s care and education, or perhaps pay estate taxes after you die?  Would you like to provide a donation to a charity or fund a scholarship to your alma mater?  Since it is uncomfortable to discuss what you want to happen when you die, this discussion often never occurs; and family members are frequently left without the money needed to maintain their current life style.

Amount of the Life Insurance

After determining what you want the insurance to provide, it’s time to examine how much insurance is required to provide for these needs.  Although a percentage of your income is a general guide to determine insurance needs, it is usually too simplistic for most individuals.  Insurance determined by a percentage of income does not consider variations in family size, ages of dependant family members, income, expenses, debts, existing assets, and personal goals.  When considering how much life insurance you need, you should evaluate your family’s immediate needs, future needs and income for dependants when you are gone.

You can use one of the many capital needs assessment calculators available on the internet, or consult with a trusted financial planner or insurance adviser who has access to a reliable assessment calculator.  The comprehensive calculators will include anticipated inflation rates and anticipated rates of return to help pinpoint the amount of insurance you need.  Below are some of the basic categories to consider in determining the amount of life insurance needed.

Debts and Expenses:

Final expenses (funeral, medical, taxes, legal) $___________

Debts and liabilities (Credit cards, auto, mortgage) $___________

Emergency fund (6-12 months of expenses) $___________

Future expenses (Child care/support, education) $___________

Providing an inheritance or gift $___________

TOTAL DEBTS AND EXPENSES (Add all entries above) $___________

……………………..

Income Replacement for Spouse and Children:

Annual income needed $____________

Subtract other income sources   –  $____________

(Spouse’s income, monthly rental income, FERS/CSRS annuity)

Adjusted Income replacement     = $____________

Number of years to provide income   x _______   years =

TOTAL INCOME REPLACEMENT: $______________

…………………

TOTAL NEED (add debts, expenses and income replacement)$______________

TOTAL LUMP SUM ASSETS available (subtract from total need)(Bank accounts, IRAs, TSP, property, current insurance, survivor benefits not included above) $ ______________

TOTAL INSURANCE NEED =  $_______________

Type of Life Insurance

Equally important to selecting the amount of life insurance is determining if you should have temporary insurance or permanent insurance. Temporary insurance provides coverage for a limited period of time, such as 5, 10 or 20 years.  The advantage of temporary insurance is the cost.  Temporary insurance is typically less expensive than a permanent insurance policy.

Permanent insurance on the other hand, provides a lifetime of coverage as long as you continue to pay the premiums, but it is more costly.  Another feature of permanent insurance is that it accumulates a cash value on a tax-deferred basis.  The cash value is the amount accumulated in the policy that would be available to you if you surrendered the policy.  Often the cash value does not accumulate until you have retained the permanent insurance policy for several years.

In reviewing the needs you identified in the worksheet above, are they permanent needs that you will always need at death?  Or are they temporary needs such as funding a college education and providing support for young children?  It is likely that you will have some permanent and some temporary needs.  For permanent needs you should consider permanent insurance such as whole, variable, or universal life insurance.  For a temporary need you would select a term policy.

You may have heard the old adage, “Buy term insurance and invest the difference.”  This advice recommends determining the difference between the cost of a term and a permanent insurance policy.  Then purchase a term policy, and invest the difference between the cost of the term and permanent insurance in stocks or mutual funds.  This approach can meet many people’s needs, unless you have a permanent need for the insurance, such as providing monthly income to a spouse or a disabled child.

One of the drawbacks with many term policies is you have to re-qualify for the insurance periodically, and if you are in poor health you may not be able to obtain the required insurance.  The FEGLI policies automatically renew without requring a new physical. However, like all term policies, the insurance rates may increase to such an exorbitant rate that you cannot afford the insurance coverage needed to protect your family.

