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Retirement Planning Assistance – Finding Help (2023 Update)

Posted on Friday, 11th August 2023 by

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Please forward this to others needing retirement planning assistance.

Those planning their retirement and annuitants require accessible resources to find answers to their retirement questions. The new year is fast approaching and many feds are now determining their best date to retire.




Retirement planning is of and in itself a complicated process with many avenues to explore. Fortunately, help is available; what service you require depends on the complexity of the issues and the level of assistance you personally need.

LEVELS Of ASSISTANCE

  • General Assistance (Try these resources first)
  • Comprehensive Guidance
  • One-on-One Counseling / Assistance

GENERAL ASSISTANCE

OPM

The Office of Personnel Management (OPM) is the HR department for the federal government; they administer the retirement benefits program. Active federal employees can research various aspects of retirement on OPM’s site. However, they must contact their agency’s HR office for retirement forms, processing, and guidance.

Recently OPM issued a Retirement Quick Guide, A Reference for Voluntary Retirement that you will find helpful. Download a copy and keep it with your retirement paperwork.

OPM services the retirement community; If you are an annuitant (retiree), call or use their online services portal to obtain current benefit information, related documents, and payment statements online if registered for their service.

It is difficult getting through to them by phone and when you do, expect long waits. OPM is the only entity that can effect desired changes or update your records.

NOTE: OPM’s Services Online changed how you access your account last year.

Federal Employee’s Retirement Planning Guide

I launched this site in 2004 when I was planning my retirement. It is designed to help federal employees and retirees find the information they need to make informed benefit and retirement decisions.

A site visitor commented after finding the retirement answers he needed, “I spent 3 hours on the web looking for answers to questions concerning federal retirement. After a Google search yielded your address, it took only 20 minutes to find all of my answers! Thank you!!!”

How to Find Essential Retirement and Benefits Information on This Site

Abundant retirement planning guidance is compiled from a multitude of federal agencies: OPM, Social Security, Medicare, TSP, the Department of Labor and others. Use the main menus and search box at the top of each page to find benefit clarifications, financial planning guidance, FERS / CSRS eligibility determination and annuity estimates, general explanations, examples, and suggestions that you won’t find elsewhere. The related blog and weekly email newsletter offer guidance on current topics of interest.

COMPREHENSIVE GUIDANCE

Retirement Planning Seminars

Contact your HR department to sign up for a retirement planning seminar. They cover CSRS and FERS employees, (including Special provisions) and may be offered in Full or Half-day sessions. The information is generally divided into seven key areas:  CSRS or FERS retirement annuity, Thrift Savings Plan (TSP), Voluntary Contribution Plan (VCP) – CSRS and CSRS Offsets only, Federal Employees Group Life Insurance (FEGLI), Social Security, Federal Employees Health Benefits (FEHB), Federal Employees Dental and Vision Insurance Program (FEDVIP) and disability programs.

Federal Employee’s Retirement Planning Software (https://fedretiresoftware.com/)

This easy-to-use and reasonably priced software is uniquely designed for federal employees (full-time, regular CSRS & FERS) to calculate your federal benefits up to and throughout retirement. You can also add income and/or expenses from other sources.

This calculator is used by tens of thousands of federal employees as well as Federal HR departments to make informed retirement planning decisions. Checkout their Sample Report to get a better understanding of how comprehensive their calculator is for federal employees planning their exit.

ONE-ON-ONE COUNSELING / ASSISTANCE (Finding someone to talk to)

Often, individuals need to talk with an expert to address complex issues and make informed decisions about what is best for their situation. Here is a list of those you can contact to help you address your concerns when the research you’ve done hasn’t provided an answer.

Call Your Agency’s HR Department (Federal Employees)

Federal employees with retirement questions should contact their HR department, OPM only services annuitants and survivors. Your HR department will provide annuity estimates for multiple target retirement dates, explain your benefit options, and arrange for you to attend a retirement seminar.

