More Questions, More Answers

While I'm gathering more information for a series of columns on the open season for health benefits, I'm going to catch up on some more of your questions. FEHBP and TRICARE

Question: I have been approved for early retirement by my agency at 59 effective Jan. 11, 2008. I have had TRICARE (military) health benefits for the last seven years. You advised having Federal Employees Health Benefits Program benefits going into retirement. Why? Answer: I think that if you have the option to keep an extra health plan in your back pocket, it never hurts to do so. For those employees covered under TRICARE, you don't have to have five years of FEHBP coverage prior to retirement, since the TRICARE coverage can be used to meet that test. The only requirement is that FEHBP coverage be in effect on the date of retirement. Retirees who really don't want FEHBP because TRICARE is meeting their needs can choose to suspend their FEHBP coverage with the Office of Personnel Management after they retire. They can cancel that suspension at any future open season. Here's more information from OPM.

Open Season Changes Question: I am a CSRS employee planning to retire on Jan. 3, 2008. I would like to make a change in my FEHBP plan option during this year's open season, but my HR contact tells me it won't be processed because I will be an annuitant and not an employee when it would be effective on Jan. 6, 2008. I can't understand why that would make a difference and have asked where I can find that information, but she can't direct me to it. I have asked the question through the OPM Web site but have not received an answer. Can you clarify this for me before the open season lapses? Thanks.

Answer: It has to do with the fact that the open season change doesn't take effect until the first day of the new leave year (Jan. 6, 2008) and your retirement will be effective on Jan. 4. Since you will not be an employee on the effective date of the change, it must be processed by OPM. Even though you have requested a change, OPM needs information on the enrollment in effect on the day of your retirement, since this enrollment may remain in effect during a part of your retirement even though it is only just a couple of days. Your agency should have you complete the open season enrollment form SF 2809, and attach that to other health benefits documents when they are submitted to OPM. OPM will prepare another form, transferring the old enrollment in effect at the time of your retirement. In some cases, this change will be made electronically without the need for completing paper forms.

Medicare

Question: If I take federal health benefits into retirement, what is the benefit of signing up for Medicare Part B? Answer: I get this question all the time, and it's never easy to answer, especially when the person asking isn't sick. Here's what it comes down to: In my opinion, having your FEHBP in combination with Medicare A and B provides "Cadillac" health coverage when you are retired and over 65. This is because Medicare will become your primary insurance on outpatient and inpatient health care, and your FEHBP becomes secondary payer. Since this arrangement benefits your FEHBP carrier, they will generally waive your normal out-of-pocket expenses (deductibles and co-payments) if you are covered by a traditional fee-for-service health plan (i.e., Blue Cross Standard Option). The decision is a little stickier if you are enrolled in an HMO, but having Medicare will provide the luxury of using doctors outside your HMO network.

Here's more information from the largest FEHBP provider, Blue Cross Blue Shield: Medicare and You. And here are some previous columns I've written on this subject:

• Medicare ABCs (April 21, 2006)
• More on Medicare (April 28, 2006)
• Part B or Not Part B (Sept. 28, 2007)

Question: I'm still working and covered under the Civil Service Retirement System Offset. I am applying for Social Security in January, since I will no longer be subject to the earnings limit because I will be at the full Social Security retirement age. My husband was CSRS and died. Our health premiums were out of his check and now are deducted from my survivor annuity. A representative from the Social Security Administration told me that I could not waive Medicare B without paying a late enrollment penalty (10 percent for each full year I've delayed enrollment) when I retire. This is because Medicare will be my primary insurance. Is my only option to take the health insurance premium out of my salary instead of the survivor annuity? Also, will that count as five years of continuous service when I retire if it is in the next two or three years?