Some term insurance contracts have a convertibility provision which allows “conversion” to a permanent policy without submitting additional medical evidence of insurability. This guarantees that you can obtain the permanent insurance without regard to health issues that may have developed since purchasing the original term policy. This could result in a cost savings if your health has deteriorated since the original exam. This is a beneficial option to have in case circumstances in your life change, such as an adverse medical diagnosis or the insurance coverage is needed for a longer period of time than originally anticipated.

Linda Duncan

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Federal Employees Group Life Insurance Guide
• Which Way is Up – A Retiree’s Conundrum
• Is the Stock Market Keeping You Up at Night?
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Tags: FEGLI, Insurance, Insurance Evaluation
Posted in BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

Comments (0)|  Print This Post

Posted on Wednesday, 16th December 2009 by Linda Sherman

Life insurance is often the last thing a federal employee thinks about when deciding to retire. After all, you are looking for a great escape not your last hoorah. Yet, making uninformed FEGLI decisions prior to retiring can make it very difficult for your loved ones.

What you should know about your Federal Employees Group Life Insurance (FEGLI) coverage:

• FEGLI is a term insurance policy, but it is unusual because it never has to be renewed, and you never have to provide health information to continue your current coverage.  It is a term policy because the costs increase periodically and there is no accumulation of cash value.
• The FEGLI basic insurance costs do not increase with age and this basic insurance is subsidized by the government.
• As part of the basic insurance, additional coverage is provided at no extra cost for those under age 45. This additional coverage decrease incrementally between the ages of 35 through 45.
• Accidental death and dismemberment insurance is provided at no additional costs as part of the basic insurance coverage.
• The cost of the FEGLI optional insurance (A, B, C) increases significantly in your 40’s.  The optional insurance amounts are group rates that are not subsidized by the government.  Therefore, you may be able to find better rates elsewhere.
• The cost and the amount of coverage both increase when your salary increases.
• FEGLI coverage is provided by Met Life.

Not sure how much FEGLI coverage you have?  In block 27 of your SF-50 Notification of Personnel Action, or on your Leave and Earning Statement, it will list the coverage options you selected.  Then go to the FEGLI calculator available at http://www.opm.gov/calculator/worksheet.asp to determine the dollar value of the insurance.

Print a copy of the insurance amount every year to keep with your will and use the document to see if this insurance is still cost effective and meets your needs.

When was the last time you looked at the amount of your FEGLI coverage, or other life insurance coverage, to determine how much life insurance you need?  Compared the costs of the insurance to other insurance options available.

Everyone should re-evaluate their life insurance needs periodically and have someone they trust to review their insurance needs and options. If you decide to purchase insurance from an insurance provider other than FEGLI, be sure it is a reputable company with a great financial rating. Review our FEGLI online guidance and Survivor Concerns pages that discuss insurance options and links to insurance company rating services.

Part two of this series titled “Evaluating Your Life Insurance Needs” will help you assess your needs and review your existing coverage to see where you stand.

Request a FREE 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.

The information provided may not cover unique or special circumstances and federal regulations are subject to change. To ensure the accuracy of this information, contact your HR specialist or benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center.

Visit http://federalretirement.net often to learn more about retirement options, benefits, and estate planning issues and I suggest signing up to receive my FREE monthly benefits newsletter.

Posted in BENEFITS / INSURANCE, ESTATE PLANNING, RETIREMENT CONCERNS

Comments (7)|  Print This Post

Posted on Wednesday, 2nd December 2009 by Dennis Damp

Yes Virginia, there is a Santa Clause. The signed National Defense Authorization Act permits FERS employees to apply their accrued sick leave towards retirement. However, the credit is phased in with a 50 percent credit for those who retire now and full conversion after January 1, 2014. OPM  is developing final regulations on this subject that should be published soon.

FERS employees can use the new sick leave conversion calculator available at www.fedbens.us to calculate their annuity increase. Just type in your estimated average high three salary and number of sick leave hours accrued and the result will be your monthly annuity increase.

Up until now FRES employees had little incentive to save their sick leave. FERS retirees will receive an additional 1% of their high three average salary for every 2087 hours of sick leave they have on the books when they retire.