Columnists

Many columnists, like myself, reply to email questions. Generally, I’ll send a reply with links to relevant sections of my website, related blog articles, and to OPM guidance that will help. When I’m asked to provide one-on-one counselling, I refer them to the professional counselors listed below.

Retirement Planning Consultant – All Areas

A professional federal benefits consultant can address your concerns and answer any questions that you may have. If they don’t have the immediate answer, they have the contacts and resources to obtain them.

Retire Federal, a consulting firm owned by Tammy Flanagan, a federal benefits expert who has been assisting feds since her days of employment with the Federal Bureau of Investigation. She and her staff of experienced counselors offer invaluable fee-for-service personal consulting for civilian federal employees and annuitants on pre-retirement retirement prep to post-retirement decisions and events.

Their staff will assist you with a thorough review of your pre-retirement tasks and help you decide about Medicare Part B and which FEHB plan will coordinate best for your situation. They can address your concerns, answer questions, recommend options, provide details as to why one path is preferred over another, and put your mind at ease.

Ms. Flanagan is also the Senior Benefits Director for the National Institute of Transition Planning, Inc. which has conducted pre-retirement seminars and workshops since 1987.

Since 2006, Tammy has authored the popular weekly “Retirement Planning” column for Government Executive online magazine with more than 250,000 subscribers. She was selected as one of Money Magazine’s “Money Heroes” of 2012 for the service that she provides to help federal employees prepare for life after retirement.

Retirement Planning and Divorce Related Issues for Federal Employees – Consultant

Ann Ozuna is a retired Personnel Management Specialist. She founded Personnel Solutions Federal Benefits Counseling upon retirement from federal service in 1996.

Her federal benefits consulting firm specializes in educating federal employees on retirement benefits and assisting employees with CSRS/FERS regular and disability retirements. They also work with employees/retirees and their lawyers on divorce matters. Federal retirement is not under the same law as private sector retirements.

In addition to her 25-year federal personnel career, she holds an MBA from Gonzaga University and the Senior Professional in Human Resources (SPHR) and Chartered Federal Employee Benefits Consultant (ChFEBC) designations.

If you need answers to retirement questions or don’t know what options are best for you and your family, use the resources listed above or other reputable services.

Helpful Retirement Planning Tools


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.

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

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Higher FEHB & Medicare Premiums on the Horizon for 2024

Posted on Friday, 21st July 2023 by

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The 2023 FEHB Open Season will run from November 13 through December 11, 2023. Open Season starts every year on the Monday of the second full work week in November and ends on the Monday of the second full work week in December.




OPM sent a FEHB Program Carrier Letter to all FEHB providers on March 1, 2023. This letter outlines the policy goals and initiatives for the 2024 FEHB Program. A follow-up letter provides technical guidance and instructions.

OPM GOALS

As excerpted from their guidance letter, “OPM’s focus for the upcoming plan year are on the following critical Program priorities: Fertility Benefits, FEHB and Medicare Coordination, and Pharmacy Benefit Design.”

They further state, “OPM is continuing to emphasize the importance of Gender Affirming Care and Services, Maternal Health, Prevention and Treatment of Obesity, and Mental Health and Substance Use Disorders.”

PREMIUM IMPACT

The average increase for our FEHB plans in 2023 was 7.2% while Medicare premiums actually decreased approximately 3% after the previous year’s 14% increase!  In March, Medicare Trustees forecasted monthly Part B premiums would increase to $174.80 in 2024 from $164.90 this year, a 6% increase.

The carriers will again be challenged this year by inflation and to provide expanded coverage requested by the administration. Over the last decade the average annual FEHB increase was 4% according to OPM.

The additional costs for gender affirming care, obesity treatments, and other coverage will require higher premiums across the board, especially when OPM is waiving the “cost neutrality clause,” as noted below.

