How to Complete FERS Retirement Paperwork | Financial Advisor | Christy Capital Management

Описание: If you’re getting ready to complete your federal retirement paperwork, there are some important decisions you need to make.

The first decision is the survivor benefit election. FERS employees have three survivor benefit options. The first is a 0% survivor benefit, where if you die, your beneficiary (for our example, the spouse) gets nothing. The spouse won't continue getting a check at your death, but also, will not get the healthcare anymore. There is a tie between FEHB and the survivor benefit. The rule states that to stay on the FEHB, the person has to still be on the annuitant roles. For your spouse to be on the annuitant role, they have to have been left a survivor benefit. The only way to choose this option would be if both you and your spouse are federal employees and when you die, your spouse can stay on the healthcare because they're already on the annuitant role.

The next option is the 50% survivor benefit, where at your death, your spouse will get half of your check. This costs 10% of your pension. One of the drawbacks of this survivor benefit is that the price is based on your pension. So as you're hopefully getting a cost-of-living adjustment most years, as your pension gets higher, the cost of this benefit goes up.

If your spouse dies first, another drawback is you're not allowed to change beneficiaries to anybody else. You don’t pay for the survivor benefit anymore, but you don't get back the money you paid prior to your spouse's death.

There is also the 25% survivor benefit option, which costs 5% of your pension. If your spouse needs more benefit, you could look at buying life insurance. The kind of life insurance to get to replace the Survivor benefit is the kind that lasts forever and the payment stays the same forever. That way, as the survivor benefit costs more every year, the life insurance would stay the same price. That is one benefit of life insurance. You can also change beneficiaries to somebody else. If you’re going to get life insurance, make sure you get approved first. Once you’ve made a survivor benefit election, you can't change it.

The second decision is regarding your FEGLI life insurance. The basic option has the same cost your whole career. Option B, up to five times your salary, has been going up in price every five years. Once you hit age 50 and definitely by 60, it’s gets really expensive. At retirement, the basic gets a lot more expensive. So if you need life insurance and your health is good enough, you may consider getting outside life insurance for the amount you need, that will stay the same price, like a term policy. If you get a 15 year policy, the price will be the same for 15 years, but in year 16, you won’t have any coverage. You need to make sure that your plan works well even in year 16 if you don’t have coverage then.

If you get the type of life insurance that lasts forever, that price will also stay the same. That’s a benefit over FEGLI. You can reduce or cancel your FEGLI any time. Many people choose the 75% reduction option for basic, which means you will continue to pay the same premium you’ve been paying up until your 65th birthday. At 65 it's free, but your benefit starts dropping 2% per month until 75% of it is gone and you’ll get 25% of your final salary for free.

Another decision is about your TSP. At age 59 1/2, or at retirement no matter your age, you can move your TSP into an IRA. The reasons to do so are that first, you have more investment options available. The TSP has added a mutual fund window but it’s very cumbersome to use, and the fees are a lot higher. Second, if you decide to get help from someone that understands financial planning and understands the FERS system.

Another thing that the TSP doesn’t let you do is do Roth conversions. This is taking Traditional money and moving it to Roth year-by-year. You move enough to make a difference, but you don’t move so much that you go way up in the tax brackets. This type of tax planning is not available in the TSP.
If you are special provisions, or retire under age 59 1/2, you'll want to leave some money in the TSP. The TSP allows you to take distributions without the 10% penalty. In an IRA, there's a 10% penalty if you're under 59 1/2.

The information provided is not intended as tax or legal advice. Figures shown are for illustrative purposes only furthermore, the information nor the illustrations provided may not be used to avoid any tax penalties. This content represents the general views of Christy Capital Management and should not be regarded as personalized investment advice Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice. Retirement Benefits Institute, Inc., and a portion of its contents merged with Christy Capital Management Inc. Brandon Christy, former President of Retirement Benefits Institute, is also the current President of Christy Capital Management, Inc, a registered investment adviser.