Q&A with the experts: Retirement, benefits and TSP

Last month, Tammy Flanagan, senior benefits director for the National Institute of Transition Planning, joined Federal News Radio's senior correspondent, Mike C...

Benefits and retirement planning are always hot topics around the federal water cooler.

Last month, Tammy Flanagan, senior benefits director for the National Institute of Transition Planning, joined Federal News Radio’s senior correspondent, Mike Causey, to answer feds’ questions as part of an exclusive online chat.

The experts fielded dozens of questions from readers — but couldn’t get to all them. So, Federal News Radio went back to Tammy — and other experts — to answer another round of questions for readers.

Below, find the experts’ take on everything from the best date to retire this year and what happens to insurance premiums when you retire to whether the Thrift Savings Plan could offer in-plan conversions in the future.

View questions and answers from the original online chat.

Q&A with Tammy Flanagan
Senior Benefits Director
National Institute of Transition Planning

Do I need Dental and Vision Health Insurance in retirement? What are the benefits?

Most FEHBP health plans have limited dental and vision benefits. Supplemental dental and vision plans under FEDVIP provide employees and retirees additional coverage for these expenses. These plans do not have a “five-year” test which means you can drop them and re-enroll, even after you have retired. You can learn more about FEDVIP here.

So many people retire at the end of the calendar year. What are the benefits in doing so versus retiring at other times of the year? What is the absolute best day of the year to retire and why?

Under both the Civil Service Retirement System and the Federal Employees Retirement System, if you retire on the last day of the month and are eligible for an immediate retirement (meaning you meet the age and service requirements for an immediate optional retirement, as opposed to a deferred retirement or involuntary retirement), you will be paid your salary for your last month of service and will receive a retirement payment for the following full month of retirement. Under CSRS and CSRS Offset, there is a three-day grace period, meaning if you choose the first, second or third day of the month as your retirement date, you will be eligible for an annuity for the remainder of that month. Many employees like to retire before the end of the leave year so they can receive the maximum lump-sum annual leave payment.

The strategy involves saving up your annual leave accruals throughout the year leading up to your retirement so you have a balance that will be converted to a lump-sum payment when you separate. It is not uncommon for federal employees to carry over 240 hours of annual leave into the year they plan to retire and then work all 26 leave periods (27 in some years). At an hourly rate of $31.15, the payment for the total of 448 hours of annual leave would be $13,955.20 (before taxes). The best date to retire for one person may not be the best date to retire for the next. It depends on what you are trying to accomplish. The best date for you is when you are mentally prepared and financially ready for the next stage of your life!

After I retire and my Blue Cross/Blue Shield coverage becomes secondary (supplemental) insurance, will my premiums for Blue Cross remain the same?

Medicare pays first (becomes primary) when you are over 65 and paying your premiums for your FEHBP from your retirement benefit rather than your pay check and enrolled in Medicare A and/or B. Medicare Part A is used when you are paying for inpatient expenses from a hospitalization and Part B covers outpatient care, doctor visits, lab work, physical therapy, durable medical equipment, etc. Your premiums for your FEHBP plan will be the same whether you enroll in Medicare or not. The benefits may be richer when Medicare becomes the primary payer. Check Section 9 of your FEHBP brochure to learn more. BC/BS Standard Option will waive your deductibles, copayments and coinsurance when Medicare is the primary payer.

If I retire after eight years in FERS, will the feds continue to pay the same amount for my health insurance? Am I permitted to work after I retire, take a few years off from my health insurance, then restart it?

If you meet the requirements for immediate retirement, you will be eligible to maintain your FEHBP coverage as long as you were covered for the last five years of your career (or your first opportunity to enroll, if less than five years). The government continues to pay on average 72 percent of the premium for retirees who are eligible to maintain their FEHBP coverage. If you retire at age 62 or later with at least five years of creditable civilian service, you would meet the requirement for immediate retirement. Other requirements are 60 with 20 years or the FERS minimum retirement age (55 – 57, depending on your year of birth) with 30 years. There is also an option to retire with a reduced benefit at the MRA with 10 years of service. An immediate retirement can also be a VERA (Voluntary Early Retirement Authority or “early out”) and a disability retirement.

For those folks who want to retire at their minimum retirement age, but are not yet 62, I understand they can defer their annuity, but they need to figure out what to do for health insurance until they do turn 62. What do most people do to fill that insurance coverage gap?

Under the “MRA + 10” retirement option, you are correct. Some people will postpone receiving their retirement benefit to avoid the age reduction applied to this type of retirement. During the period of separation before the retirement benefit is received, these separated employees must use other health insurance from another employer or through a spouse who may provide insurance. There is also the option for temporary continuation of coverage for up to 18 months after you separate from federal service, but you would be required to pay both the employee and the employer share of the premium for this coverage. As long as the employee had five years of FEHBP coverage during their last five years of federal service, they will be able to reinstate their health insurance when they file for the postponed MRA + 10 retirement benefit.

