Retirement planning pro-tips for feds

Retirement planning is a long game that requires consistent saving and intentional investing — and a working knowledge and understanding of your federal benefits. Wherever you are on your retirement journey, there are things you can do now to achieve your retirement goals. 

As I was drafting this column, I realized that I was trying to put a pre-retirement planning seminar together for this weekly column. Unfortunately, to do that job justice would require writing a much longer guide to retirement planning. If you can attend a pre-retirement seminar at your agency, it will be worth your while, even if you only learn one or two things. The small things can make a big difference to your financial security and allow for a smoother transition to retirement.   

Here are some crucial tips for every stage of your federal career: 

New Hire (on the job for five years or less) 

• Understand the parts of the Federal Employees Retirement System (FERS) 

• FERS An Overview of Your Benefits 

• FERS Information 

• Learn about your Minimum Retirement Age (MRA) 

• Be sure that you find documentation of your prior federal civilian and military service in your electronic Official Personnel Folder (eOPF) or OPF. If documentation is missing, let your retirement specialist know so that it can be retrieved and included in your service history for leave accrual and future retirement eligibility and computation.   

• Consider paying a deposit into FERS for military service, non-covered civilian federal employment performed before 1989 (civilian service not covered by FERS deductions after 1988 is not currently creditable), and any refunded FERS contributions that you may have if there was a break in your federal career allowing you a return of your retirement contributions. 

• Understand the value of your sick leave and annual leave 

• Sick Leave is your “short-term disability” protection. Treat it like “gold!”  You earn four hours per pay period which translates to six months of paid time off after 10 years and a full year of paid time off after 20 years of federal employment.   

• Know the rules for using your leave: 

• Fact Sheet:  Annual Leave (General Information) 

• Fact Sheet:  Sick Leave (General Information) 

• Update your designation of beneficiary forms   

• Unpaid Compensation SF 1152 

• Federal Employees Group Life Insurance SF 2823 

• Federal Employees Retirement System or Civil Service Retirement System SF 3102 

• Thrift Savings Plan To designate a beneficiary or beneficiaries, log in to My Account on tsp.gov or use one of the Thrift Line Service Center options listed in the Death Benefits booklet. Remember that once you select a beneficiary(ies), you cannot cancel and return to the order of precedence. You will only be able to designate a new beneficiary. 

• Understand how the TSP works  

• Online Learning Opportunities 

• How Does Compound Interest Work? By Mark Catanzaro, St. Louis Federal Reserve Bank 

• Core Funds vs L Funds vs Mutual Fund Window 

• Increase your TSP savings:  

• New hires have 5% of their basic pay allocated to one of the TSP Lifecycle Funds, using their age to determine the time horizon for which year of L Fund is used. In addition, your agency contributes 1%of your basic pay to your TSP account, and they match your contributions dollar for dollar up to 3%. When you contribute 4% and 5%, you receive 50 cents on the dollar matching. This means that new hires are already contributing 10% of their basic pay to the TSP!   

• Try to increase your contributions, especially if you are earning a higher salary.  Higher wage earners will receive a smaller replacement of pre-retirement income from Social Security that can be offset by a higher rate of savings. The 2024 elective deferral limit for 2024 is $23,000 and allows an additional $7,500 for employees who turn 50 in 2024 or older.   

• Life changes can free up more money for retirement savings.  Paying off student loans and getting married with two incomes may provide opportunities to accelerate your savings. Also learning the difference between wants and needs can help prioritize retirement savings.  

• Read, If You Can: How Millennials Get Rich Slowly, by William Bernstein for some practical advice.     

• Roth vs. Traditional: Pay me now or pay me later – taxes, that is. If you are starting your career and you think you will be in a higher tax bracket later, making Roth contributions is a strategy that can provide you with a tax-free bucket of money in retirement – if the laws don’t change, that is. On the other hand, saving pre-tax dollars in the traditional TSP will give you a tax break now and may allow you to save more early in your career.  Weigh the pros and cons.   

• The TSP allocation you have could be too conservative 

• The TSP allocation you have could be too aggressive New hires who have decades of saving ahead of them generally can’t be too aggressive as there is plenty of time to recover from a downturn in the market. 

• Set up your “My Social Security” account: 

• This account will let you access your earnings record, age-appropriate information about Social Security benefits and estimates of the benefits you are earning.  Create an account for new users 

Mid-career (more than five years from retirement eligibility or actual retirement date) 

• Got the “midcareer” itch? Many employees begin to wonder if the grass is greener in the private sector. Look before you leap and consider the following: 

• Why not wait until you are eligible for retirement before you make a change. It might not be too far into the future.   

• Leaving early means giving up lifetime FEHB coverage, life insurance, and credit for unused sick leave toward your retirement computation.   

• Deferred retirements are not entitled to the FERS Special Retirement Supplement to hold you over until you qualify for Social Security at age 62. When contemplating a move to the private sector, consider and compare workplace flexibility; leave policies and accrual; retirement benefits, insurance options; and of course, salary. 