This expanded coverage was sanctioned by executive orders, not by the Congress. The government pays the majority of our premiums, this new coverage increases spending and our country’s deficit. Congress authorizes and controls spending, a President can approve or veto their bills, they don’t have cart blanch authority to do whatever they desire.

It seems all Presidents, in recent memory, used executive orders to usurp the legislative branch and implement changes that Congress wouldn’t pass.

COST NEUTRALITY

According to OPM’s cost neutrality clause, “When proposing an increase in benefits, Carriers must propose corresponding benefit reductions to offset any potential increase in premium, with limited exceptions directed by OPM.”

They provide an example in the clause, “If a Carrier were to propose decreasing a cost sharing in one benefit and this increase in benefits would have an additional cost impact, the Carrier would have to have also proposed benefit decreases in other areas with an equal or greater reduction in cost than the benefit increase in the same plan option”

OPM will issue waivers to the cost neutrality requirement for proposals of coverage outlined in their program carrier letter. We could end up paying substantially more next year when you factor in inflation and expanded coverage.

EVALUATE YOUR CURRENT FEHB PLAN

It’s a good time to review your current plan’s coverage and ask yourself if they met your needs and expectations this year. Ask these questions:

  • Did I have coverage issues?
  • What additional coverage will I need next year?
  • Was I able to get the medications / prescriptions needed?
  • Did I have to pay high prescription copayments?
  • Where my deductibles, copayments and coinsurance excessive this year?
  • Are the labs, doctor’s offices, hospitals, and outpatient facilities available in my immediate area and covered by my current FEHB plan?
  • Did I have to travel out of my area to see a provider or have procedures performed?
  • Was customer service helpful and easily accessible?
  • Did I encounter unanticipated expenses that I thought were covered in my current plan.
  • Are you signing up for Medicare this or next year? if so, you may want to consider moving to a lower cost FEHB plan.
  • Explore Medicare signup options

Answering these questions will help you prepare for the upcoming open season. If you had problems this year, look for plans that will better suit your needs in 2024

Conclusion

The new 2024 premium rates will be announced in October; we don’t know how much they will go up overall. However, it seems inevitable that increases are coming our way.

A recent news cast talked about how Medicare subscribers are using health care services more since COVID is behind us. Many senior citizens weren’t able to get the care they needed and are now scheduling the many services they missed these past two years.

Hopefully, premiums won’t increase as much as I and others anticipate, only time will tell. I’ll send out a newsletter to announce the new rates when they are released.

Helpful Retirement Planning Tools


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.

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Posted in BENEFITS / INSURANCE, ESTATE PLANNING, LIFESTYLE / TRAVEL, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

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Social Security’s Income Tax Thresholds and Medicare’s MAGI

Posted on Friday, 14th July 2023 by

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Social Security recipients are required to pay taxes on their combined income if it exceeds the following limits according to the Social Security Administration.

You will pay tax on 50 to 85 percent of your Social Security benefits, depending on your income and based on Internal Revenue Service (IRS) rules. If you:

  • file a federal tax return as an “individual” and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    • If you earn more than $34,000, up to 85 percent of your benefits may be taxable.
  • file a joint return, and you and your spouse have a combined income that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
    • If you earn more than $44,000, up to 85 percent of your benefits may be taxable.
  • are married and file a separate tax return, you probably will pay taxes on your benefits.




Determining Your Combined Income

Add your nontaxable interest and one half of your Social Security benefit to your adjusted gross income to determine your Combined Income:

Adjusted Gross Income
+ Nontaxable interest
+ ½ of your Social Security benefits
Your combined income

Your combined income is the total of your adjusted gross income including 50 percent gross Social Security benefits, plus tax-exempt interest, any exclusions from income such as interest from qualified US savings bonds and the foreign earned income or foreign housing exclusions.

Unfortunately, the Social Security combined income amounts haven’t been adjusted for inflation in 40 years and many Social Security recipients are paying federal income tax on their Social Security retirement benefits.