I am a CSRS employee. Why is Medicare deducted from my salary? Will I receive Medicare when retire at age 57?

Federal Employees have been paying the Medicare tax since 1983. When you reach age 65, you will qualify for premium free Medicare Part A and you will also be eligible to enroll in Medicare B, C, and D as well. You can learn more about Medicare here. You can also learn more about how your FEHBP plan coordinates with Medicare in Section 9 of your 2014 FEHBP plan brochure. You can find your plan brochure here. Just click on your state to find your health plan.

In general, am I better off saving all my leave and getting a big check if I retire at the end of the year? Or am I better off working into the next year to get enough additional sick leave to round out to get an additional month of service?

I vote for saving your annual leave and getting paid in a lump sum for your accumulated and accrued annual leave. For an employee who earns $30 / hour ($62,610 / year), 448 hours of annual leave would be worth $13,440 (before taxes). One month of sick leave would add 1/12 of 1 percent of your high-three average salary to your annual retirement benefit under FERS (1.1 percent if you are 62 or older with at least 20 years of service under FERS and 2 percent if you are covered under CSRS). If your high-three average salary was $60,000, then one month of sick leave would be worth $50 / year or $4.17 / month. One month of sick leave is around 170 hours.

I plan to retire in 2016 with 34 years of service. I will be 62-years old. My wife who is also a federal employee will have 31 years in at the time. However, she will only be 51-years old. I would like her to leave with me. Can she resign and just wait until she is 56 to receive her pension? Is there any penalty we need to worry about? Would she be eligible for the FERS supplement at 56?

Yes. Your wife would be eligible to receive an unreduced FERS retirement benefit when she reaches her Minimum Retirement Age (55 – 57, depending on her year of birth — it is 56 if she was born between 1953 and 1964). The benefit would be computed on the salary and amount of service that she had when she separated. She would not, however, be entitled to receive the FERS supplement unless she continues to work until she is eligible for an immediate retirement at her MRA. She also would not be entitled to maintain her federal insurance benefits (other than the Federal Long Term Care Insurance, if she purchased this benefit).

Q&A with Kim Weaver
Director of External Affairs
Federal Retirement Thrift Investment Board:

When is the TSP going to implement an in-plan Roth conversion option? In other words, when will the FRTIB come to a decision on allowing current TSP tax-deferred account holders to convert these to a Roth-type basis? This is offered at many private sector companies.

The Federal Retirement Thrift Investment Board — the agency charged with administering the TSP — is conducting a review of a variety issues related to the Roth TSP option. These include allowing in-plan conversions, as well as allowing participants to request withdrawals from specific pots of money, i.e., a withdrawal from only the Roth balance or only the pre-tax balance. That review should be completed by Sept. 30, 2014. Should the FRTIB decide to make these changes, a detailed execution plan to allow for the programming and communications materials changes would have to be developed and implemented.

Is it possible to get a net figure from the TSP if I were to ask for all of my TSP money to be given to me in one lump sum? I actually am not thinking about doing that, but I would like to know how much they would take out of the full amount in taxes, etc. What about for a single partial withdrawal?

The tax amount that would be withheld depends on the age and status of the participant. Assuming the person is eligible under the tax rules for a withdrawal from his/her TSP account without an early withdrawal penalty, the TSP would withhold 20 percent of the amount received by the participant for Federal tax purposes. The TSP does not withhold for state taxes. If a participant has his TSP account transferred directly to an IRA, no taxes are withheld until the money is withdrawn from the IRA. If a participant has questions about the amount that would be withheld on a complete or partial withdrawal, they should call the TSP ThriftLine at 1-TSP-YOU-FRST (1-877-968-3778).

Is the Voluntary Contribution Program (CSRS) an eligible program for TSP transfers?

Only the interest attributable to the voluntary contributions may be transferred to the TSP.

When I retire, can I transfer all of my TSP out to another brokerage? Or do I have to leave some in the TSP in order for my spouse to continue health insurance with the FEHBP?

Your TSP account does not impact the ability of you or your spouse to participate in FEHBP. When you retire, you can withdraw your TSP account balance and transfer it to an IRA. However, once you withdraw all of your funds from the TSP, you are not able to return them to the TSP. You should consider that decision very carefully. The TSP is a low cost plan and the fees charged to TSP participants are significantly lower than the industry average. Before deciding to withdraw your TSP balance, you should determine whether any additional benefits you may receive from the IRA are worth the additional cost you will be paying.

Is it better to allocate a specified amount to receive from your TSP rather than get it converted to a lifetime annuity? I was told this would save you money.