Answer: You may enroll in Medicare Part B after age 65 without incurring the late enrollment penalty if you are covered by health insurance through your current employment. You would meet this criterion if you change your health benefits coverage from your survivor annuity to your salary. In addition to allowing you to delay Medicare Part B enrollment, you also won't have to pay income tax on the salary used to pay your health insurance premiums. Talk to your benefits office at your agency to request this change and coordinate the effective date of the change with OPM when you cancel your coverage as a survivor annuitant. Remember that your open season change as an employee won't take effect until the first pay period of 2008. Your coverage as a family member under your husband's FEHBP plan will count toward meeting the five years of coverage retirement required when you retire. You won't have to work an additional five years after you make this change.

Service Issues

Question: I am covered under the Federal Employees Retirement System. At 58 1/2, I will have 30 years of service. I plan to retire somewhere between 58 1/2 and 60. I was hired under a Temporary Appointment Pending Establishment of Register program for my first two years before becoming career conditional. My payback for creditable service for those TAPER years is about $4,500. Is there a benefit to paying this amount?

Answer: If your entire career has been covered under FERS (except this two-year period) and if the TAPER service was performed prior to 1989, then this is a worthwhile deposit. If you don't pay the deposit, that two years of service will not count toward eligibility for or computation of your FERS retirement. Since you won't have your 30 years in until after you reach the FERS minimum retirement age, I think it is important for you to consider this deposit.

In the computation of your FERS benefit, this two years will be worth 2 percent x your high-three average salary (or 2.2 percent if you retire after 62). If your high-three was $50,000, this would amount to $1,000 per year in additional FERS benefits. I've written about temporary service deposits before: Buying Retirement Credit (Feb. 10, 2006).

Question: I worked for the government for three different agencies from 1977 through 1983. When I resigned, I received my CSRS contributions in a lump sum. I re-entered government service in 1984 under CSRS but later changed to FERS. I recently received a retirement estimate and it shows a monthly reduction in my annuity unless I repay the refund, which is now significantly higher due to interest. I will receive full credit for my "refunded" service whether I repay it or not, but I would like to know if there's a formula I can use to determine whether it would be financially beneficial to repay it.

Answer: Look at the amount of your "redeposit" and then look at your retirement benefit with and without this payment. For example: If you owe $15,000 as the CSRS redeposit and the reduction to your retirement is $75 per month or $900 per year, then you would need to earn $900 a year on a $15,000 investment to be able to earn as much on your investment as you would be having reduced from your CSRS retirement. That would be a 6 percent rate of return.

Keep in mind that these rules pertaining to refunded CSRS contributions can be different if you took the refund for service that ended after Sept. 30, 1990, or if this service would become part of a FERS retirement. (In the above example, the employee will have a CSRS component since he transferred to FERS with more than five years creditable service under CSRS).

Question: I have a question about whether I should pay the military deposit for FERS retirement or collect my retirement from the Naval Reserves next year when I turn 60. My plan was to stay at my present job for 10 years and build up my Thrift Savings Plan account. Is that a good way to go? I have 30 years in the Reserves.

Answer: You can have your cake and eat it too! You will not have to waive your retirement from the Reserves in order to count your active duty under FERS. You will need to pay the military service deposit in order to receive credit for your active duty towards your FERS Basic Retirement benefit. To learn more, see the following columns: Military Service Payback (Feb. 24, 2006); Mixing Military and Civilian Retirement (June 30, 2006).

TSP Taxes

Question: In your last column, under "Thrift Savings Plan Withdrawal Taxes," your last sentence says, "The additional tax generally does not apply to payments …" What is this additional tax? You mention earlier both the regular income tax and the early withdrawal penalty, but I don't know what this additional tax is. Can you explain?

Answer: Your TSP withdrawals will be subject to ordinary income taxes when you start to spend the money you've invested in your TSP account. In other words, if you choose to take a series of monthly payments and begin receiving $2,000 per month from your TSP account, you will add $24,000 to your reported taxable income to the IRS. In addition to ordinary income taxes, some people also have to pay a 10 percent early withdrawal penalty tax if they begin to withdraw their retirement savings too early. This is the "additional" tax that I was referring to. Here's the TSP's explanation of the 10 percent penalty.