Caution: If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits. I recently increased my federal tax withholding for my annuity and Social Security benefit to avoid a penalty when I file my taxes next year.

Medicare Part B (MAGI)

Medicare’s Part B enrollee’s monthly premiums are determined annually using modified adjusted gross income (MAGI) computations. Premiums are determined for 2023 from the enrollee’s 2021 tax return because Social Security and Medicare won’t have the tax return data for 2022 until taxes are filed with the IRS mid-2023.

Premiums for Part B are determined by your Modified Adjusted Gross Income (MAGI). The more you earn the higher your Part B premium. For most beneficiaries, the government pays a substantial portion—about 75 percent, and the beneficiary pays the remaining 25 percent.

If you’re a higher-income beneficiary, you’ll pay a larger percentage of the total cost based on the income you report to the Internal Revenue Service (IRS). You’ll pay monthly Part B premiums equal to 35, 50, 65, or 80 percent of the total cost, depending on MAGI which is the total of your household’s Adjusted Gross Income plus any tax-exempt interest income you may have.

In 2023, monthly Medicare Part B premiums begin at $164.90 per month. An Income Related Monthly Adjustment Amount (IRMAA) is added to your payment if a single individual’s MAGI was greater than $97,000 during 2021 and for a married couple filing jointly, if their MAGI during 2021 exceeded $194,000. Medicare Part B monthly premiums can be as much as $560.50 this year for those enrollees in the top income threshold.

Social Security notifies enrollees annually of their benefit changes including voluntary tax withholding, and their Part B premiums if applicable. I received my last notice November 23, 2022.

Unexpected / Unfortunate Consequences

Unlike Social Security taxing thresholds, the income limits are adjusted annually for part B Medicare premiums. This should also be the case for taxing thresholds for our Social Security benefits. The cost of living has risen considerably over the past 40 years.

$100 in 1983 is equivalent in purchasing power to about $306.33 today according to the Bureau of Labor Statistics consumer price index. A dollar today only buys 32.68% of what it could buy back then.

You would think that NARP and NARFE would be championing this initiative. To be fair, the Social Security taxing thresholds should be tripled from where they are today!

Retirees are caught off guard when an Income Related Monthly Adjustment Amount (IRMAA) is added to their Medicare premium and end up paying more income taxes on their Social Security benefit. This can be triggered when the annuitant starts taking Required Minimum Distributions (RMDs).

This could also happen if you sell a vacation or business property, and stocks that have significant capital gains. Working part-time or owning a small business in retirement will also increase your income, oftentimes to levels resulting in increased taxes and higher Part B premiums.

References:

Helpful Retirement Planning Tools


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.

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Reflections and a Fixed Income Update – June 2023

Posted on Friday, 7th July 2023 by

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Retirees continue to suffer the brunt of inflation’s wrath with little relief on the horizon. Yes, the feds continue to say inflation is waning but few of us feel a sense of relief from the high cost of everything today, especially big-ticket items: housing, rent, gas at the pump, utilities, travel in general, and visits to the grocery store or to restaurants.

It isn’t only those on fixed incomes, most are finding this new reality difficult to navigate. Many are priced out of the new home market. In the suburbs of Pittsburgh, they are selling new 3-bedroom 1500 to 2,000 square foot homes with a bath and a half for the high $300,000 to $500,000 range!

My son and I went to breakfast in Myrtle Beach recently, thirty dollars for omelets, toast and coffee! That afternoon we went out for an early dinner at J Peters Grill & Bar and had the best meal I’ve had in ages. I ordered grilled salmon, broccoli, a large side salad and croissant; my son had steak, broccoli and side salad. The bill came to $32 after a 10% military discount and that was reasonable considering the exceptional service and food they served.

By the way, we paid $2.85 for gas in Myrtle Beach on May 20th, it was $3.65 in Pittsburgh two days earlier. Pennsylvania’s gas tax is one of the highest in the nation.