• If you make the decision to leave:  

• Consider keeping your FERS retirement contributions on deposit to allow a deferred retirement benefit that is payable later if you have at least five years of creditable civilian federal employment.   

• Consider keeping your retirement savings in your TSP account to enjoy low administrative expenses and the ability to transfer other retirement savings in later.   

• Use the TSP Scorecard to compare the TSP with another employer’s retirement savings plan 

• You may continue your FEHB coverage for up to 18 months following your separation (this is called Temporary Continuation of Coverage comparable to COBRA in the private sector). Under TCC, you will pay the employer and the employee share of the premium.   

• Be sure to use up your flexible spending account dollars before you leave. The balances in your Health Care FSA (HCFSA), Limited Expense Health Care FSA (LEX HCFSA) and Dependent Care FSA (DCFSA) are treated differently if you separate before the end of the calendar year. 

• Your HCFSA or LEX HCFSA will terminate as of the date of your separation or retirement. There are no extensions. Any eligible health care expenses incurred prior to the date of separation will still be reimbursed but those incurred after the separation date are not reimbursable, even if you accelerated your allotments. If you used your entire elected amount before FSAFEDS has deducted it from your pay, you will not be responsible for the remaining allotments. 

• Your DCFSA remaining balance can continue to be used to pay for eligible dependent care expenses until your account balance is depleted or the end of the calendar year, whichever comes first. 

• Staying for the long haul! 

• Make sure you are on track with your savings (review the TSP tips for new hires) 

• Learn the pros and cons of a TSP Loan before you apply for one. 

• Try saving for big items such as a car, vacations, and other major outlays rather than using credit or loans.   

• Update your designation of beneficiary forms   

• The TSP allocation you have could be too conservative  

• The TSP allocation you have could be too aggressive 

• Understand when you can use your leave 

• Family and Medical Leave Act (FMLA) 12-Week Entitlement 

• Fact Sheet: Voluntary Leave Transfer Program 

• Begin to project your retirement benefits payable at your MRA, age 60, and at age 62.   

• At your MRA, you may find that you are eligible for either a reduced MRA + 10 benefit or an unreduced immediate retirement benefit with a supplemental payment to help you retire earlier than age 62.  Although you may be eligible to retire, can you afford to retire? 

• At age 60, you will only need 20 years of creditable service to retire with an unreduced, immediate retirement benefit, and be entitled to a FERS Special Retirement Supplement to age 62. 

• Age 62 is worth considering for a variety of reasons: 

• To be eligible for an immediate retirement at age 62, you only need five years of creditable civilian service covered by FERS. 

• If you have 20 years of creditable service (including credit for unused sick leave), you will qualify for a higher computation factor for your benefit resulting in a ten percent increase just for have 20 or more years of service (and being age 62 or older), 

• Cost of living adjustments for most FERS retirees begin at age 62.  Remember that if you retire before 62, your retirement under FERS (and the FERS Supplement) will not increase until after you turn 62 years old. Exceptions for special groups such as law enforcement officers and firefighters retiring under FERS along with disability annuitants and survivor annuitants. 

• At age 62, you are now eligible for Social Security retirement benefits which will be more than the FERS Supplement because they will be based on your lifetime of Social Security covered employment rather than only your civilian service covered by FERS. Social Security benefits are adjusted annually for inflation.  

Pre-Retirement (within five years of your retirement eligibility or actual retirement date) 

• Run the numbers 

• Compute your FERS Basic Retirement Benefit (or have your HR office do it for you). Consider reductions for survivor elections, former spouse apportionments and survivor benefits, age reduction for MRA + 10 option, and proration of the benefit if you ever worked part-time.   

• Your retirement benefit will also be subject to monthly withholdings for federal and state income tax (not all states tax federal retirement benefits, however), and insurance (FEHB, FEGLI, FLTCIP, and FEDVIP).  

• If you are going to file for Social Security retirement, get an updated estimate at www.ssa.gov. Your benefit will be partially taxable on the federal level and there are about six states that also tax SSA benefits.  

• There are resources below under the Retirement Transition section that will help you discover the ways to create retirement income from your TSP savings.   

• Update your designation of beneficiary designations (refer to the “New Hire” section of this article for links to the forms). 

• Complete retirement forms ahead of time and review. If available, set up pre-retirement counseling to ask questions, review your estimated benefits and learn how your agency processes your retirement.   

• SF 3107 Application for Immediate Retirement (FERS) 

• Applying for Immediate Retirement Under FERS 

• RI 92-19  Application for Deferred or Postponed Retirement (FERS) 

• Applying for Deferred or Postponed Retirement (FERS)  

• SF 2818 Continuation of Life Insurance (FEGLI) 

• Information and Instructions for Completing an Application for Phased Retirement 

• Don’t forget about your Flexible Spending Accounts: 

• The balances in your Health Care FSA (HCFSA), Limited Expense Health Care FSA (LEX HCFSA) and Dependent Care FSA (DCFSA) are treated differently if you separate or retire before the end of the calendar year. 