Deferred FERS Retirement

35389 Question: I plan to retire at age 44 and am under the FERS system. I understand the government considers this a resignation. I believe that I can defer the retirement annuity until I'm 56 or 60. Is this then a lump sum disbursement or would I receive the annuity from that point on in monthly payments? Also, can I leave my TSP intact or do I have to have an annuity purchased or roll over into an IRA (since I don't intend to cash out my retirement and take the penalty)?

Answer: You would be entitled to a deferred annuity under FERS. This would consist of monthly payments for life beginning as early as your minimum retirement age -- 55 to 57, depending on your year of birth -- if you have at least 10 years of service, or you would be eligible at 62 if you have more than five but less than 10 years. Here is a column I wrote last year on this subject that also addresses what will happen to your other federal benefits: Leaving Early (May 19, 2006).

Best Date to Retire

Question: As a follow-up to the article you wrote in November 2006 on best dates to retire in 2007, could you please update to the best dates to retire in 2008 for a CSRS employee?

Answer: I've already done such a column for next year: Best Dates to Retire 2008 (July 27, 2007), along with a follow-up column: Retirement Dates: Q&A (Aug. 3, 2007).

Social Security Eligibility

Question: I am a CSRS employee and have 19 quarters paid into Social Security. When I retire, I plan on going back to work and getting the the rest of the 40 quarters required for Social Security. My question is: If I'm 64 when I reach eligibility, will I still have to take a reduction in my Social Security benefits?

Answer: You are referring to the effect of the Windfall Elimination Provision. The answer is yes. It doesn't matter at what age you qualify for Social Security, your benefit will be computed under the modified formula if you also are receiving a CSRS retirement at the same time. To learn more about the Windfall Elimination Provision, see Gone With the Windfall (Sept. 1, 2006).

Question: I have a computation date of September 1971. I am 64 years old and eligible to retire any time. I am in good health. However, since I am CSRS, and eligible for Social Security as well, what would be the best avenue for me to take when it comes to the best time to retire? Should I start applying for Social Security now? I don't want to be paying the government to let me work!

Answer: You will be able to receive your Social Security benefits even if you continue working once you are at your full Social Security retirement age. This is between 65 and 67, depending on your year of birth. Here's an SSA calculator to tell you your full benefit age.

As far as deciding the best time to retire under CSRS, that's a loaded question. There are a lot of things to consider, not the least of which is "What are you going to do after retirement?" I have written on this subject earlier this year: When to Retire (July 20, 2007).

Applying for Retirement

Question: I'm fully eligible for FERS retirement ( more than 60 years old, more than 30 years service). I'm really unclear about how soon prior to my desired date of retiring I should put in the application. And what if I change my mind and decide to move that date to the right several months after putting the application?

Answer: Retirement is considered a voluntary action in most cases, so you may rescind your application up to the date of your retirement. One exception is if you've signed a statement accepting a voluntary separation incentive payment. Generally speaking, most agencies would like at least notice of at least 30 days that you are retiring. I would not recommend turning in your application more than 120 days ahead of your retirement date since there is not much that the agency can do with your application until it gets closer to your date.

In large agencies, giving more than 30 days notice might get your application worked on well before the date of your actual retirement, so that you will have an opportunity to ask questions and the agency can alert you to any discrepancies or issues related to the processing of your retirement benefits. Your actual planning should begin much earlier -- like now!

Every once in a while, there is something that follows my column that is not a question, but simply a compliment. Thanks for comments like the following: "Excellent columns, Tammy. Keep up the outstanding work. Federal retirement is unnecessarily complicated -- one misstep can cost you big time." I'm like a trained seal: I love the applause. And I'm happy if I have helped you to understand the retirement process a little better.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.