The Good Old Days

I recall paying 75 cents for two eggs, toast, and coffee at a local diner in Phillipsburg, PA when I started working for the FAA! I do realize this isn’t 1975, but “come on man,” as someone we all know laments often during his speeches.

At the time, I was living at a boarding house Monday through Thursday and searching for an apartment at my new duty station. My wife and son were back at our apartment in Pittsburgh.

Here is a short excerpt from my memoire, The Early Years, A Road Less Traveled. “I stayed at the Silent Night Home, a boarding house in Phillipsburg, renting one of their bedrooms for twenty dollars a week. All of the boarders shared a bathroom. The two-story, five-bedroom Victorian residence was in the center of town. The owners were snowbirds who traveled to Florida during the winters and turned over operation of the home to a caretaker while they were away. I volunteered to shovel the sidewalks and do odd jobs for a 50 percent reduction in rent.”

A Ray of Sunshine – Fixed Income

Near zero interest rates, over the past decade, left many on fixed incomes wanting for just about everything. The Federal Reserve kept interest rates artificially low far too long.

Fixed income investments offer decent yields that are either FDIC insured or purchased direct from the Treasury. They remain in favor due to the uncertainty in the equity markets and inflation is still well above the Federal Reserve’s 2 percent target rate.

A recent article in the June/July issue of the National Association of Retired Federal Employees (NARFE) extolled the merits of the higher rates now available for CDs, savings and money market accounts. Yes, there are good rates available if you look around, however T-Bills continue to outperform most options available, and I Savings Bonds aren’t far behind.

Savings Deposits and CDs

According to the Federal Deposit Insurance Corporation (FDIC), the national average savings account rate is 0.61% as of June 2023. Many online banks, credit unions, and regional banks are offering competitive rates for savings accounts and CDs from 3.5 to 5 percent and higher in some cases. Most higher rate CDs in my area are for terms from 6 to 13 months.

A good deal compared to just a year ago when most rates were less than 1 percent and they are FDIC insured. Certainly, worth considering, many are hesitant to sign up for a Treasury Direct account and purchase short term Treasury Bills online.

I-Savings Bond Rates 

I Bonds issued May 1, 2023 to October 31, 2023 earn 4.3%. This includes a .9% fixed rate. Still a good rate overall for one of the safest investments available. This new rate runs through October 31, 2023. As I mentioned in an earlier article on this subject, you can’t cash them in for one year. Plus, if you redeem them within the first five years you lose 3 months interest. My I-bonds issued in 1999 have a 3% fixed rate, they are earning over 7% now!

If you purchase an I-Bond by no later than October 31st of this year, you’ll receive the 4.3% for six months from the date of purchase. The rate on your new I-Bond will change after six months to the new rate announced this coming November.

Treasury Bill Rates Continue to Rise

My article titled “Ditch your Bank’s Low Savings Rates” describes the advantages of Treasury bills compared to bank and credit union rates. I wrote the first article on this subject March of 2022 when my bank’s savings rate was .04%.

Today you can earn just over 5% on a 4, 8 or to 13-week T-Bill, the 26-week T-Bills are currently paying 5.445%. My last reinvestment for 13-week T-Bills yielded 5.274% on May 4th of this year and my 8-week Bills reinvested at 5.144% on May 23rd.

If you invested $50,000 in a 13-week T-Bill issued on 5/4/2023 that’s earning 5.274%, the Treasury withdrew $49,341 from your account. On the maturity date of 8/3/2023 they will deposit $50,000 into your account for a $659 profit.

Had you had this amount deposited in a bank savings account paying .61%, you would have earned $76.25!