Hearing is Believing TOO! 

I mentioned in my September article that my hearing was failing and that I needed hearing aids. This didn’t surprise me since I worked on jet aircraft in the military and on and around airports my entire career in one capacity or another. My wife didn’t need convincing either after battled for years over the TV volume control. 

With my new hearing aids I can hear rain on the roof, leaves rustling in the wind, my hands rubbing together, and the keys on the key board click like a runaway train. At first it’s startling and when I initially put them on I was mesmerized by the sounds around me. I now hear conversations and the TV at normal volume and when I take my hearing aids off it feels like I just turned off the radio or at least turned it down significantly. If you are frequently asking others to repeat themselves and are battling your significant other over the TV volume you may want to go in for a hearing test.  

Fortunately there are many helpful organizations like the American Speech Language Hearing Association and the Mayo Clinic. The average cost for a pair of hearing aids is around $3,000 to $5,000 depending on the severity of your hearing loss and you can buy less expensive ones if you are inactive and don’t need all of the bells and whistles that the high end units offer today. Most units today are digital and can be programmed for your specific hearing loss and they have compensation circuits that eliminate the annoying feedback that was a problem with older aids.

Blue Cross and Blue Shield’s Basic plan covered a good portion of the cost. They pay up to $1,000 an ear once every three years. I paid the difference of about $1,000 for two Starkey Series S-9 units. Starkey is one of the largest hearing aid manufactures and their new S Series Sweep models are easy to use, comfortable, and are performing well for me. One doctor advised me that if you are on Medicare the amount covered is reduced and there are other restrictions.

Most reputable providers offer a trail period of between 30 to 60 days. Sewickley Hearing Aids, in Sewickley, PA offers a 60 day trial period and I’ve been working with Doctor of Audiology, Sharon Hall Russo. They offered the best prices and exceptional service. I also like the fact that the hearing aid office is part of a larger nose, throat, and ear doctor’s office that can treat other ear problems and remove wax buildup if necessary. They offer a 15% discount on all hearing aids from Thanksgiving through Christmas each year. I couldn’t find better prices anywhere and I looked online, visited with two other hearing aid companies and called several more and Sewickley Hearing Aids beat them all hands down.  If you are in the Pittsburgh or surrounding area you can call them at 412-741-5670, ask for Dr. Sharon Russo. Look around in your area for the best prices, ask for discounts, and compare vendor services. 

The first unit I tried was a Starkey S-9 behind the ear open ear model that has a small plastic transmitter tube that goes in the ear canal. The volume adjusts with cell phone commands and the first day I had them I was walking in the mail and a security alarm went off.  I couldn’t adjust the volume and had to take them off. This model’s transmitter unit was difficult to clean and I turned them in for the new Sweep series one week later.

The Starkey S Sweep series uses touch control for volume and changing modes. They are somewhat larger but the advantages are huge. The transmitter in this model is in the unit behind the ear, not in the end of the plastic tube that goes into your ear and they are easier to clean and adjust. The volume adjusts by gently touching the unit and then sliding your finger up or down to raise or lower the volume. To change between one of four modes just touch it once to wake it up and then touch it again to change to the next mode. You hear a voice prompt confirmation for each adjustment. This unit has a battery life of two weeks compared to one week for other models. Another advantage with the Sweep series is that you can get replacement ear tubes at no cost. Extra tubes with the transmitter in the ear cost $75.

Veterans with hearing loss should check with the VA first. They offer coverage if you earn under a certain amount and Vietnam Veterans regardless of income may be eligible for full coverage. Call or visit your local Veterans office to find out if you qualify.

The information provided may not cover all aspect of unique or special circumstances and federal regulations are 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 reply is not intended nor should it be considered investment advice. Our reply is time sensitive. Over time, various dynamic economic factors relied upon as a basis for our response may change.”

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, LIFESTYLE / TRAVEL

Comments (0)|  Print This Post