• Your HCFSA or LEX HCFSA will terminate as of the date of your separation or retirement. There are no extensions. Any eligible health care expenses incurred prior to the date of separation will still be reimbursed but those incurred after the separation date are not reimbursable, even if you accelerated your allotments. If you used your entire elected amount before FSAFEDS has deducted it from your pay, you will not be responsible for the remaining allotments. 

• Your DCFSA remaining balance can continue to be used to pay for eligible dependent care expenses until your account balance is depleted or the end of the calendar year, whichever comes first. 

• Know the value of your leave:  

• Annual 

• Fact Sheet:  Lump Sum Payment for Annual Leave 

• Sick 

• Retirement Facts 8:  Credit for Unused Sick Leave Under the Civil Service Retirement System (also applies to FERS) 

Retirement Transition (application to first regular retirement benefit) 

• The health plan you are in may not be the best health plan for retirement. This is especially true if you enroll in Medicare Part B once you have retired.  FEHB plans wrap around Medicare nicely so you can avoid most out-of-pocket expenses (deductible, copays, and coinsurance). It pays to compare your current coverage with plans that offer incentives to enroll in Medicare. Members of the National Active and Retired Federal Employees Association have access to a series of webinars that can help you understand and choose the best plan for you. In addition, the Checkbook Guide to Federal Health Plans can provide comprehensive information for employees and retirees during open season.   

• Retirement is not a Qualifying Life Event, however if you move outside of your FEHB plan’s service area or if you are 65 or older, you can use a QLE to change plans outside of open season.  See a list of all QLEs on form SF 2809 or OPM Form 2809. 

• Retiring on Dec. 31 and you want to change your health insurance for retirement?   

• Employees retiring at the end of the year with Jan. 1t retirement commencing dates should not use the agency’s self-service system to make an open season change. Instead, you should complete form SF 2809. They will attach SF 2809 to other health benefits documents when they are submitted to OPM. If an open season change has already been processed, but you unexpectedly decide to retire before the effective date of the change, the losing agency will void all open season forms and transmit the existing enrollment (if any) to the gaining office (OPM). You may be asked to complete an SF 2809 if you wish to change your coverage effective on Jan. 1.   

• Were you covered by your spouse’s health insurance within the five years immediately preceding your retirement? 

• Provide proof of your coverage so that you may enroll later after you have retired.   

• Remember that coverage under Tricare counts toward the 5-year test for continuing FEHB in retirement, but you must be enrolled in an FEHB plan on the day you retire.   

• Your HR retirement specialist will assemble your retirement package in this order:  https://www.opm.gov/retirement-center/publications-forms/benefits-administration-letters/2012/12-103attachmentc.pdf  (Yes, it is paper, and it is two-hole punched, put in an envelope, and mailed to OPM!) Health Benefit changes are on the top of the stack of papers! 

• Make copies of everything that you fill out before you turn in your applications. 

• Brush up on tax information 

• W-4P  Withholding Certificate for Periodic Pension or Annuity Payments 

• IRS Publication 721 Tax Guide to U.S. Civil Service Retirement Benefits 

• Tax Rules About TSP Payments, TSP Publication 26 

• Request to withhold taxes from your Social Security benefit  

• Be sure to have six months of living expenses in the bank before you retire to allow for delays in processing your benefits. 

• Update your designation of beneficiary forms 

• Information for FERS Annuitants 

• When you receive your CSA (Civil Service Active) number from the Office of Personnel Management, it is time to set up your Services Online account.  This will allow you to make changes such as updating your address, electing federal and state tax withholding, view your annuity statement and more. 

• Learn how to manage your TSP account in retirement 

• The TSP allocation you have could be too conservative  

• The TSP allocation you have could be too aggressive 

• Consider the options for distribution of your TSP account 

• TSP Distribution Booklet 

• Withdrawing Your TSP Account after Retirement 

• One option for a TSP distribution is to purchase a TSP life annuity through the TSP vendor. To compute an estimate of this, use the TSP annuity calculator. The interest rate index used to help determine your benefit amount is higher than it’s been in quite a while. The current rate is 4.825% and you can see the historical rates here. Learn about this option in the TSP Annuity Fact Sheet.   

• Other, more flexible options include requesting monthly, quarterly, or annual installment payments directly from your account; partial payments, as needed; and you may also transfer some or all your TSP to an IRA. 

• Make sure that your address is current with the TSP and be sure to enter your bank information by accessing your account at www.tsp.gov.   

• This will make your withdrawals go smoother and take less time to process.  

• For your protection, the destination you wish to send your TSP payment to must be on file for at least seven days before it can receive funds. This includes any postal address or any direct deposit information you’ve entered. Make sure this information is on file for at least seven days before you start your request. Lost, stolen, damaged, or misdirected checks can take six weeks or longer to replace. 

I am sure that I’ve left out some things on this list, but if you can do some of the items listed, it will help you be better prepared for your life after retirement. All the best to those of you who are getting ready to complete your career of dedicated federal service and move into the next chapter!