I’m not sure when the Federal Reserve will reverse course, several additional rate hikes are planned this year. When rates start leveling off, it may be the time to move to longer term CDs or consider investing in 52-week T-Bills, or Treasury Notes that are issued in 2,3,5,7 and 10-year durations to lock in good yields

Treasury Bill Investment Rates

Projections

  • 2023 TSP G-Fund Annual Rate of Return: 3.877%
  • 2023 10-Year Treasury Yield: 3.73%
  • 2023 Average Yield of Treasuries over 4 Year Maturity: 3.87%
  • 2024 FERS COLA: 2.0%
  • 2024 Chained CPI for Previous 12 Months: 4.3%

Note: Above values are subject to change up to November 2023.

These projections are provided by Wilbert J Morell III, a retired Navy Engineering Project manager. He tracks this data monthly and feels confident the 2024 Social Security and CSRS COLAs will be between 2% and 2.8% and the FERS COLA 2.0%.

It all depends on the path inflation takes over the remainder of this year and Federal reserve policy. Time will tell.

Summary

Now that CD rates are improving; if you can lock up your discretionary savings for 6 to 13 months or longer, they are a viable option. CDs can be cashed in before maturity, however the penalties can be significant.

Short term T-Bills continue to provide impressive yields considering how many banks continue to low ball their savings rates for established accounts. My bank offers a relationship APY of 1% for accounts from $250,000 to $499,999.99 and 1.25% for accounts from $500,000 to $999,999.99! Accounts below these thresholds yield a meager .04%. These banks are betting on the reluctance of many to move their savings and checking accounts elsewhere.

The U.S Treasury updated their website recently and it has improved considerably after a difficult start up. Contacting them by phone still requires significant hold times.

Print out your T-Bill transactions and retain a hard copy for your records. I print the screen for each new purchase and reinvestment.

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

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Inherited Thrift Savings Plan (TSP) Account – Revisited

Posted on Friday, 23rd June 2023 by

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Recently updated, and at times contradictory TSP guidance concerning this subject, was presented in my previous article. I would like to thank Tammy Flanagan, a former federal employee, professional federal benefits specialist, and friend for contacted me about this issue.

The Beneficiary Conundrum

How assets of TSP accounts are distributed to beneficiaries, upon the owner’s death, is determined by complex tax laws. When an annuitant dies, the TSP establishes a Beneficiary Participant Account (BPA) in the spouse’s name if married and/or sets up a temporary account for all non-spouse beneficiaries. Temporary account holders have 90 days to either withdraw the funds or roll them over into an inherited IRA.

A spouse manages their account, assigns beneficiaries, withdraws funds, sets up an annuity if desired or moves the funds to a private sector IRA.

So far, not bad!

BPA Beneficiaries – A Different Outcome

This is where I screwed up and relied too heavily on disjointed guidance and the TSP Thriftline without digging deeper. My apologies.

The TSP’s Guide for Beneficiary Participants, Death Benefit Guide, and the TSP’s Tax Rules About TSP Payments clarifies how assets are distributed to beneficiaries of a BPA. This plan is set up exclusively for the spouse of a deceased annuitant.

Death Benefit Guide

I found this clarification on page 9 of the TSP Death Benefit Guide in a blue box at the top of the page, “If a beneficiary participant dies, the new beneficiary(ies) cannot continue to maintain the account in the TSP. Also, the death benefit payment cannot be rolled over into any type of IRA or plan.” The only person that can be a beneficiary participant is the spouse of a deceased annuitant.

According to Kim Weaver, Director of External Affairs for the TSP, “…under Code 402(c)(9) and (11), the beneficiary of a spouse is not considered a beneficiary of the employee, which is a requirement for a rollover. Beneficiaries from BPAs are subject to a 10% withholding unless the recipient elects otherwise.

Guide to Beneficiary Participants

This guide clearly states on page 11, “Death benefit payments made from your beneficiary participant account must be paid directly to your beneficiary(ies) These payments are subject to certain tax restrictions and cannot be rolled over to an IRA or eligible employer plan. In addition, your beneficiary(ies) will have to pay the full amount of taxes on the taxable portions of the payment in the year it is received.”