It appears that you are asking whether it is better to receive monthly payments from your TSP account based on your life expectancy, rather than using your TSP account balance to purchase an annuity, either through the TSP or another vendor. There are pros and cons to each option. If you choose monthly payments, your TSP account will remain invested and can continue to grow (or diminish) in value. If you choose to purchase an annuity, you do not have to worry about market volatility. However, interest rates are fairly low currently and the annuity that you can purchase may not provide you with the monthly payment you desire. You can always use part of your TSP account to purchase an annuity and receive the remainder of the account in monthly payments. You should consider these options carefully. Once you purchase an annuity, that decision is irrevocable.

Q&A with John Elliott
Benefits expert
National Institute of Transition Planning:

What is the difference between a monthly payment or a life annuity and why would you want both?

A TSP Life Annuity is a monthly payment for life. The amount is determined by how much you have in your TSP account, your age when the annuity starts, and the interest rate in effect in the month your annuity starts. Choosing an annuity means you lose control of your TSP funds. Your TSP account is sold to MetLife Insurance and they agree to pay you a monthly amount for life.

The monthly payment option from your TSP account is not an annuity. You choose the monthly amount you want to get (you can change the amount once a year) but depending on your withdrawal schedule you could outlive the monthly payments. As your account is drawing down the balance remains invested in whichever funds you choose so, unlike an annuity, you maintain control of your funds.

You could use part of your funds to purchase an annuity and part to receive monthly payments. Most people probably choose one or the other, but some might want the relative security of the annuity combined with the flexibility of monthly payments.

You can learn more about TSP withdrawal options here.

I’m planning to retire in May 2014 with a spousal benefit of $3,600 annually selected. If my current spouse dies and I remarry, can I choose a different spousal benefit, am I locked into the $3,600 or would any future spouse be eligible for any benefit?

If your current spouse dies and you remarry, you have up to two years to decide if you want to provide a survivor annuity for the new spouse. You may choose any amount — you are not locked into the previous election.

Does making a deposit to receive credit for military service count toward the minimum vesting period of five years under the FERS annuity? For example: Would a person retiring at 65 with three years at a federal job under FERS meet the minimum vesting period of five years after making a deposit for two years of military service?

You must have five years of civilian service to meet the vesting requirement.

Is it true that both spouses must be of full retirement age (FRA) under Social Security for the higher-earning spouse to do a “file and suspend” application?

Yes, that is true. Both must be at the FRA.

I have many questions on division of property because of a divorce settlement. What does OPM typically do when they see a divorce settlement document in the application? My ex-spouse supposedly sent it in many years ago (1990) but I did not receive any communication from OPM, as described in the Court Orders booklet, to tell me that the order was acceptable for processing.

Requests for information about a divorce decree should be directed to:

Office of Personnel Management
Office of Retirement Programs
Court Order Benefit Section
P.O. Box 17
Washington, DC 20044-0017

I would think your divorce decree would specify whether payments terminate upon remarriage and what happens in a subsequent divorce. You should consult with your attorney.

Your spouse is responsible for filing the divorce decree with OPM. If an OPM approved court order is not on file no apportionment of your annuity is possible until a court order is on file that meets OPM’s requirements.

If your ex-wife wants to collect a portion of your annuity it is her responsibility to contact OPM.

I’m single and have no dependents. If I retire at age 60 with 8 years in FERS, apart from my Roth IRA and Roth TSP savings, what retirement benefits can I expect?

You’d need at least ten years of service to retire before age 62. You can retire at 62 with five years of service. The FERS calculation is 1 percent for each year of service, prorated monthly, times your high-3 average salary. So ten years and zero months of service would get you 10 percent of your high-3. There is a good annuity calculator here.

How is the “high three” determined? If I received a promotion in June, would my “high three” be reached three years later in June? Or is it on an annual basis?

Your high-3 is based on the three years where you made the most total money, usually your last three years of service. All salaries during your high-3 period are prorated according to the amount of time you earned that salary. If you were promoted in June 2014, you’d have to work until June 2017 to realize the full effect in your high-3. Otherwise the salary from your promotion would be prorated. I would get an annuity estimate(s) from your HR office.

Does the FERS retirement system have a Social Security “supplement” that kicks in if you retire below the minimum SS retirement age up until you reach age 62?

The FERS annuity supplement is payable to those who retire at their minimum retirement age (55-57) with 30 years of service or age 60 with 20 years of service. It ends at age 62.

If my high-three averages approximately $125,000, what would be my retirement monthly salary/ annually salary? How is this calculated?

Depends if you are FERS or CSRS and the amount of your service. If you use the calculator at FedCalc or the one at OPM you’ll find your answer. Or, see your HR office for an annuity estimate.

By the time I retire under CSRS, I will have 41 years and 2 months of service. I will also have more than a year of sick leave. Is the “extra” sick leave applied to my service?

Any unused sick leave will be applied to increase your service.

I’ve heard “typical” CSRS annuity range is $31,000 a year. Is that accurate? What is a “typical” FERS annuity amount?

There is no typical amount for CSRS or FERS. They vary widely depending on years of service and high-3 average salary.

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