Their Tax Rules About TSP Payments Guide also states this on page 14 under Death Benefits.

The Down Side

The inability of the beneficiaries listed on a BPA, the account of a deceased annuitant’s spouse, to transfer their funds to an inherited IRA can be a game changer for many. This can create a significant tax burden the year of the death for the beneficiaries, especially for those with large accounts.

A spouse with a large inherited BPA may find it prudent to explore moving their TSP to an IRA at another institution. This affords your IRA beneficiaries the ability to roll over their inheritance to an inherited IRA when the spouse dies. Beneficiaries can then take withdrawals over a number of years to reduce their annual tax liability.

I intended to stay with the TSP until I discovered this was still the rule. Now I’m considering rolling over my TSP so my wife won’t have to contend with this when I’m gone. Where am I going!  Hate to think about that but reality is what it is.

As mentioned in the previous article this can also happen to non-spousal beneficiaries of a deceased annuitant. If the beneficiary dies before electing to transfer their temporary account to an inherited IRA, all of the funds must be distributed immediately to the beneficiaries listed in their temporary account. The funds can’t be rolled over to an inherited IRA.

Temporary Account Heads Up

While talking with one of the three TSP customer service reps I called for guidance, one mentioned the following. If you intend to transfer your temporary account to an inherited IRA, initiate the process as soon as possible. It takes time to process and coordinate the transfer.




Recommendation

The retirement process takes considerable time and attention. There are so many variables and you can easily miss something significant along the way.

I highly recommend Tammy Flanagan’s civilian federal employee’s consulting services that she and her staff have consistently provided since 2006. They offer professional pre-retirement consultation and can help you navigate the decisions you will make as you begin your transition to retirement.

Tammy Flanagan and her associates at Retire Federal are all highly experienced federal retirement benefits experts. They are equipped to provide you one-on-one retirement counseling on all of the steps you will take leading to your retirement including; assistance with choosing your best date to retire, computing an estimate of your net income (CSRS or FERS, Social Security, and TSP), helping decide when to claim Social Security, assistance understanding your TSP withdrawal options, determining whether Medicare Part B is necessary and much more.

Conclusion

I revised the previous article on our blog to incorporate this guidance. If you printed a copy for your retirement file, discard it and print the update blog article. All of the newsletter articles are posted on our blog.

You will find, at the end of each printed blog article, a complete list of all web address links that are related to that article. One of our subscribers recommended that we add web addresses for all of the links we publish with each newsletter article. They are all available with the blog article printout.

Helpful Retirement Planning Tools


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.

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

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Inherited Thrift Savings Plan (TSP) Account Guidance

Posted on Friday, 16th June 2023 by

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

Notifying the TSP

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

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

Phone:

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

Fax:

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

Mail:

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

Order of Precedence

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

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




Beneficiary Determination

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

Spouse Beneficiary of A Deceased Annuitant 

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

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

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

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

Non-spouse Beneficiary of a Deceased Annuitant 

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

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

Caution

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

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

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

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

The Mutual Fund Window

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

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

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

Conclusion

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

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

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

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

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

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

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

Helpful Retirement Planning Tools


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.

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

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

Posted on Friday, 2nd June 2023 by

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

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

The Weak Link

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

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

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

Set Up a Survivor’s Savings Account

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




Ways to Reduce the Wait

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

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

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

Reporting a Death to Social Security

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

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

Reporting a Death to the TSP   

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

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

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

Summary

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

Helpful Retirement Planning Tools


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.

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

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Death Benefit Delays – Don’t Let This Happen to You (Part 1)

Posted on Friday, 19th May 2023 by

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

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

Electing a Survivor’s Annuity

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

Survivor’s Annuity Cost

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

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




Reporting a Death

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

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

Forms Submission

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

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

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

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

Federal Employees Group Life Insurance (Life Insurance Claims)

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

Summary

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

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

Helpful Retirement Planning Tools


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

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